Commentary

Fisher Investments Editorial Staff
Commodities

OPEC Plays ‘Let’s Make a Deal’

By, 09/29/2016
Ratings124.291667

After weeks of will-they-or-won’t-they speculation, the 14 OPEC nations released an announcement Wednesday from Algiers, Algeria stating they’d reached an agreement “cutting” oil production. Slightly. Or maybe not even noticeably. Possibly not at all when you consider a broader perspective. But they reached an agreement, and that was better than investors anticipated, resulting in Energy stocks and oil prices leaping higher on the day. Now, if you are someone who’s been paying attention to oversupplied energy markets, you might see this as quite bullish news. But there are a huge number of caveats, asterisks and reasons to doubt the lasting impact of this news. In our view, this isn’t nearly a significant enough development to change our view that Energy prices likely remain weak for the foreseeable future—weighing on Energy firms’ profits and returns.

Since August 8’s announcement of a September OPEC powwow, nary a day has passed without some sort of OPEC meeting-related rumor or article hitting the wires. Recently, the flip-flopping has been intense. On September 18, OPEC head Mohammed Barkindo said no deal would be reached in Algiers. The same day, Venezuelan thug Nicolas Maduro claimed a deal to freeze (not cut) production was at hand. The next day, OPEC was said to delay the meeting by a day, and confirmed it was a meeting to discuss a potential meeting at which they may pare back production.[i] Every morning since, there has been a sort of do-si-do in which certain OPEC members claim a deal is at hand, others reject it and the media throws their collective hands up and wonders what it all means. Meanwhile, Energy stocks floundered—lagging the MSCI World in the last three months by about 5 percentage points.[ii]

All this back and forth after months of similar speculation—that proved fruitless—left the punditry and investors skeptical OPEC would do anything at all. No freeze. No cut. Nothing. But Wednesday, they actually did hold that meeting, and in the resulting press release, they announced a production target range of between 32.5 and 33.0 million barrels per day. That’s down from the 33.2 million barrels per day OPEC is estimated to have pumped in August.[iii] A cut! Of between 200,000 and 700,000 barrels per day. The market reaction, in the incredibly, ridiculously, almost comically short-term of Wednesday afternoon was that Brent crude oil rose 5.9% and the MSCI World Energy sector jumped 3.2% for the day.[iv]

Commentary

Fisher Investments Editorial Staff
The Big Picture, Investor Sentiment

Shares Are Getting More Scarce

By, 09/26/2016
Ratings494.693878

Over seven years into the bull market, as US stocks flirt with all-time highs, fewer companies are going public. As a result, revenue from equity-based investment banking is at a 20-year low. But what’s bad for banks is good news for investors: Net stock supply is falling—and that is bullish.

Through initial public offerings, privately held firms raise capital by creating shares and selling them to the public. But lately, this is happening less often. With borrowing rates at generational lows and venture capital firms and other private equity investors seeing big opportunities in the start-up arena, companies can raise capital easily and cheaply these days without going public. And they’re doing this in droves, leading to fewer IPOs. Also, incentives to go public aren’t what they used to be, adding to the dearth in IPO activity. Investor sentiment isn’t hugely positive and market returns have been tepid, suggesting this might not be the best time for private ownership to sell and reap the biggest bang. Sarbanes-Oxley adds another wrinkle. By imposing a host of requirements on publicly traded firms in an attempt to prevent accounting misdeeds—including holding CEOs criminally liable for any inaccuracies in corporate reporting—privately held firms have less motivation to go public. At least for now, IPOs are more of a vehicle for early investors to cash out than for firms to raise working capital. With so much perceived growth potential for some of the most established, profitable private firms—and with so much liquidity sloshing around for new investments—investors probably see it as worthwhile to hang on and wait for a higher payout down the line.

And the numbers bear this out. According to FactSet, 78 firms have gone public so far this year, with $14.7 billion of new shares coming to market. That’s down from 155 firms over the same period in 2015, which raised $30 billion. In 2014 through September 22, 227 companies tapped the IPO market, increasing overall stock supply by $74.4 billion.[i] Secondary offerings—publicly traded firms selling additional shares—are also down, as firms are sitting on record amounts of cash and raising more capital through the bond market due to ultra-low borrowing rates. This means less revenue for banks that underwrite new stock issuance. This doesn’t mean, though, that investors should shun banks that engage in investment banking. Bond underwriting is booming, as cheap borrowing rates are fueling rising bond issuance. Also, the current landscape for equity underwriting may improve as the bull continues to mature. If so, investment bank stocks will likely anticipate such a shift.  

Commentary

Fisher Investments Editorial Staff
Personal Finance

Lessons on Due Diligence From the Energy Sector

By, 09/23/2016
Ratings204.825

Investors should always know what they’re buying—what drives returns, what it’s correlated with and how can you gauge performance. Seemingly comparable investments may differ dramatically—a complicating factor. This isn’t controversial advice, but now and again it’s good to have a concrete reminder of the dangers of forgoing essential research. The following case studies may help.

The first concerns Master Limited Partnerships (MLPs)—energy infrastructure-focused investment vehicles (think pipelines like this one or that one) that pay out the vast majority of their profits to shareholders. MLPs’ high dividend-like payments, coupled with their perceived safety, helped them gain great popularity during oil’s run-up. We discuss their risks here and here, but this article isn’t about that. Instead, MLPs are here to teach us how investments often diverge from investors’ expectations. Here is a Bloomberg View article about two energy infrastructure (read: MLP-centric) funds with wildly differing performance since 2013.  We’ll call them Fund 1 and Fund 2 for simplicity.[i] Fund 1 is up 9% since September 2013—great! Fund 2 is down 30%. Not as great. What gives? Well, they have wildly different investment objectives and approaches. In addition to some old-fashioned pipelines, Fund 2 also owns a bunch of exciting new Energy services MLPs whose earnings depend more on oil prices than mere transport MLPs. Fund 1’s MLP investments, on the other hand, are your old-school, move-oil-from-here-to-there type. Now, the article notes that newfangled MLP exposure hurt Fund 2’s performance, and to a certain extent it did. But no MLPs—old and boring or newfangled—escaped the downturn. How, then, did Fund 1 do so much better?

Turns out Fund 1 avoided MLPs’ struggles in large part by not owning MLPs—they made up less than half its holdings. Instead, it held boring old utilities, which surged early this year, during the correction’s steep swings.[ii] Fund 1 can also use leverage (which amplifies the effect of price movements) and write covered call options (a way of earning income by selling the right to buy your shares if their value rises to a certain level).[iii] We aren’t opining on which approach is better—Fund 1’s recent advantage could reverse at any time. We merely note the two have differences any investor must take into account. MLP funds—just like other fund categories—aren’t uniform.

Commentary

Fisher Investments Editorial Staff
US Economy

Pomp and Financial Circumstances

By, 09/22/2016
Ratings284.321429

Fall is officially here, folks! This means college-goers around the country are returning to school, and (right on schedule) pundits are worrying about student loan debt. US student loans exceed $1.3 trillion and have doubled since 2009, sparking concerns of a massive, unpayable burden that might shift to taxpayers or keep grads from becoming full-fledged economic contributors. This is a politically potent issue, to be sure. But the data don’t suggest matters are anywhere near so dire overall: Few borrowers are troubled, and the majority will likely earn (and contribute) far more than they would absent an education. Investors needn’t fear a coming wave of impoverished graduates dragging down the economy or pumping up federal debt.

Tuition costs have risen rapidly in recent years, and the federal government is under increasing pressure to step in and relieve indebted students—not just those who attended now-closed private universities like ITT Technical Institutes and Corinthian Colleges, but perhaps all borrowers. Many suggest student debt is just unaffordable and, with 92.5% of student loans ($1.26 trillion) federally issued, the government is already on the hook for most losses—losses the CBO projects will rise 30% over the next decade. The combination of rising defaults and demands for Congress to intervene has many worried that taxpayers could be on the hook for tens, maybe hundreds of billions of dollars.

Congress has reacted to recent cries for loan forgiveness in time-honored Congressional fashion: by drafting several student debtor-friendly bills that are now stalled in committee until next year at least. Said differently, after the election. Who’s to say whether the 2017 Congress will resurrect the measures, or whether the new president will favor (or prioritize) them? Election-year promises and bill drafts frequently aren’t worth the paper they’re written on. In addition, the CBO’s more pessimistic projection of $170 billion in losses over the next 10 years comes out to just over half of federal spending last month. Not to be dismissive, but student loan defaults are very unlikely to lift federal debt or deficits to dangerous levels, even if the CBO’s projection proves true.

Commentary

Fisher Investments Editorial Staff
Emerging Markets

Brazil’s Impending Impeachment Hangover

By, 09/21/2016
Ratings194.026316

Brazil has been a bit of a Dickensian tale in recent years. In the last two years, it’s been mostly the worst of times: The deepest and longest recession in generations; political scandals, including one that resulted in a sitting president’s ouster; high inflation; Ryan Lochte.[i] Given this scenario, one might expect Brazilian stocks to have significantly underperformed the broader MSCI Emerging Markets Index. And for a time, this was true. From mid-September 2014 through late January 2016, the MSCI Brazil underperformed the MSCI Emerging Markets (EM) by more than 30 percentage points.[ii] But, since then, the worst of times has become the best of times for Brazilian stocks, up 87% since January 25 and outperforming EM by a whopping 59 percentage points.[iii] The question, however, is: Is this sustainable? In our view, the answer is no.

Brazil’s economy and stocks were mostly ravaged by the commodity downturn. Brazil’s economy relies heavily on commodity production and exports—particularly iron ore, soybeans and oil. All these have seen very weak prices in recent years, weighing on Brazil’s economy and markets. This is especially true of Energy—EM Energy stocks and the MSCI Brazil’s relative returns have been tightly linked until very recently. The correlation coefficient—a statistical measure of the relationship between two data series ranging from -1 (exact opposites) to 1 (move in lockstep)—was 0.70 for most of the last two years.[iv] As one would assume, when Energy stocks lagged badly due to declining oil prices, Brazil lagged right along with them. However, in January, oil prices touched their low and rallied. Energy stocks—and Brazil—rallied as well.

This is all as one might presume. It’s quite unsurprising that a commodity-heavy country’s relative performance would show heavy influence from one of the world’s primary commodities. However, relative returns sharply diverged starting in early June. During this span, EM Energy stocks (like their developed-world counterparts) floundered rather directionlessly, underperforming broad markets. Brazilian stocks have shot higher. The correlation coefficient flipped from 0.70 to -0.73.[v] What gives?

Commentary

Timothy Schluter
Interest Rates

Bank of Japan Beefs Up Policy With Three More Letters

By, 09/21/2016
Ratings394.512821

The BoJ threw some extra letters at Japan’s stagnant economy Wednesday, tweaking its quantitative easing program after the bank’s “Comprehensive Assessment of Monetary Policy” identified the flattening yield curve, which is crimping banking profitability, as the primary negative resulting from its policy decisions. Officials made no changes to short-term negative interest rates (-0.1%) or planned asset purchases (¥80 trillion in Japanese Government Bonds, aka JGBs; ¥6 trillion in equity ETFs; ¥90 billion in REITs). However, they set a new interest rate target of 0% for 10-year JGB yields—an effort to steepen the yield curve. The BoJ’s standing program is now called “Quantitative and Qualitative Monetary Easing With Yield Curve Control,” or if you prefer, QQEYCC. The media flipped for it, but the YCC addition doesn’t much change the calculus, as even success would ensure the yield curve remains very flat.

The BoJ called for the “Comprehensive Assessment” to examine why monetary policy has failed to stoke economic activity and reach a 2% inflation target, despite Japan’s being four years into one of the largest QE programs ever attempted. The bank also sought to examine both the positive and negative effects of its policy decisions, with intent to tweak future policy to mitigate the negatives.

The BoJ’s chief finding about QE isn’t surprising, though it is noteworthy that this is the first central bank to publicly acknowledge it. As we’ve repeatedly pointed out over the years, any benefits from QE (lower borrowing costs for households and businesses) are overshadowed by the flatter yield curve, which compresses banks’ profit margins and thus discourages lending. Negative interest rates on excess reserves, implemented in Japan in January, aimed to coax lending but instead made the yield curve even flatter, as they fueled demand for higher-yielding, longer-dated assets. This made life even more painful for Japanese Financials, which have complained bitterly about reduced profitability.

Commentary

Fisher Investments Editorial Staff
Taxes

Why You Shouldn’t Overrate the 2016 Election’s Tax Policy Debate

By, 09/20/2016
Ratings604.366667

Will the next president delete the dreaded form? Image from Internal Revenue Service.

This article centers on tax policy, which can evoke emotions from both sides of the political aisle. Please recognize our sole interest here is in assessing how changes in tax policy have historically affected stocks in order to frame expectations for what may happen if taxes are changed after 2016’s election. To read our review of the September 26th presidential debate, please visit: Fisher Investments on the Presidential Debates.

Commentary

Fisher Investments Editorial Staff
Monetary Policy

The Fed Says Lots of Words, Words, Words

By, 09/16/2016
Ratings543.703704

Whatever Fed head Janet Yellen's opinion of short-term interest rates is, hers is only one of many. Photo by Chip Somodevilla/Getty Images.

After a relatively quiet summer, the Fed has returned to the forefront, especially after Republican presidential nominee Donald Trump intimated Fed chair Janet Yellen is playing politics with monetary policy. Most of the chatter, though, centers on the Fed’s meeting next week and the $64,000 question: Will they hike or not? We don’t profess to know the answer, but rather than wade through the myriad analyses out there, we present to you the voting members’ latest public comments about a rate hike, and you can try and decipher yourself which way they’ll go. In our view, the varying opinions highlight how difficult—and ultimately, futile—it is to game how a group of people will interpret data and answer one question. 

Commentary

Fisher Investments Editorial Staff
MarketMinder Minute, Politics

MarketMinder Minute - Presidential Authority Has Limited Power

By, 09/15/2016
Ratings653.569231

This MarketMinder Minute evaluates the limited authority and potential market impact of a newly elected president.

Research Analysis

Scott Botterman
Into Perspective

Fear and Loathing and European Politics

By, 09/15/2016
Ratings243.958333

Political uncertainty is stoking fear across much of the developed world. In the US, pundits pontificate about the potential negative market impact from either a Donald Trump or Hillary Clinton presidency. Similarly, recent and upcoming votes in the eurozone’s four biggest economies—Spain, Italy, France and Germany—have contributed to an environment of fear and loathing across the Continent, causing many to miss the region’s overall fine economic results.  Time and again, forecasted political “disasters” have had a limited impact on the fundamental environment in Europe. The Brexit vote increasingly appears to have had little economic impact, with the most recent data pointing to the 14th consecutive quarter of expansion in Q3. Even long-beleaguered European Financials stocks are doing better, as issues like negative interest rates and regulatory changes have failed to live up to fears. While the upcoming votes might bring minor political shifts, all appear unlikely to result in big, sweeping change. Instead, they likely push governments deeper into gridlock—an underappreciated positive—which reduces uncertainty and legislative risk. 

Spain

Spain is likely headed to its third general election in a year after its fragmented parliament failed to form a government following June’s election. Prime Minister Mariano Rajoy of the center-right Popular Party (PP) was unable to win a confidence vote to form a minority government with upstart, centrist Ciudadanos. If neither Rajoy nor the opposition Socialist Party is able to form a government by Halloween, Spanish voters will return to the voting booth—potentially on Christmas Day.

Commentary

Timothy Schluter
Interest Rates

Bank of Japan Beefs Up Policy With Three More Letters

By, 09/21/2016
Ratings394.512821

The BoJ threw some extra letters at Japan’s stagnant economy Wednesday, tweaking its quantitative easing program after the bank’s “Comprehensive Assessment of Monetary Policy” identified the flattening yield curve, which is crimping banking profitability, as the primary negative resulting from its policy decisions. Officials made no changes to short-term negative interest rates (-0.1%) or planned asset purchases (¥80 trillion in Japanese Government Bonds, aka JGBs; ¥6 trillion in equity ETFs; ¥90 billion in REITs). However, they set a new interest rate target of 0% for 10-year JGB yields—an effort to steepen the yield curve. The BoJ’s standing program is now called “Quantitative and Qualitative Monetary Easing With Yield Curve Control,” or if you prefer, QQEYCC. The media flipped for it, but the YCC addition doesn’t much change the calculus, as even success would ensure the yield curve remains very flat.

The BoJ called for the “Comprehensive Assessment” to examine why monetary policy has failed to stoke economic activity and reach a 2% inflation target, despite Japan’s being four years into one of the largest QE programs ever attempted. The bank also sought to examine both the positive and negative effects of its policy decisions, with intent to tweak future policy to mitigate the negatives.

The BoJ’s chief finding about QE isn’t surprising, though it is noteworthy that this is the first central bank to publicly acknowledge it. As we’ve repeatedly pointed out over the years, any benefits from QE (lower borrowing costs for households and businesses) are overshadowed by the flatter yield curve, which compresses banks’ profit margins and thus discourages lending. Negative interest rates on excess reserves, implemented in Japan in January, aimed to coax lending but instead made the yield curve even flatter, as they fueled demand for higher-yielding, longer-dated assets. This made life even more painful for Japanese Financials, which have complained bitterly about reduced profitability.

Commentary

Fisher Investments Editorial Staff
Taxes

Why You Shouldn’t Overrate the 2016 Election’s Tax Policy Debate

By, 09/20/2016
Ratings604.366667

Will the next president delete the dreaded form? Image from Internal Revenue Service.

This article centers on tax policy, which can evoke emotions from both sides of the political aisle. Please recognize our sole interest here is in assessing how changes in tax policy have historically affected stocks in order to frame expectations for what may happen if taxes are changed after 2016’s election. To read our review of the September 26th presidential debate, please visit: Fisher Investments on the Presidential Debates.

Commentary

Fisher Investments Editorial Staff
Monetary Policy

The Fed Says Lots of Words, Words, Words

By, 09/16/2016
Ratings543.703704

Whatever Fed head Janet Yellen's opinion of short-term interest rates is, hers is only one of many. Photo by Chip Somodevilla/Getty Images.

After a relatively quiet summer, the Fed has returned to the forefront, especially after Republican presidential nominee Donald Trump intimated Fed chair Janet Yellen is playing politics with monetary policy. Most of the chatter, though, centers on the Fed’s meeting next week and the $64,000 question: Will they hike or not? We don’t profess to know the answer, but rather than wade through the myriad analyses out there, we present to you the voting members’ latest public comments about a rate hike, and you can try and decipher yourself which way they’ll go. In our view, the varying opinions highlight how difficult—and ultimately, futile—it is to game how a group of people will interpret data and answer one question. 

Commentary

Fisher Investments Editorial Staff
MarketMinder Minute, Politics

MarketMinder Minute - Presidential Authority Has Limited Power

By, 09/15/2016
Ratings653.569231

This MarketMinder Minute evaluates the limited authority and potential market impact of a newly elected president.

Commentary

Fisher Investments Editorial Staff
Developed Markets

Fiscal Stimu-less?

By, 09/14/2016
Ratings683.455882

Quick—what’s the best way to perk up a slack economy? Since 2008, “vigorous and creative monetary policy!” was the popular response, and central bankers heeded the cry. The results: Rock-bottom (even negative) interest rates in the world’s largest economies. Quantitative easing in the eurozone, UK, US (now over), Sweden and Japan, where the central bank is buying virtually anything under the sun. Yet growth rates mostly lag past expansions. So now, there is a new fashionable response to the opening question: Monetary stimulus is no longer effective, and fiscal stimulus needs an at bat. Even central bankers seem to agree! In our view, however, this “new consensus” misses a few key points. Fiscal stimulus is handy during an actual recession, but it isn’t a sustainable growth-boosting tool, and overall and on average, the world economy doesn’t need it now. Investors shouldn’t fall into the trap of thinking government aid today is necessary to keep this expansion—and bull market—humming.

First, to be clear, we aren’t ideologically opposed to fiscal stimulus. Fast-acting tax rebates and new spending can jumpstart demand during a recession by putting new money into the economy when banks aren’t lending and businesses are retrenching. Consumers and businesses get a small boost, a temporary jolt to speed the recovery. The private sector eventually has to do the heavy lifting to get the new expansion going for real, but stimulus can be a nice salve in the meantime.

Likewise, a sharp pullback in spending or an onslaught of taxes in anemic times adds to economic pain. Tax hikes and spending cuts likely worsened the eurozone crisis in 2012, for example, by sucking resources out of the economy.[i] Waiting for data to confirm a recession before ramping up stimulus isn’t necessarily required either—acute problems in industries that represent a huge swath of the economy can also be valid reasons to prime the pump a bit. Australia's government is responding to declining commodity prices via aggressive fiscal stimulus, even though the country hasn’t experienced a recession in a quarter-century. While not crucial, the move is arguably a reasonable response to genuine headwinds, as natural resources play a heavy role in the Land of Oz. One could make a similar case for Russia, Brazil or Canada.

Commentary

Fisher Investments Editorial Staff
Personal Finance, The Advisor's Corner

Money Market Reforms, Libor and You

By, 09/13/2016
Ratings363.847222

Money market funds typically get little coverage in the financial press because, except under extreme circumstances, they don’t rise or fall in value. Boring! But that’s about to change, as new rules will soon require institutional prime money market funds to report their real-time market value and hold more liquid assets. Many worry this will dry up short-term funding markets, as money market funds are one of the primary investors in commercial paper. Sure enough, Libor rates have risen lately, driving fears of "stealth tightening" in credit markets. While the nervousness is understandable, it’s unlikely major turmoil lies ahead.

The London Interbank Offered Rate, better known as Libor, is the average rate banks pay to borrow from each other over short time periods. It is also the reference rate for many bank loans—hence why people are worried about the apparent spike. The volatility is quite simple to trace to the money market fund reforms, which take effect on October 14. Money market funds have long invested in commercial paper for its yield (which exceeds T-bills), offering investors a way to hold “cash” with a higher return than a plain old bank deposit. But the looming rule changes will require prime institutional money market funds to have floating net asset values instead of being fixed at $1 / share—regulators’ attempt to prevent a repeat of the panic that ensued when one huge money market fund “broke the buck” in 2008, triggering a run on money market funds.[i] The rules also impose liquidity requirements and tighter restrictions on portfolio holdings, and many fund providers have decided to switch from prime funds to funds that invest primarily in government debt, which regulators treat with more leniency. As a result, banks and other firms that issue commercial paper have had to raise rates a tad to attract buyers.

Yet there is a large gap between incrementally higher funding costs due to a structural change in the marketplace and an actual, acute funding squeeze. For one thing, despite the clamor, Libor remains low by historical standards. (Exhibit 1)

Research Analysis

Chase Arneson
Into Perspective

Prescription Drug Price Politics and Pharmaceuticals/Biotech Stocks

By, 09/25/2015
Ratings774.220779

Editors’ Note: Our discussion of politics is focused purely on potential market impact and is designed to be nonpartisan. Stocks don’t favor any party, and partisan ideology invites bias—dangerous in investing.

Are drug prices running rampant? After The New York Times reported on Sunday that a small private Pharmaceuticals firm, Turing Pharmaceuticals, jacked up the price of a 62-year-old drug by 5,000-ish percent, that question has sparked a media firestorm.[i] Monday, partly in reaction to the news, Democratic Presidential front-runner Hillary Clinton fueled further debate by vowing to “deal with skyrocketing out-of-pocket health costs and particularly, runaway prescription drug prices.” All week, media articles aplenty have focused on the issue and wondered whether Federal price controls are necessary to put a lid on the rise. But whatever your opinion of the sociological merits of this plan or drug prices, price controls in general have a long history of causing more harmful unintended consequences—including dinging stock prices—than any positive they may bring. That being said, pharmaceutical price controls seem unlikely to come to fruition any time soon.

For those interested in the details of Mrs. Clinton’s plan, here are the major proposals:

Research Analysis

Pete Michel
Into Perspective

Why Bond Market Liquidity Fears Don’t Hold Much Water

By, 09/22/2015
Ratings933.956989

Market liquidity is usually a pretty banal subject, garnering little attention. But in the last year,  it has gone from being a dry afterthought to being the subject of frequent articles claiming it’s a major concern, particularly in the bond markets. So much so, that Bloomberg’s Matt Levine had a running section of his daily link wrap titled, “People Are Worried About Bond Market Liquidity” for months and rarely ran low on articles to share. It is now bigger news when there aren’t “People Worried About Bond Market Liquidity!” So what is market liquidity, and are the recent fears justified—or overblown?

Market liquidity refers to how easily an asset can be bought or sold without dramatically impacting the price or incurring large costs. It’s a defining feature separating asset classes, a key consideration for investors. Some financial assets, like listed stocks, are easy to buy or sell with little price impact and small commissions—they’re “liquid.” Conversely, commercial real estate takes time to sell and likely includes high commissions and significant negotiations—it is “illiquid.” For most investors, particularly those with potential cash flow needs, liquidity is an important facet of any investment strategy.

Bonds are among the more liquid investments available for investors, though liquidity varies among different types. Treasurys, among the deepest markets in the world, are highly liquid. Corporates and municipals are less so, and some fancier debt is actually quite illiquid.

Research Analysis

Scott Botterman
Into Perspective

Greek Contagion Risk Is Minimal

By, 08/11/2015
Ratings274.703704

Flags fly in front of the Parthenon in Athens. Photo by Bloomberg/Getty Images.

After five years of Greek crisis, two defaults and going-on three bailouts, many still fear a contagion across the eurozone. While default and “Grexit” risk persist, the risk of a contagion has fallen significantly over the last few years. The eurozone economy is improving, foreign banks hold less Greek debt, bank deposits aren’t fleeing other peripheral nations, and euroskeptic parties poll well behind traditional parties across the eurozone.  Greece’s problems are contained and shouldn’t put the broader eurozone at risk.

Research Analysis

Fisher Investments Editorial Staff
Reality Check

Quick Hit: ‘Corporate Profits Recession’ and Stocks—There Is No ‘There!’ There

By, 03/27/2015
Ratings364.069445

In Friday’s third revision to Q4 US GDP growth, one thing that seemed to catch a few eyeballs was a drop in US Corporate Profits[i], which some hyperbolically labeled “the worst news.” Others claim a “profit recession”—whatever that means—looms. But here is the thing: A down quarter for corporate profits is not unusual amid a bull market. Here are two charts to illustrate the point. The first shows the Bureau of Economic Analysis’ measure of corporate profits excluding depreciation. The second includes depreciation. The gray bars indicate bear markets and the blue dots denote a negative quarter of profits in a bull market. As you can see, such dips aren’t exactly rare and occur at random points throughout a bull market and expansion.   

Exhibit 1: US Corporate Profits After Tax Without Inventory Valuation and Capital Cost Adjustment

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What We're Reading

By , Medium, 09/29/2016

MarketMinder's View: Here is a brief explanation running through a list of what-ifs surrounding Deutsche Bank’s recent sell off that illustrate why this isn’t at all likely to cause a 2008 redux. It’s a tad pointed, we’ll grant that. But it is still a valuable counterpoint to the widespread misunderstandings about what is afoot in the eurozone banking system. To this, we’d add: Fears of Deutsche Bank’s health have swirled for years and years, occasionally spiking like the present. We wonder why so many seem convinced this is a catastrophe looming now?

By , The Wall Street Journal, 09/29/2016

MarketMinder's View: Shortly after we published today’s commentary (“OPEC Plays ‘Let’s Make a Deal’”), we noticed articles like this, correctly noting the rifts between OPEC members and how this could impact the viability of the deal. “A day after OPEC reached a deal to cut oil its production, cracks are showing in the accord’s foundations. Cartel member Nigeria is planning to boost, not cut, output. Libya is in the middle of reviving its exports. And a resurgent Iraq is disputing the output numbers underpinning the agreement.” All in all, it seems vastly premature to assume we’ll see a material production decline unless someone is really willing to bend when OPEC meets again in November. We wouldn’t recommend holding your breath or overweighting Energy stocks.

By , MarketWatch, 09/29/2016

MarketMinder's View: We’ve said since the initial report that Q2 2016 GDP was stronger than headline numbers suggested, partially because the oil industry was a severe outlier dragging down business investment. This latest revision, as the sensible coverage in this article explains, makes that point crystal clear. “The upgrade in GDP — basically a score card for the nation’s economy — largely reflected higher investment by companies than earlier government estimates showed. Investment excluding housing actually rose 1% instead of dropping 0.9%. Even that number is worse than it looks, revised figures show. A 57% plunge in spending by energy companies coping with cheap oil was the main culprit in weak business investment. If mining and drilling are excluded, investment rose a healthy 10% in the second quarter.” Now, it’s all backward-looking and old data, but just keep this in mind when you next hear how the US economy is teetering on the brink of recession because of “slow growth.”

By , MarketWatch, 09/29/2016

MarketMinder's View: Whoa, Nelly. A whole lot of problems with this analysis. It’s fine to compare Technology’s S&P 500 sector weight today to years past, but it’s a mistake to think the average since 1990 has some sort of gravitational pull, drawing Tech’s weight back to it. Mean reversion just isn’t a market driver. Even so, consider: Tech’s weight in the 2000 bubble was almost 35%, or almost 15 percentage points above today’s levels. Is today’s 21% weight really so frothy? After all, the average weight of 15.2% since 1990 cited here is going to result from higher and lower weights over time. As for Google searches of “stock market bubble,” the statement is self-debunking. Rising searches for bubbles mean folks aren’t euphorically buying anything and everything, regardless of quality. If there were actually a bubble, you should expect such searches to vanish, not rise. Bubbles are usually characterized by a slew of low-quality IPOs hitting the market and surging sentiment overall, and they are usually fueled by folks looking back on hugely positive recent past returns and celebrating. We have none of that today, and that suggests skepticism remains. This bull market is far from sitting atop the Wall of Worry today.

Global Market Update

Market Wrap-Up, Thursday, September 29, 2016

Below is a market summary as of market close Thursday, September 29, 2016:

  • Global Equities: MSCI World (-0.3%)
  • US Equities: S&P 500 (-0.9%)
  • UK Equities: MSCI UK (+1.0%)
  • Best Country: Norway (+3.1%)
  • Worst Country: Japan (-0.0%)
  • Best Sector: Energy (+1.7%)
  • Worst Sector: Health Care (-1.6%)

Bond Yields: 10-year US Treasury yields fell -0.02 percentage point to 1.55%.

 

Editors' Note: Tracking Stock and Bond Indexes

 

Source: Factset. Unless otherwise specified, all country returns are based on the MSCI index in US dollars for the country or region and include net dividends. S&P 500 returns are presented including gross dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.