Commentary

Fisher Investments Editorial Staff
Inflation

Deflation Fears Are Over-Inflated

By, 03/30/2015

Recently, the Bank for International Settlements (BIS) released a study spanning 140 years and 38 countries aiming to assess the economic impact of deflation. Their findings? The widely feared deflationary spiral is actually very rarely seen. Here is their more technical lingo:

Concerns about deflation - falling prices of goods and services - have loomed large in recent policy discussions. The debate is shaped by the deep-seated view that deflation, regardless of context, is an economic pathology that stands in the way of any sustainable and strong expansion.

The almost reflexive association of deflation with economic weakness is easily explained. It is rooted in the view that deflation signals an aggregate demand shortfall, which simultaneously pushes down prices, incomes and output. But deflation may also result from increased supply. Examples include improvements in productivity, greater competition in the goods market, or cheaper and more abundant inputs, such as labour or intermediate goods like oil. Supply-driven deflations depress prices while raising incomes and output. 

Research Analysis

Fisher Investments Editorial Staff
Reality Check

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

By, 03/27/2015

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

Commentary

Fisher Investments Editorial Staff
GDP, Media Hype/Myths

Pundits Already Lowering Expectations Bar for Q1

By, 03/27/2015
Ratings203.825

US Q4 2014 GDP was revised for a third time Friday, with headline growth remaining unchanged at 2.2% (seasonally adjusted annual rate). Consumer spending was revised up a tad, to 4.4% from 4.2%, but this was basically offset by a slight downward revision in business investment (from 4.8% to 4.7%). If you care to read through all the gory details of the revision, click here. But we are betting that if you are like most media types, you won't click because this revision is the economic equivalent of a yawn.[i] To the extent analysts are discussing Q4 2014’s revision, most focus on a drop in the Bureau of Economic Analysis’ broad measure of corporate profits and project this forward. That forward part is the key—most analysts seem to have already turned the page and are talking down growth in Q1 2015. These lowered expectations are being reported as a threat, but this is overwrought—in our view, lower expectations set up positive surprises, the sort that drive bull markets.

Here are some takes on Q1. The first sentence of The Wall Street Journal’s coverage, for example, is this: “The U.S. economy slowed in the final months of 2014 and corporate profits fell, putting the growth trajectory on a lower path ahead of an apparent slowdown early this year.”[ii] (Boldface is ours, they didn’t do that.) Bloomberg noted, “The rate of economic growth will prove hard to replicate this quarter as harsh winter weather, a stronger dollar, a port slowdown and a global oil glut translate into disappointing spending on the part of consumers and businesses.” Some cite obscure gauges like the Atlanta Fed’s GDP “Nowcast,” a compilation of various monthly data points that attempts to presage what the next quarter’s GDP report will be, and that is asserting growth will be a paltry 0.2% in Q1. (The Atlanta Fed notes this gauge is an average of just over 1.2 percentage points wide of the mark at this point in a quarter.)

Let’s presume these forecasts hold and GDP slows in Q1. What’s that mean for stocks? The answer: Very little. You see, two of the main factors that have weighed on some data releases thus far in 2015 were a West Coast Port labor dispute and a really snowy, cold winter in America’s Northeast. The former likely created a backlog of goods piling up in Portland, LA, Seattle/Tacoma and other major import/export terminals, but it is over, with a new five-year deal inked in February. This likely pushes some economic activity to Q2, but it doesn’t eliminate it. The winter is also over, except maybe in Boston, where The Weather Channel is projecting roughly another inch of fluffy white stuff on Saturday.[iii] It is unlikely cold weather skews data come June, but hey, you never know.

Commentary

Fisher Investments Editorial Staff
Behavioral Finance

Funds Behaving Badly

By, 03/26/2015
Ratings234.130435

Revolutionary technology! Hot-shot startups! Super-high yield! Funds offering exposure to these goodies are making the rounds, all trying to tempt investors with visions of smokin’ returns and the Next Big Thing. Exciting? A word of caution—this all smacks of heat-chasing, one of the biggest pitfalls investors face as bull markets age and human nature makes us greedy. Flashy tactics might seem splashy, but in our experience, gimmicks and sound long-term strategies don’t mix. This is a time to stay grounded and focused on your long-term goals.   

Consider the gimmicks in question, and you’ll see a theme. One glitzy new ETF will track companies that develop, use and invest in “disruptive” technologies like robotics, 3-D printing, nanotechnology and bioinformatics (analyzing body chemistry and genetics)—all on the theory that exposure to “technology of the future” is the ticket to sky-high returns. That’s a popular view these days, but it betrays a fundamental behavioral error: viewing investing as a get-rich-quick trick. There actually isn’t much evidence “disruptive technologies” offer superior returns over time. In short bursts? Sure. But a lot of it ends up being a flash in the pan (see: Bubble, Dot-com). Plus, a strategy that banks on this will likely be over-concentrated in Tech and Health Care. The fund in question has about 60% in those two sectors alone. Great if they surge, but there is a giant opportunity cost—and risk of loss—if they don’t.

Elsewhere some mutual funds are taking a different approach to chasing the Next Big Thing: buying shares in private tech startups, banking on a big IPO payout. Think of it as the mutual fund equivalent of investors searching high and low[i] for “the next Dell” in the late 1990s—more swinging-for-the-fences, get-rich-quick thinking. Now, on the one hand, these are traditional mutual funds and generally more diversified than the pure disruptive technology-chasers. On the other, they’re tying up pretty significant sums in illiquid investments that may or may not pay out one day. That’s an odd mismatch with mutual funds’ traditional purpose of offering instant, highly liquid diversification. It’s also an odd mismatch with the goals of most folks who own mutual funds in their retirement accounts. Most people simply do not need to double down on some speculative startup. But it’s a powerful marketing gimmick[ii], and many investors might not consider the tricky details and potential drawbacks here.[iii]

Commentary

Fisher Investments Editorial Staff
Inflation

Misinflation

By, 03/25/2015

Is inflation about to start inflating again? You might get that impression from recent headlines announcing inflation may have turned a sharp corner and is headed for greater heights. The evidence? US and eurozone prices rose in February. In our view, though, everyone is being a tad hasty—a deeper look at the data shows February’s figures are likely a blip rather than the start of a new trend. 

In the US, the Consumer Price Index ticked up from January’s -0.1% y/y to 0.0%[i], as prices rose 0.2% m/m, the first monthly rise since last October. The eurozone’s annual inflation rate decline slowed from January’s -0.6% to -0.3%, with prices increasing 0.6% m/m. The UK, however, didn’t follow suit—while prices rose 0.5% m/m in February, its annual inflation still dropped from January’s 0.3% to 0% due to falling food and energy prices. Pundits cheered overall, welcoming higher prices in the US and Europe and the prospect of “good” deflation in Britain. Some suggested the US report “could give the Fed confidence inflation is slowly heading toward its 2% target.” In euroland, many breathed easier, saying fears of prolonged deflation were “eased.” In Britain, some welcomed the lowest inflation rate on record by pondering a new term for falling prices during a growing economy.[ii]

Far be it from us to pooh-pooh optimism, but in our view, this all misses the elephant in the room. February’s m/m CPI upticks result from a short-lived jump in oil prices—the same oil prices that drove deflation in prior months. From June 2014 through January 2015, Brent Crude oil prices fell from $111.03 to $47.52.[iii] That pulled down headline monthly CPI from September through January. But in February, Brent prices rose a bit reaching $61.89 by month’s end.[iv] So, they naturally boosted February CPI. But they will probably detract from March CPI, considering crude is down 11.4%[v] this month (through 3/23/2015). WTI Crude, the US benchmark, moved similarly.

Commentary

Fisher Investments Editorial Staff
Politics

One Fish, Two Fish, Red Fish, Blue Fish

By, 03/24/2015
Ratings313.951613

We did not hear Ted Cruz’s speech, but we are told it didn’t rhyme. Photo by Mark Wilson/Getty Images.

Editors’ Note: Our discussion of politics and elections is purely focused on potential market impact. Stocks favor neither party. Believing in the market/economic superiority of one group of politicians over another can invite bias—a source of significant investment errors.

Commentary

Elisabeth Dellinger
Reality Check

Friday Treat: Why 2015 Won’t Repeat the S&P 500’s Worst Year Ever

By, 03/20/2015
Ratings524.548077

According to one investment research group, of all the years on record, 2015’s stock returns look most like 1931—the S&P 500’s worst year ever, and there are two things you need to know about this. One, this predicts nothing, and two, 2015 does not resemble 1931.

To make the comparison, the researchers compared the S&P 500 price index’s year-to-date return through March 18 with equivalent periods at the beginning of every year on record, then ranked them according to their correlation coefficient. That is statspeak for how closely one year’s directionality resembles another. 1931’s first 54 trading days had the highest correlation, 0.8%—very close to 1, which would represent perfect correlation. The next closest was 1945 at 0.76, then 1996 at 0.7.

This is a fun study, because history and patterns are fun! But fun is all it is. Around the MarketMinder braintrust, we have a slogan: “No correlation without causation!” But even if you don’t buy that and instead believe patterns are predictable, there actually isn’t much of a pattern here. Yes, there is mathematical correlation! But here is what that supposedly strong relationship actually looks like.

Commentary

Fisher Investments Editorial Staff
Politics, The Big Picture

Political Tool Returns After One Year Vacation: Debt Ceiling

By, 03/20/2015
Ratings214.452381

The debt ceiling returned Monday, along with warnings the US will default unless Congress raises it before the Treasury’s spare cash runs out. It’s a foregone conclusion Congress will comply at some point, as they have 109 times since its 1917 inception. But how they do it is anyone’s guess. Maybe they’ll do it with little debate and no fanfare, like 2012! Or maybe they’ll have a knockdown drag-out, a la 2011 or 2013 (or 1985—debt ceiling fights aren’t new). Congress isn’t split this time, but they could still have a standoff with the White House, and intra-party bickering is always possible. If it does get noisy, fear not: These debates are political grandstanding, nothing more, and delayed action won’t trigger default.

Today, the debt ceiling is an annoyance, but it wasn’t intended to be. Initially, it was a convenience, designed to spare Congress the drudgery of approving each bond issue needed to fund World War I operations. In the intervening decades, it has become a political tool: a lever for parties to extract concessions from the opposition or to manage their own appearance to voters.

After 2011’s debt ceiling fight drove credit rater Standard and Poor’s to strip America’s AAA credit rating, Congress passed the Budget Control Act, which allowed for three debt limit increases at Presidential request. Congress would have to pass bicameral acts disallowing the second two increases, which didn’t happen. We guess they (temporarily) tired of the theatrics, because in early 2013 the debt limit was unceremoniously suspended until May, when brinksmanship began anew—continuing through October’s big debate and semi-related government shutdown. Last February, another quiet suspension followed, then another. This last suspension is the one that expired March 14. That’s how we got where we are—with debt at the new limit and nary a “raise it” bill close to a vote. What gives?

Commentary

Fisher Investments Editorial Staff
Monetary Policy, Media Hype/Myths

Pundits Forecast Fed, Prove Forecasting Fed Is Folly

By, 03/20/2015
Ratings254.34

Ever since the Fed began “tapering” quantitative easing, fears have morphed from misplaced terror over the taper to a similarly false fear over the fed-funds rate. So we guess it wasn’t surprising Thursday’s headlines remained fixated on the Fed’s word choices and editorial decisions, with speculation running rampant about what the deletion of “patient” and some dots meant regarding the timing of a rate hike.

(For our coverage of Wednesday’s decision, please click here.)

But as we’ve written time and again, trying to divine when a hike may come is unnecessary and impossible. Yesterday’s flip-floppy Fed illustrated that once this week. And the headlines in its wake put an exclamation point on it. (!)

Commentary

Fisher Investments Editorial Staff
Politics, Across the Atlantic

UK Politicians Want Some Votes

By, 03/19/2015

Chancellor of the Exchequer George Osborne showcases the famous red briefcase before delivering this Parliament’s final budget to the House of Commons. Source: Getty Images/Bloomberg.

A guy walked out of an old London townhouse holding a red briefcase Wednesday, and with that photo-op, the UK election campaign was off and running.[i] Yes, it’s Britain’s Budget spectacle, where the government toots its own horn, the opposition blasts them, leaders announce sweeteners, and opposition leaders argue those sweeteners are bitter pills. It’s an annual rite, and that rite is even noisier this election year, as both major parties used the Budget to launch their economic campaigns. Now come 40-something days of debating, one-upping and bargaining—and all the accompanying noise. While it’s too early to handicap the winners, the likeliest outcome is more gridlock—bullish for UK stocks.

Commentary

Elisabeth Dellinger
Reality Check

Friday Treat: Why 2015 Won’t Repeat the S&P 500’s Worst Year Ever

By, 03/20/2015
Ratings524.548077

According to one investment research group, of all the years on record, 2015’s stock returns look most like 1931—the S&P 500’s worst year ever, and there are two things you need to know about this. One, this predicts nothing, and two, 2015 does not resemble 1931.

To make the comparison, the researchers compared the S&P 500 price index’s year-to-date return through March 18 with equivalent periods at the beginning of every year on record, then ranked them according to their correlation coefficient. That is statspeak for how closely one year’s directionality resembles another. 1931’s first 54 trading days had the highest correlation, 0.8%—very close to 1, which would represent perfect correlation. The next closest was 1945 at 0.76, then 1996 at 0.7.

This is a fun study, because history and patterns are fun! But fun is all it is. Around the MarketMinder braintrust, we have a slogan: “No correlation without causation!” But even if you don’t buy that and instead believe patterns are predictable, there actually isn’t much of a pattern here. Yes, there is mathematical correlation! But here is what that supposedly strong relationship actually looks like.

Commentary

Fisher Investments Editorial Staff
Politics, The Big Picture

Political Tool Returns After One Year Vacation: Debt Ceiling

By, 03/20/2015
Ratings214.452381

The debt ceiling returned Monday, along with warnings the US will default unless Congress raises it before the Treasury’s spare cash runs out. It’s a foregone conclusion Congress will comply at some point, as they have 109 times since its 1917 inception. But how they do it is anyone’s guess. Maybe they’ll do it with little debate and no fanfare, like 2012! Or maybe they’ll have a knockdown drag-out, a la 2011 or 2013 (or 1985—debt ceiling fights aren’t new). Congress isn’t split this time, but they could still have a standoff with the White House, and intra-party bickering is always possible. If it does get noisy, fear not: These debates are political grandstanding, nothing more, and delayed action won’t trigger default.

Today, the debt ceiling is an annoyance, but it wasn’t intended to be. Initially, it was a convenience, designed to spare Congress the drudgery of approving each bond issue needed to fund World War I operations. In the intervening decades, it has become a political tool: a lever for parties to extract concessions from the opposition or to manage their own appearance to voters.

After 2011’s debt ceiling fight drove credit rater Standard and Poor’s to strip America’s AAA credit rating, Congress passed the Budget Control Act, which allowed for three debt limit increases at Presidential request. Congress would have to pass bicameral acts disallowing the second two increases, which didn’t happen. We guess they (temporarily) tired of the theatrics, because in early 2013 the debt limit was unceremoniously suspended until May, when brinksmanship began anew—continuing through October’s big debate and semi-related government shutdown. Last February, another quiet suspension followed, then another. This last suspension is the one that expired March 14. That’s how we got where we are—with debt at the new limit and nary a “raise it” bill close to a vote. What gives?

Commentary

Fisher Investments Editorial Staff
Monetary Policy, Media Hype/Myths

Pundits Forecast Fed, Prove Forecasting Fed Is Folly

By, 03/20/2015
Ratings254.34

Ever since the Fed began “tapering” quantitative easing, fears have morphed from misplaced terror over the taper to a similarly false fear over the fed-funds rate. So we guess it wasn’t surprising Thursday’s headlines remained fixated on the Fed’s word choices and editorial decisions, with speculation running rampant about what the deletion of “patient” and some dots meant regarding the timing of a rate hike.

(For our coverage of Wednesday’s decision, please click here.)

But as we’ve written time and again, trying to divine when a hike may come is unnecessary and impossible. Yesterday’s flip-floppy Fed illustrated that once this week. And the headlines in its wake put an exclamation point on it. (!)

Commentary

Fisher Investments Editorial Staff
Politics, Across the Atlantic

UK Politicians Want Some Votes

By, 03/19/2015

Chancellor of the Exchequer George Osborne showcases the famous red briefcase before delivering this Parliament’s final budget to the House of Commons. Source: Getty Images/Bloomberg.

A guy walked out of an old London townhouse holding a red briefcase Wednesday, and with that photo-op, the UK election campaign was off and running.[i] Yes, it’s Britain’s Budget spectacle, where the government toots its own horn, the opposition blasts them, leaders announce sweeteners, and opposition leaders argue those sweeteners are bitter pills. It’s an annual rite, and that rite is even noisier this election year, as both major parties used the Budget to launch their economic campaigns. Now come 40-something days of debating, one-upping and bargaining—and all the accompanying noise. While it’s too early to handicap the winners, the likeliest outcome is more gridlock—bullish for UK stocks.

Commentary

Elisabeth Dellinger
Media Hype/Myths, Into Perspective

Unfunded Liabilities, the Lockbox, and Other Social Security Myths

By, 03/19/2015
Ratings714.302817

Social Security trust funds do not live in this or any other lockbox. Photo by Joe Corrigan/Getty Images.

Social Security: It’s the third rail of American politics. Its trustees warn it will be insolvent by 2033. Third-party studies warn the day of reckoning could come nearly a decade earlier. Pundits warn its $70 to $120 trillion in “unfunded liabilities” will bankrupt America.[i] Congress recently held hearings on how to fix it. One Senator just tabled a bill to patch it with a high-income tax hike and expand benefits to battle what pundits call a “retirement crisis.” Two Connecticut Congressmen submitted legislation to hike Social Security taxes across the board. However, if you take a closer look at the solvency projections in question and how Social Security works, it becomes clear this is a manufactured crisis. Rumors of Social Security’s impending demise have been greatly exaggerated.

Commentary

Michael Hanson
Into Perspective, Media Hype/Myths

Book Review: The Shifts and the Shocks Obsesses Over Equilibrium

By, 03/19/2015
Ratings284.482143

The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—From the Financial Crisis -- Martin Wolf

In the world of ideas, metaphors rule—a continually underestimated fact. In economics, the metaphor of equilibrium has prevailed for over a century. It's perhaps the most antiquated and dangerous of myths, but it's seared into the brains of virtually every economist in the world. Understanding this can help investors see through the euphemistic arguments for and against post-crisis financial regulations—and come to terms with the fact that crisis-proof economies are a fantasy.

The idea that there is a point where supply meets demand is fine enough—we call that a price. But equilibrium is a biological and physical metaphor—it denotes a kind of balance to be sought everywhere. That prices want to reach a "balance" point, a homeostasis as it were. That's the myth—there is no such thing as a "balance" I can find in any economic system. Prices never, ever, find a resting point—they roil, turn, churn, react and adapt at every second of every day to new information, new opinions, new developments. Markets are a flow, not an equilibrium.

Research Analysis

Akash Patel
Into Perspective

Heating Up—A Look at UK Housing

By, 11/27/2013
Ratings124.041667

Is the UK housing market overheating, or is it merely the latest example of froth fears that are detached from reality?

Recent home price data and the UK’s Help to Buy scheme’s early expansion already have some UK politicians and business leaders wondering—some going as far as calling for the Bank of England to cap rising home prices. Taking a deeper look, however, I see a different story: Rapid housing price gains have been concentrated in London. Restricting overall UK housing with more legislation likely won’t fix that, and it probably won’t help spread London’s gains to UK housing elsewhere. More importantly, the fact UK housing gains aren’t widespread tells me a nationwide bubble neither exists nor is particularly probable—even with an expanded Help to Buy program.

While UK housing started slowly improving after Help to Buy began in April, the program has only been lightly used in the early going—suggesting the housing recovery is coming from strengthening underlying fundamentals and isn’t purely scheme-driven. In Help to Buy’s first phase, the government promised to lend up to 20% of a home’s value at rock bottom rates (interest free for five years, 1.75% interest after) to buyers with a 5% down payment—providing up to £3.5 billion in total loans. Only first-home buyers (of any income strata) seeking newly built houses valued at £600k or less could participate. The Treasury began a second (earlier-than-expected) iteration in October, in which it guarantees 20% of the total loan to lenders, instead of lending directly to the buyer. The program was also expanded another £12 billion for buyers purchasing any home (new or not).

Research Analysis

Fisher Investments Research Staff

MLPs and Your Portfolio

By, 11/26/2013
Ratings833.885542

With interest rates on everything from savings accounts to junk bonds at or near generational lows, many income-seeking investors are looking for creative or, to some, exotic means of generating cash flow. Some are turning to a relatively little-known type of security—master limited partnerships (MLPs). MLPs may attract investors for a number of reasons: their high dividend yields and tax incentives, to name a couple. But, like all investments, MLPs have pros and cons, which are crucial to understand if you’re considering investing in them.

MLPs were created in the 1980s by a Congress hoping to generate more interest in energy infrastructure investment. The aim was to create a security with limited partnership-like tax benefits, but publicly traded—bringing more liquidity and fewer restrictions and thus, ideally, more investors. Currently, only select types of companies are allowed to form MLPs—primarily in energy transportation (e.g., oil pipelines and similar energy infrastructure).

To mitigate their tax liability, MLPs distribute 90% of their profits to their investors—or unit holders—through periodic income distributions, much like dividend payments. And, because there is no initial loss of capital to taxes, MLPs can offer relatively high yields, usually around 6-7%. Unit holders receive a tax benefit, too: Much of the dividend payment is treated as a return of capital—how much is determined by the distributable cash flow (DCF) from the MLP’s underlying venture (e.g., the oil pipeline).

Research Analysis

Elisabeth Dellinger
Reality Check

Inside Indian Taper Terror

By, 11/08/2013
Ratings174.294117

When the Fed kept quantitative easing (QE) in place last week, US investors weren’t the only ones (wrongly) breathing a sigh of relief. Taper terror is fully global! In Emerging Markets (EM), many believe QE tapering will cause foreign capital to retreat. Some EM currencies took it on the chin as taper talk swirled over the summer, and many believe this is evidence of their vulnerability—with India the prime example as its rupee fell over 20% against the dollar at one point. Yet while taper jitters perhaps contributed to the volatility, evidence suggests India’s troubles are tied more to long-running structural issues and seemingly erratic monetary policy—and suggests EM taper fears are as false as their US counterparts.

The claim QE is propping up asset prices implies there is some sort of overinflated disconnect between Emerging Markets assets and fundamentals—a mini-bubble. Yet this is far removed from reality—not what you’d expect if QE were a significant positive driver. Additionally, the thesis assumes money from rounds two, three and infinity of QE has flooded into the developing world—and flows more with each round of monthly Fed bond purchases. As Exhibit 1 shows, however, foreign EM equity inflows were strongest in 2009 as investors reversed their 2008 panic-driven retreat. Flows eased off during 2010 and have been rather weak—and often negative—since 2011.

Exhibit 1: Emerging Markets Foreign Equity Inflows

Research Analysis

Brad Pyles

Why This Bull Market Has Room to Run

By, 10/31/2013
Ratings884.102273

With investors expecting the Fed to end quantitative easing soon, the yield spread is widening—fuel for stocks! Photo by Alex Wong/Getty Images.

Since 1932, the average S&P 500 bull market has lasted roughly four and a half years. With the present bull market a hair older than the average—and with domestic and global indexes setting new highs—some fret this bull market is long in the tooth. However, while bull markets die of many things, age and gravity aren’t among them. History argues the fundamentals underpinning this bull market are powerful enough to lift stocks higher from here, with economic growth likely to continue—and potentially even accelerate moving forward as bank lending increases.

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What We're Reading

By , The Grumpy Economist, 03/27/2015

MarketMinder's View: So eliminating maturities on US debt and making them all interest-bearing notes that extend into perpetuity is not the worst idea in the world, but we are struck by the pesky thought that it is a solution seeking a problem. The Treasury debt market works just fine today and we see no real reason to change it. However, we are fond of the argument presented by Bloomberg’s Matt Levine: “One other thing that I like about this proposal is that you sometimes hear claims from politicians that the U.S. can't keep borrowing forever, that it needs to pay down its debt, etc. These claims are straightforwardly false -- the normal condition of national debt is for it to get rolled over and go up over time -- but that is not especially intuitive. Making the debt perpetual would make it more obvious. ‘We need to pay back our debt,’ a politician would say, and you'd say ‘No, actually, look, it says it right here in the contract, it never needs to be paid back, it's cool.’”

By , Bloomberg, 03/27/2015

MarketMinder's View: Well, whoop-de-doo. Here is what she actually said, with some emphasis in bold we added: “The Committee's decision about when to begin reducing accommodation will depend importantly on how economic conditions actually evolve over time. Like most of my FOMC colleagues, I believe that the appropriate time has not yet arrived, but I expect that conditions may warrant an increase in the federal funds rate target sometime this year.” That is a lot of hedging! But it also overtly says the decision will be data-dependent. She also later said hikes and policy aren’t on a preset course. Oh and remember she is only one of 10 votes. And as we’ve written many times, there is no history of initial fed-funds target rate hikes roiling stocks. Here’s a messy chart that gives you more actionable information than Janet Yellen’s speech.

By , The Telegraph , 03/27/2015

MarketMinder's View: This article snakes through 1,145 well-crafted words of prose to deliver the following message: The Middle East is not a stable region politically. To which we say, thank you, but we and nearly every investor who has bought a stock since long about 1947 is aware. Suffice it to say, this is a truism that didn’t need “exposing.”

By , The Wall Street Journal, 03/27/2015

MarketMinder's View: This is yet another article discussing analysts slashing estimates of profit growth, presuming this is somehow surprising and failing to acknowledge that sentiment matters a lot to stocks’ direction. Look, folks, even if you know exactly what S&P 500 profit growth will be in Q1—and analysts don’t, you can rest assured of that—it doesn’t mean you know what stocks will do, because fundamentals alone do not determine market direction. What’s more, if this is correct and the outlook is brighter in spring due to warmer weather and no West Coast Port Labor dispute, aren’t forward-looking stocks likely to do what they did in 2014 and see right through it? Why would this support the conclusion that “…share prices may get squeezed?”

Global Market Update

Market Wrap-Up, Thursday Mar 26, 2015

Below is a market summary as of market close Thursday, 3/26/2015:

  • Global Equities: MSCI World (-0.7%)
  • US Equities: S&P 500 (-0.2%)
  • UK Equities: MSCI UK (-1.8%)
  • Best Country: Singapore (+0.4%)
  • Worst Country: Austria (-2.4%)
  • Best Sector: Information Technology (-0.3%)
  • Worst Sector: Utilities (-1.1%)
  • Bond Yields: 10-year US Treasury yields rose 0.07 percentage point to 1.99%.

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. Sector returns are the MSCI World constituent sectors in USD including net dividends.