|By Ann Carrns, The New York Times, 02/17/2017|
MarketMinder's View: A new report from AARP sheds some light on what traits make older investors particularly vulnerable to scams, and we recommend reading it closely regardless of age—either to help yourself or those you love. “Victims were more likely to be men 70 or older, and they tended to be risk takers. About half of fraud victims agreed that they did not mind taking chances with their money, as long as ‘there’s a chance it might pay off.’ And nearly half of fraud victims, compared with less than a third of general investors, agreed that ‘the most profitable financial returns are often found in investments that are not regulated by the government.’” Always be skeptical. Do thorough due diligence and independent research on any investment opportunity and adviser you’re considering. Understand the risks of unregulated and nontraded investments. Never give an individual or adviser custody of your money—anyone on the up and up will agree you should keep your assets in a brokerage account in your own name. Always remember that if it sounds too good to be true, it probably is.
|By Christopher Langner, Bloomberg, 02/17/2017|
MarketMinder's View: The titular complacency refers to a supposed complacency index, “which relates the ratio between enterprise value and [earnings before interest, taxes, depreciation and amortization] in the MSCI World Index to the VIX.” What do these three variables have in common? All are backward-looking and not predictive of performance. Heck, look at the chart in the article, and it’s pretty clear the index’s ups and downs don’t predict bull and bear markets, and that no level is inherently good or bad. Cherry-picking two coincidental data points doesn’t prove anything. It just makes an interesting observation. True complacency would involve investors’ overlooking deteriorating economic data and earnings. Today, data and earnings are improving, and leading indicators point positively. Any improvement in sentiment seems like the normal confidence gains that usually accompany maturing bull markets—what Keynes called “animal spirits.”
|By James Mackintosh, The Wall Street Journal, 02/17/2017|
MarketMinder's View: This discussion of monetary and fiscal policy strikes us as rather confused. For one, it presumes Fed policy was the only thing driving markets higher until now, even though quantitative easing (QE) only served to flatten the yield curve and depress lending—viewed that way, it’s clear markets rose despite QE, not because of it. Two, it’s sheer myth that the US economy needs “reflation.” Strip out plunging oil prices, and inflation has been stable and benign for years (plus, there really is no such thing as a “deflationary abyss”—deflation is a symptom of money supply shocks, not a cause of a crisis). Three, as we learned from George W. Bush’s 2003 tax cuts and Barack Obama’s 2009 stimulus package, fiscal policy usually fizzles as an economic driver. Even “shovel-ready” projects take years. Four, there is no set relationship between stocks and tax changes of any flavor. Five, focusing too much on noise in the Beltway and around the Fed ignores an overall solid economic foundation and growing corporate earnings. Economic fundamentals matter more than speculating over Fed people and politicians.
|By Julia Bradshaw, The Telegraph, 02/17/2017|
MarketMinder's View: Yah but if inflation were really the culprit for UK retail sales’ 0.3% m/m fall in January, then why did prices and sales fall simultaneously on a month-over-month basis? Volatility is normal in economic data. Plus, retail sales don’t capture all of consumer spending—a big chunk of the latter is spending on services. Retail sales and full consumer spending frequently move in opposite directions.
|By Choe Sang-hun, The New York Times, 02/17/2017|
MarketMinder's View: MarketMinder doesn’t recommend individual securities—not buying, selling, holding, shorting, gifting, free-delivering or anything else. Nor do we have any opinions on criminal proceedings like the one discussed here. But, all that said, this is potentially the largest development for Korean stocks in quite some time—and potentially a good one, depending on how the situation evolves. Korea’s chaebol—those huge megaconglomerates—are a big thorn in the country’s side. On the one hand, they are vital pieces of the economy and capital markets. On the other, they are overall and on average poorly governed and prone to corruption, as they are closely held by the ruling families, who manage to retain majority control despite owning a minority of shares. They’re feudalistic enterprises in a way. Reform has long been on the government’s agenda—regardless of which party was in power—but prospective changes to crack down on practices like cross-shareholding (where companies effectively own themselves) and increase other shareholders’ power tend to fall by the wayside. If this latest development ends up being a catalyst for reform, leading to these firms becoming more accountable, transparent and efficient over time, it could be a long-term positive for Korean markets.
|By Chris Anstey and Connor Cislo, Bloomberg, 02/17/2017|
MarketMinder's View: Meh. Japan’s new record-high nominal GDP—surpassing the 1990s peak—is a meaningless milestone. For one, the BoJ hasn’t exactly shed the millstone of deflation, as CPI continues flirting with zero once you exclude volatile food and energy prices. Two, the notion that Japan’s only hope is to inflate its way out of debt was always misguided. The level of debt doesn’t really matter. What matters is whether Japan can afford to service that debt. Considering the country has some of the world’s lowest long-term bond yields, and investors are more than happy to fund the government for very little in return, the risks Japan suddenly turns into Greece remain quite low.
|By Alexander Weber and Nikos Chrysoloras, Bloomberg, 02/17/2017|
MarketMinder's View: Not terribly surprising. Ever since a handful of EU nations decided to adopt a financial transaction tax back in 2011, process has been slow-going. Estonia dropped out a couple years ago, and now Belgium and Slovakia are eyeing the exit because they’re worried it will overburden pension funds. Seems about right to us. Calling it a “Robin Hood” tax that would make banks finally pay their fair share after being bailed out was always a misnomer, as these charges always get passed to consumers—in this case, individual investors, pension funds and so on. Investors will likely be better off if this never comes to pass.
|By Nathaniel Popper, The New York Times, 02/17/2017|
MarketMinder's View: Just … don’t. As this shows, market reactions to Trump tweets are all over the place, and basing trades on tweets probably does more harm than good. Trigger Warning: Short-term trading will probably take you further away from your long-term goals.
|By Landon Thomas Jr., The New York Times, 02/16/2017|
MarketMinder's View: Should markets be more volatile given all the happenings in Washington, DC? Prevailing wisdom says they should be, and the absence of volatility signals complacency or even euphoria, but we think this viewpoint is too shortsighted. Politics is just one market driver, and most recent developments on America’s political front are sociological. Stocks don’t care about sociology. Stocks do care about a growing global economy and strong potential for future earnings growth, and that happens to be the economic backdrop today. Short-term volatility or no, stocks’ longer-term outlook remains quite nice.
|By Szu Ping Chan, The Telegraph, 02/16/2017|
MarketMinder's View: This highlights two trends we’ve noticed lately: One, sentiment overall is improving—the normal awakening of “animal spirits” (or happy confidence) that inspires investors to bid up stocks in a maturing bull market. Two, sentiment remains skeptical toward the eurozone, where upcoming elections cloud the view of rather good economic drivers. European stocks should benefit as uncertainty gradually clears, much as US and UK stocks did last year through the presidential election and Brexit vote.
|By Scott Dorf, Bloomberg, 02/16/2017|
MarketMinder's View: While we agree Fed head Janet Yellen probably has fewer incentives to minimize rate hikes now that she has a new boss who is almost sure not to reappoint her, this overstates the relationship between short-term rates (under the Fed’s control) and long-term rates, which are a market function. Short rates can influence long rates, but bond prices (and therefore yields) ultimately move on supply and demand. Those factors can easily overwhelm short rates and cause long rates to move in a different direction. In 2004 – 2006, for example, when the Fed hiked at 17 straight meetings, long rates fell over the tightening cycle’s first year. This time around, with Treasury demand still sky-high as other nations’ bonds yield considerably less, we don’t see long rates soaring if the Fed hikes a few times. Plus, rate hikes would probably flatten the yield curve somewhat, reducing inflation expectations and making bondholders less apt to charge a premium.
|By Ben Carlson, A Wealth of Common Sense, 02/16/2017|
MarketMinder's View: People are living longer, which means their retirement savings have more and more work to do. Many see retirement as the date they stop investing for growth and start taking income, necessitating a radical change in strategy. But that just isn’t the case. Your time horizon is the entire length of time your assets must work toward your goals—often your entire lifetime, if not longer. “Investing doesn’t end when you retire. As [the latest life expectancy numbers] show, you could have many decades ahead of you to continue investing your life savings once you drop out of the working world. Many investors assume their portfolios have to drastically change once they retire. While it’s true your human capital (earning power) is very low when you retire, you still have to keep up with inflation in your spending needs and grow your nest egg.”
|By Neil Irwin, The New York Times, 02/16/2017|
MarketMinder's View: This isn’t perfect, but it does provide a nice run through recent US economic data, which continue beating expectations. Some of the metrics cited are more backward-looking than others, but overall and on average, they show the economy is stronger than many perceive. Judging from the high-and-rising Leading Economic Index, continued loan growth and the relatively steep yield curve, growth should continue over the foreseeable future.
|By Jon Sindreu, The Wall Street Journal, 02/16/2017|
MarketMinder's View: Today we wrote about foreign investors’ net sales of US Treasurys last year and why this doesn’t mean demand is falling overall. This piece highlights one key, often overlooked source of bond demand.
|By Harry Binswanger, Real Clear Markets, 02/16/2017|
MarketMinder's View: Here is a delightful, satirical defense of free trade. We’ve always been big fans of the reductio ad absurdum argument, and this nails it. Enjoy.
|By Daniel Gross, Strategy + Business, 02/16/2017|
MarketMinder's View: Fun facts galore! Like these: “In the U.S., services account for about 80 percent of economic activity. And few people realize that the country actually exports a lot of services: some $750 billion in 2016. What’s more, the U.S. has an annual trade surplus in services of $250 billion. Thanks to the global supply chain, U.S. service workers are carrying out activity that theoretically could be done in international locations. Every time one of the 77 million people who visited the U.S. from another country in 2015 conducted a financial transaction, the U.S. national accounts racked up an export. That means people who work at airports, or hotels, or at theme parks, or who drive a taxi, are part of the global supply chain for travel services. And because the number of people visiting the U.S. annually is significantly higher than the number of Americans visiting foreign countries, the U.S. has a significant trade surplus in travel: In 2016, exports were $208 billion, while imports were $121 billion.” Folks, trade is far more dynamic than putting garments and gizmos on a container ship.
|By Bill McBride, Calculated Risk, 02/15/2017|
MarketMinder's View: Like truck tonnage, railcar loadings and rig counts, port traffic numbers are interesting and worth monitoring, though we caution investors from drawing any concrete conclusions from them. For one, while port traffic can provide a rough idea of the volume of exported and imported goods, it’s a limited snapshot of economic activity—especially as the increasingly services-heavy US economy makes “hard statistics” less telling. That said, these data do capture some trade, so here is one look at all this activity: “The Port of Los Angeles handled 826,640 Twenty-Foot Equivalent Units (TEUs) in January 2017, an increase of 17.4 percent compared to January 2016. It was the busiest January in the port’s 110-year history, outpacing last January, which was the previous record for the first month of the year. It was also the second-best month overall for the Port, eclipsed only by last November’s 877,564 TEUs.”
|By David Lawder, Reuters, 02/15/2017|
MarketMinder's View: Blame unseasonably warm January weather for the -0.3% m/m headline decline in industrial production (IP), led by a -5.7% drop in utilities output. Outside of weather-dependent utilities, manufacturing rose 0.2% and mining jumped 2.8%. Oil’s stabilization remains a modest economic tailwind. From a year ago, although overall IP is flat, key components like business equipment and construction are up 1.2% and 0.7%, respectively, signaling a pickup in business investment.
|By Lucia Mutikani, Reuters, 02/15/2017|
MarketMinder's View: “U.S. retail sales rose more than expected in January as households bought electronics and a range of other goods, pointing to sustained domestic demand that should bolster economic growth in the first quarter.” For the month, retail sales were up 0.4% despite a dropoff in automobile purchases (which still remain near record highs). Without car sales, which can be lumpy, retail sales rose an even stronger 0.8% m/m. Whether excluding autos or overall, retail sales are up a strong 5.6% from a year ago. Though we’ll refrain from applauding this report too much—retail sales are notoriously volatile and comprise only a subset of total consumer spending—the year is off to a solid start.
|By Staff, RTT News, 02/15/2017|
MarketMinder's View: While Energy prices jumped 4.0% m/m and gasoline rose 7.8%, “Core consumer prices, which exclude food and energy prices, rose by 0.3 percent in January after edging up by 0.2 percent in the previous month [and] were up by 2.3 percent compared to a year ago, reflecting a modest acceleration from the 2.2 percent growth seen in December.” In other words, removing volatile components like Energy means the inflation picture isn’t too different than it has been recently. The bottom line is that inflation is benign and in a normal range consistent with economic expansion. For more on why you shouldn’t fret inflation math, please see today’s commentary, “Mathflation.”
|By Justin Lahart, The Wall Street Journal, 02/15/2017|
MarketMinder's View: We too like taking a contrarian view of things, but dogged contrarianism for contrarianism’s sake isn’t a winning strategy. Sometimes the crowd is right. After years in the doldrums, “the National Federation of Independent Business said its index of small business optimism reached its highest level in a dozen years last month, ticking up to 105.9.” So far, so good—an interesting observation! However, this piece then points out what the S&P 500 has historically returned when small business optimism is over 105—an average of 4.7% over the next year. Sorry folks, but using a backward-looking snapshot of how small businesses felt during one moment in time is no way to forecast future stock returns. Look, don’t overthink this: With a lot of political uncertainty now in the past, sentiment has been warming up in the US lately, so it’s no surprise businesses feel a bit more cheerful. However, optimism is far different from euphoria, which is what investors should beware of. This is just the normal beginning of “animal spirits,” which often which often swirl for years before they become a whirlwind.
|By Staff, BBC News, 02/15/2017|
MarketMinder's View: A couple caveats to what should overall be taken as good news. First, employment data lags, so while record high employment and real wage growth are great for Britain, it doesn’t say much about where the economy or stocks are heading. Second, this article is littered with some Debbie-downer economists who insist the growth can’t last. There was at least one semi-sensible point here: “The UK labour market continues to confound the doom-mongers with its resilience to the Brexit shock.” To us, this all underscores how negligible the Brexit vote was for the UK economy.
|By Staff, BBC News, 02/15/2017|
MarketMinder's View: After eight years of negotiating the Comprehensive Economic and Trade Agreement: “Ceta will see the removal of 99% of non-farm duties between the EU’s market of 500 million people and Canada’s 35 million - trade worth €63.5bn ($67bn; £54bn) in 2015. That will boost growth and jobs on both sides of the Atlantic, supporters say.” Yay, freer trade! We’re fans, though we suggest investors temper their expectations a bit: Some aspects of this deal still require further ratification from EU member states, so don’t expect change overnight. Plus, it takes effect over seven years—markets discount such slow, long telegraphed changes. This long-term positive is a compelling counterpoint to fears of a protectionist wave supposedly sweeping the globe. For more on why it isn’t a near-term market driver, see Michael Hanson’s new column, “Trade Pacts Are Mercantilist.”
|By Rachel Sanderson, Alex Barker and Claire Jones, Financial Times, 02/15/2017|
MarketMinder's View: It looks like Italian officials have a plan to assist some other struggling regional banks: “The rescues of Veneto Banca and Banca Popolare di Vicenza, which still require regulatory approval, would be a ‘precautionary recapitalisation’, according to people with direct knowledge of the discussions. This is a mechanism that allows eurozone states to pump state money into banks without infringing state aid rules. Italy is already in talks with Brussels about using the same mechanism for an €8.8bn rescue of Monte dei Paschi di Siena, the world’s oldest lender.” It’s been known for years that Italy’s regional lenders needed help and, after Italy’s most prominent banking problem child was rescued late last year, it’s no surprise that lesser problem children are now getting more attention. It’s a telling sign of sentiment’s warming progression that struggling eurozone financials are no longer freaking folks out. For more, please see our 12/28/2016 article, “The Ghost of a Banking Crisis Past Visits Italy.”
|By Chris Dieterich, The Wall Street Journal, 02/15/2017|
MarketMinder's View: Last year, bond defaults were mainly limited to a small part of the corporate bond market—speculative-grade Energy debt. Risks there have subsequently fallen, while overall corporate credit spreads versus Treasurys have narrowed amid falling economic uncertainty and improved growth. Now the worry is investors are “reaching for yield” and that spreads are *too* tight. If a downturn occurs and defaults creep up, “there’s not much yield to cushion investors from bond losses during bouts of turmoil.” Well, sure? The problem with this argument is there is no sign of a downturn on the horizon—it’s possible, but not probable—so there is no reason why yields shouldn’t be tight. Look, all markets—even bonds—can be volatile in the short term. Reading too much in those day-to-day moves is myopic and can distract investors from their long-term goals.
|By David Byrne, John G. Fernald and Marshall Reinsdorf, Federal Reserve Bank of San Francisco, 02/15/2017|
MarketMinder's View: Are you an econ nerd who enjoys diving into the nitty-gritty behind our econometrics? If so, you may find this piece interesting. Consider: When something’s price goes to zero—say, for an encyclopedia—it isn’t counted in economic statistics anymore, but should it be? Or, even short of that, if prices just go down a lot—say, for personal computers—but a lot more are “consumed” (even as processing power improves exponentially), should it account for less or more of the “real” economy? These are some of the questions the San Francisco Fed has been spending some time on, and they have concluded that the slowdown in productivity growth is due to abnormally fast growth from 1995 to 2004, which caused a one-off skew in the numbers. While there may be something to that, to some extent, we’d argue our current econometrics are limited in their scope of accurately measuring a 21st century, services-heavy economy. Our stats still generally favor manufacturing and other more easily quantifiable production numbers from the early 20th century. There is no direct market takeaway here for investors, but it does bring up an important reminder: All statistics and measurements have their limitations, so beware of ascribing too much importance to any of them.
|By Staff, RTT News, 02/14/2017|
MarketMinder's View: Context is everything. December’s 1.8% y/y inflation rate is benign, below the BoE’s 2% target, and mostly a figment of oil prices. Not current oil prices, which have been mostly flat the last couple months, but last January’s, when oil plunged into the $20s. The low base effect distorts the year-over-year calculation, as evidenced by the fact CPI actually fell -0.5% m/m. It’ll probably do the same thing this month, as oil bottomed in February 2016. That isn’t runaway inflation, it’s math. Ignoring volatile food and fuel categories, core inflation remained stable at 1.6% y/y in January. Manufacturing input prices did rise 20.5% y/y in January, lifted in part by the weak pound. But input costs do not drive inflation. Rather, inflation is always and everywhere a monetary phenomenon—too much money chasing too few goods and services. Seeing as how the UK does not presently have runaway loan growth or severe supply shortages, we feel comfortable saying it is not on the verge of runaway inflation. To the extent the pound does raise the cost of some goods, falling prices elsewhere can help counterbalance, and presuming sterling does not plunge anew, its impact is short term. More math, out of the calculation in a few months. Besides, the UK economy has carried on in far more inflationary environments (such as 2011), and has yet to suffer a sterling-induced slowdown since the Brexit vote. For more, see our 10/20/2016 commentary, “Don’t Yield to Pound Paranoia.”
|By Craig Torres, Christopher Condon and Jeanna Smialek, Bloomberg, 02/14/2017|
MarketMinder's View: Nothing earthshattering here: Per our Fed head, if inflation keeps picking up, the central bank will think long and hard about raising rates some more, and if it doesn’t, they’ll think long and hard about doing something else. While some expect around a 30% chance of a rate hike at the March FOMC meeting, we aren’t—and don’t recommend—trying to game when the Fed hikes next. Nor is it true that the Fed as “penciled in” three rate hikes simply because that’s what year-end forecasts implied—by that logic, the Fed penciled in four hikes last year (when they hiked just once, in December). More saliently for investors, another minor hike isn’t likely to derail the economy or bull market—if anything, further hikes likely decrease the mystique, proving to investors that the Fed’s perceived influence is greatly exaggerated. For more, see the article we wrote prior to the December rate increase: “The Only Article You Need to Read Before December’s Big Fed Meeting.” Yes it’s a tad dated, but the fundamental points still apply.
|By Bob Davis, The Wall Street Journal, 02/14/2017|
MarketMinder's View: This strikes us as an unnecessarily gigantic hammer looking for a nail. Apparently the Trump White House is backing down from its prior plan to label China a currency manipulator—a “Day One” priority that quickly fell by the wayside—and might instead “designate the practice of currency manipulation as an unfair subsidy when employed by any country.” On the one hand, it’s softer because it’s squishy and doesn’t single China out, lowering the risk of upsetting the apple cart. But the real issue here is, what does the Treasury think constitutes currency manipulation? The current criteria are threefold: a country with a trade surplus with America, a big current account surplus, and a supposed penchant for “one-sided” intervention in currency markets. The most recent watch list in included Germany, which doesn’t set its own monetary policy and technically doesn’t have its own currency to manipulate. So this could quickly go to a weird place. Then again, it also mostly extends the status quo, as past administrations have also applied arbitrary criteria to designate countries other than China potential currency manipulators, and global markets (and trade flows) have been fine with the status quo. So we’re mostly inclined to interpret this as an example of the new administration moderating, something we’ve long thought likely and expect more of.
|By Marcus Walker and Nektaria Stamouli, The Wall Street Journal, 02/14/2017|
MarketMinder's View: This is a good snapshot of the current standoff between Greece, other eurozone governments and the IMF: “The differences between the fiscal proposals of Greece and its lenders are in the details. The biggest gap is political. Athens is looking for a way to make fresh austerity digestible in a country that is deeply weary of a bailout that began in 2010 and still hasn't put the country back on its feet. The IMF is looking to protect its credibility, which has suffered from the failings of the Greek bailout. Eurozone governments are eager to avoid domestically unpopular concessions to Greece ahead of elections in Germany and elsewhere.” This seems like a recipe for brinksmanship, so don’t be surprised if negotiations drag on. EU leaders want this wrapped up before the Dutch election in March, lest Greek bailouts become a campaign issue, but Greece’s real deadline is a July bond repayment. However, markets have seen this Greek tragedy unfold before and know those ghosts just aren’t that scary—tellingly, Greece is no longer dominating headlines like it did just a couple years ago.
|By Jon Yeomans, The Telegraph, 02/14/2017|
MarketMinder's View: Though “Dr. Copper” allegedly indicates the health of the global economy, it’s actually just another volatile commodity, subject to extreme swings in sentiment, plus the usual supply and demand drivers. As the article details, work stoppages in the world’s two most productive copper mines—together responsible for 8 – 10% of global output—have pushed prices up 10% in 2017. This strikes us as a copper-specific supply factor, nothing more. Also, since most developed countries sport services-driven economies, copper doesn’t truly reflect global economic conditions, which is a big reason why the braintrust overseeing the Leading Economic Index chucked it from the LEI eons ago. As for sentiment’s impact, “Copper had already received a boost at the end of 2016 thanks to the election of Donald Trump in the US, amid hopes the new president would spark an infrastructure spending boom and send demand for metals soaring.” Falling copper prices have falsely predicted plenty of downturns in the past, so we wouldn’t get too excited about the reverse.
|By James Mackintosh, The Wall street Journal, 02/14/2017|
MarketMinder's View: Still nothing, sorry to say. The CBOE Volatility Index—popularly known as the VIX or the “Fear Gauge”—measures expected S&P 500 volatility (up or down) over the next 30 days. It’s low now, which some interpret as widespread complacence. This article tries to debunk that, which we appreciate, but in doing so it relies on technical analysis, which is fairly backward-looking. We’ve documented the VIX’s flaws many times, and the novel interpretation here doesn’t fix them. Comparing today’s VIX to 1-month trailing S&P 500 volatility levels doesn’t tell us whether investors are underrating the risk of “unknown unknowns” and setting themselves up for “a nasty surprise.” It is an interesting observation and nothing more—intraday volatility a month ago doesn’t predict future stock prices. Folks, repeat after us: Past movement tells you nothing about future movement. Also, for all the recent fretting over the market’s “calmness” over the past two months, we would humbly ask what it all matters for the long-term investor? Searching for meaning in unbouncy times is a behavioral error—and finding patterns where they aren’t can lead investors astray.
|By Neil Irwin, New York Times, 02/14/2017|
MarketMinder's View: This article is far from perfect, particularly in its speculation about what the Trump administration might do and how the economy might react. (Our take: “Less than you think,” and “don’t overrate political drivers.”) Its discussion of valuations is also grounded in myth. This, though, is spot-on: “We all have a tendency to fall for motivated reasoning. If you think President Trump and his policies are bad, there’s a natural tendency to think that this will soon be reflected in share prices. That could turn out to be true. But politics makes us stupid. It can cause us to overweight the risks and perils we want to see, and underweight the possibility that, at least in terms of markets, things could go quite well.” Politics is a market driver, but political bias and preference must stay out of portfolio decisions.
|By David Harrison, The Wall Street Journal, 02/13/2017|
MarketMinder's View: If you had to guess, dear reader, of the biggest source of opposition to President Donald Trump’s yuge infrastructure spending plans, what would you posit? A young upstart House Democrat or a prominent Republican senator? Not bad guesses, but the most formidable roadblocks (pun intended) may actually be local historical societies, homeowners concerned about their property values and endangered fish. While many lawmakers would be delighted to upgrade US infrastructure, longstanding regulatory processes dictate the pace at which projects can actually start. This isn’t specific to any one region of the country, either. As this piece points out, plans to fix cracks in a bridge in Oklahoma will take at least 4 years before starting; it required 16 years to get permits to dredge a harbor in Georgia; and folks in Southern California have been battling for more than 30 years over extending a highway. Whether you love or hate Trump’s proposed plans, the president cannot easily do away with the processes already in place, diminishing his ability to immediately push through new infrastructure projects. For more on infrastructure spending and its lack of immediate impact, see Research Analyst Ben Thistlethwaite’s commentary, “Infrastructure Isn’t Always Industrial Grade.”
|By Glenn Ruffenach, The Wall Street Journal, 02/13/2017|
MarketMinder's View: The idea of retirement can be both thrilling and terrifying (at the same time!) for many investors. On the one hand, retirement means you now have time to pursue all those endeavors you couldn’t when you were employed full-time—traveling, spending time with loved ones or doing nothing at all! On the other hand, retirement also raises fears of not having enough—or running out of—money to live your desired lifestyle. Thus, we found this piece, which shares real retirees’ stories, insightful. This of course doesn’t cover every single experience out there, but it does provide some of the unexpected surprises, both good and bad, folks have had. Enjoy!
|By Jeff Sommer, The New York Times, 02/13/2017|
MarketMinder's View: While the title may seem a little spaced out, there are a couple timely reminders for investors here, though we’d add some caveats as well. First, the positives: As this piece points out, for every 15-year period since 1926, the S&P 500 has never declined. We have another stat for you: For rolling 10-year returns from 1926 through 2015, the S&P 500 has been positive 94% of the time (per Global Financial Data). So while stocks can be very volatile in the short term, they are incredibly resilient, and in the long term, they rise far more often than fall—despite myriad instances of political uncertainty, war and other upheaval. However, we do have some qualms, too. Like, if investors see conditions forming for a sustained downturn of -20% or more, driven by fundamental reasons—i.e., a bear market—then it makes sense to exit stocks. While it’s difficult to see a bear market forming, we believe investors who look at the market differently than the consensus can do so. We are also optimistic about stocks over the foreseeable future, as the investing world appears to be overemphasizing US politics, giving too much attention to purely sociological issues, while a growing global economy and improving corporate earnings slip under the radar. As the year progresses, gridlock blocks radical policy and the circus perhaps quiets somewhat, the resulting falling uncertainty should help investors see reality is better than they initially believed. That’s bullish.
|By Keiko Ujikane, Bloomberg, 02/13/2017|
MarketMinder's View: Japanese GDP rose 1.0% annualized in Q4, its fourth straight quarter of economic growth. Japan’s economy has vacillated between meager growth and minor contraction over the past decade, and though this streak is a bit of an unusual feat, a look under the hood shows a whole lot hasn’t changed. Exports accelerated to 11.0% from Q3’s 8.1%, remaining the primary positive driver. Domestic demand was mixed as personal consumption remained tepid—flat in Q4 after Q3’s 1.3%—while imports picked up 5.4% from Q3’s -1.0%. While it’s more of the same, sentiment has deteriorated, as many fear rising protectionism under President Trump could curb Japanese export growth, hurting the economy. If sentiment gets too low, investment opportunities may arise in Japan even if the fundamental economic outlook doesn’t improve a ton, as stocks move on the gap between expectations and reality.
|By Satyajit Das, MarketWatch, 02/13/2017|
MarketMinder's View: We don’t disagree with the assertion here that volatility could accompany the uncertainty leading up to the French presidential election in April—markets are volatile in the short term. However, we caution investors from reading too much into that volatility and what it means looking ahead. For one, once the election passes and France has a new president, that uncertainty goes away regardless of who that new president is, and markets will start digesting and pricing in the new chief. But more importantly, this piece spends far too much time speculating on the possibility of a Le Pen victory and the negatives it would bring and not enough on what a longshot it would be. If Le Pen won the presidency, if the Front National did well in parliamentary elections in the summer and if these anti-euro pols actually carried out their campaign promises, then yes, that would likely ratchet up risk. However, those are three “ifs” and a lot of assumptions—and successful investing isn’t about assuming what might happen. Currently, Le Pen looks likely to move on to the second round of voting but lose to either Republican François Fillon or En Marche!’s Emmanuel Macron. A lot can change in two months, and polls don’t have a shiny recent record, but unless there are clear signs Le Pen is the frontrunner for the Élyseé Palace and her party is set to make strong gains in June’s parliamentary vote, delving into speculative claims of doom could cause investors to make damaging decisions. For more, see our 2/10/2017 commentary, “Are French Politics Trumpeting Concerning Change?”
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Market Wrap-Up, Thursday, February 16, 2017
Below is a market summary as of market close Thursday, February 16, 2017:
- Global Equities: MSCI World (+0.2%)
- US Equities: S&P 500 (-0.1%)
- UK Equities: MSCI UK (+0.4%)
- Best Country: Denmark (+1.5%)
- Worst Country: New Zealand (-1.7%)
- Best Sector: Utilities (+0.9%)
- Worst Sector: Energy (-0.7%)
Bond Yields: 10-year US Treasury yields fell 0.04 percentage point to 2.45%.
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.