|By Jeffrey Sparshott, The Wall Street Journal , 12/05/2013|
MarketMinder's View: The general reaction to today’s GDP revision seems overly dour, in our view. Sure, economies can’t grow forever on inventories, but this is just one quarter. Considering many other recent positive data (higher home sales, total trade and manufacturing), the overall US picture looks better than many give it credit for.
|By Simon Kennedy, Bloomberg, 12/05/2013|
MarketMinder's View: While fewer public sector cuts globally might be a tailwind for headline global GDP, this isn’t necessary for growth to continue or even accelerate. Globally, most LEIs—which generally track private sector activity—are high and rising. Add in near-record highs in US business investment, robust UK activity and expanding eurozone manufacturing, and the private sector appears more than capable of leading global growth.
|By Robert Samuelson, Real Clear Markets, 12/05/2013|
MarketMinder's View: The notion stocks are “disconnected” from the real economy—and can’t stay that way—is flawed. It assumes stocks track the economy—but they don’t! Stocks reflect the earnings and growth of publicly traded companies. Headline GDP growth might be slow, but businesses are growing and investing at a healthy clip, and earnings hit new highs well before stocks did. Headline GDP growth needn’t turn stellar for this to continue. For more, see our 12/04/2013 cover story, “Pricking the Stock Market Bubble Debate.”
|By Phil Wahba, Reuters, 12/05/2013|
MarketMinder's View: That a handful of retailers had disappointing Novembers doesn’t automatically mean the industry overall did badly—none of these companies is inherently a bellwether. Then again, even if retail sales did pull back in November, it doesn’t necessarily imply future weakness or a fall in total consumer spending. Especially with disposable incomes rising. For more, see our 12/2/2013 cover story, “Doorbusters! Discounts! Ka-ching!”
|By Daniel Gros, Project Syndicate, 12/05/2013|
MarketMinder's View: While we agree with the sentiment here—Germany has taken misplaced flack for its trade surplus—the notion all of northern Europe should increase domestic demand seems misplaced. What matters more is for less competitive nations to become more efficient and exploit their comparative advantages so they, too, can enjoy higher exports. “Trade adjustments” aren’t necessary for global growth to continue.
|By Ayesha Bhatty Clough, BBC News, 12/05/2013|
MarketMinder's View: Between shale and the tar sands, Canadian energy production is booming, driving economic growth and creating jobs in all segments of the economy. As a result, the country has been importing workers from the UK and Ireland—growth in one country can create widespread opportunities.
|By Graham Ruddick, The Telegraph, 12/05/2013|
MarketMinder's View: While the UK economy has grown nicely this year, businesses have still battled headwinds. Among them were high taxes on commercial real estate—e.g., rented storefronts. Plans to relax and perhaps eventually streamline this burden is an incremental tailwind for UK businesses heading into 2014.
|By Per Liljas, Time, 12/05/2013|
MarketMinder's View: Fewer restrictions and tariffs mean more profits for South Korean steel companies and Australian ranchers, lower prices for consumers and more world trade—something markets like!
|By Caroline Baum, Bloomberg , 12/05/2013|
MarketMinder's View: It seems awfully difficult to claim we need permanent fiscal stimulus to boost growth in a country where private-sector innovation still creates massive opportunities for growth and development. Exhibit A: the shale boom. What would benefit the US most, at this point in the cycle, would be a freer flow of capital so businesses can invest and grow—basically, more bank lending. With more money moving throughout the real economy, headline growth figures would likely look much different.
|By Staff, Der Spiegel, 12/05/2013|
MarketMinder's View: Negative interest rates, additional bank aid and quantitative easing aren’t cure-alls for slow eurozone lending and could very well increase the risk of monetary policy blunders. Eurozone lending is slow because changing regulatory standards and upcoming stress tests give banks a big incentive to hoard capital and not take additional risk. Until the regulatory horizon clears, it’s difficult to envision banks lending enthusiastically.
|By Lucia Mutikani, Reuters, 12/04/2013|
MarketMinder's View: US private payrolls soundly beat expectations, and overall trade grew. In our view, the discussion of these positive data points’ potential influence over the Fed’s decision to taper is a red herring—more important is they are more evidence of a healthy, ongoing US expansion.
|By Jamie Smyth, Financial Times, 12/04/2013|
MarketMinder's View: The Bank of Ireland’s repaying the state accomplishes two things as the country exits its bailout: It contributes to state funding (supporting the country’s decision to decline more credit from the EU/ECB/IMF troika) and waters down the relationship between the Irish banking sector and government—why Ireland’s financial crisis resulted in a troika-delivered sovereign bailout. Perhaps most importantly, though, improvement in the financial system likely boosts investors’ confidence in Ireland. Headwinds still remain, but the country seems on the right track.
|By David Parkinson, The Globe and Mail, 12/04/2013|
MarketMinder's View: In our view, this gives forward guidance too much credit. In the short term, markets may see higher or lower prices, interest rates, currencies, etc., based on investors’ reactions to politicians’ announcements. But in the long term, it’s what politicians do and how it impacts fundamentals that drives markets. Hence, talking about a rate change without any follow through likely doesn’t have much material impact. For one, inflation is always and everywhere an actual monetary phenomenon.
|By Neil Irwin, The Washington Post, 12/04/2013|
MarketMinder's View: The US dollar’s role in neither trade, finance nor as a reserve currency grant our economy an “exorbitant privilege” lowering interest rates and making our debt affordable. In fact, our deep, liquid capital markets do that—and make the dollar attractive as a medium of exchange. This reverses causes and effect. What’s more, the dollar’s share of global reserves has been declining for some time. Gradual shifts do not threaten markets much. Finally, China’s economy is largely closed and its currency’s use is highly controlled—which present big headwinds to its replacing the dollar as the world’s favorite forex reserve. For more, see Elisabeth Dellinger’s column, “The Tale of the Dollar’s Demise.”
|By Staff, Reuters, 12/04/2013|
MarketMinder's View: Rising mortgage rates may have deterred a few fringe home buyers, but ultimately, rates are historically low and prices are recovering from a low base. The discussion here is much too skeptical of the data—October’s strong home sales suggest the housing recovery has staying power—an incremental tailwind for the broader economy.
|By Al Yoon, The Wall Street Journal, 12/04/2013|
MarketMinder's View: In the wake of Detroit’s bankruptcy and higher borrowing costs for some municipalities, concerns over state governments’ solvency have been circulating, but most seem unfounded. States’ finances are overall improving and are in good order, and those whose aren’t, like Illinois, are working to improve their ledgers. That’s likely much more meaningful for muni markets than a bad egg or two.
|By Scott Paterson, The Wall Street Journal, 12/04/2013|
MarketMinder's View: While we’d argue this largely seems a solution in search of a problem—and potentially makes banks’ achieving profits a bit more difficult, a negative—the rule’s (finally) passing likely won't impact US Financials much. The long debate period (about three years) has given stocks and banks ample time to adapt: “Because the rule was widely anticipated, most banks already have done away with operations focused on proprietary trading.” Further, the rule is expected to be implemented in 2015, granting another full year to consider specifics. All in all, this may not be the safeguard some presume, but it likely doesn’t present a huge risk in the here-and-now either.
|By Staff, BBC, 12/04/2013|
MarketMinder's View: The eurozone may not have grown as much as previous months, but growth is growth, and the majority of the area still did fine—German and Spanish PMIs were especially notable—even as weaker spots remain. Overall, this seems more in line with the eurozone’s uneven recovery than a loss in momentum. This coverage is a good example of highly negative sentiment regarding the eurozone, and for stocks, this creates a fairly low bar for reality to exceed—fuel for more bullish surprises ahead.
|By Staff, Reuters, 12/03/2013|
MarketMinder's View: When small firms can borrow more, they can invest more in growth-oriented endeavors. We’d expect business borrowing to continue increasing as quantitative easing (QE) ends and long-term interest rates normalize—a wider spread between short- and long-term interest rates makes lending more profitable, encouraging banks to lend more.
|By Aaron Smith, CNN Money, 12/03/2013|
MarketMinder's View: While this is nice to see, it’s just one day—just as a lackluster Black Friday was just one day. Seasonal totals matter more, and yearly matters more than seasonal. Over the season and year, the highs and lows should average out, and with disposable incomes rising, overall consumer spending should keep growing. For more, see our 12/2/13 cover story, “Doorbusters! Discounts! Ka-ching!”
|By Jude Webber, Financial Times, 12/03/2013|
MarketMinder's View: Mexico’s energy reform plans are moving closer to reality, and with the leftist Party of the Democratic Revolution abandoning the multiparty Pact for Mexico, the two main parties have more bandwidth to pursue more sweeping change than President Enrique Peña Nieto first outlined, including allowing private firms to enter production-sharing or outright concession agreements. For more, see Elisabeth Dellinger’s column, “What to Do About Mexico’s Energy Reforms.”
|By Alison Sider and Kristin Jones, The Wall Street Journal, 12/03/2013|
MarketMinder's View: The benefits of shale fracking aren’t limited to energy markets—the boom creates opportunities throughout the economy. In this case, it has driven demand for sand, one of the key ingredients in hydraulic fracturing, and firms are lining up to mine, process and transport it.
|By David Biller, Bloomberg, 12/03/2013|
MarketMinder's View: Brazil’s contraction is an example of how misguided policies can hurt growth. The government’s attempts to stimulate certain sectors created headwinds for others, and policies aimed at containing fuel and food prices weighed on investment. However, it’s important to scale: One country’s gross domestic product decline over one quarter likely isn’t enough to derail global reacceleration.
|By Kay Johnson and Dessianing Ariyanti, Associated Press, 12/03/2013|
MarketMinder's View: The “Doha round” of World Trade negotiations has been in the works for 12 years now, and it has been more or less stalled for over five—which is largely to be expected when you have over 100 countries with competing interests trying to agree on trade policies. But regional and bilateral trade agreements have popped up in droves since the Doha round started, helping global trade get significantly freer even as the global deal stalled. Many more deals are in the works.
|By Staff, BBC News, 12/03/2013|
MarketMinder's View: The hot construction PMI comes on the heels of a gangbusters manufacturing PMI and another rise in retail sales—all further evidence the UK’s expansion is gaining speed. Plus, more construction should mean an increase in home supply over time, which should help keep that widely feared housing bubble deflated.
|By Jason Zweig, The Wall Street Journal, 12/02/2013|
MarketMinder's View: Thanks to innovation and technological advancements over the years, overall, investing has become more efficient, less expensive and more transparent. That doesn’t necessarily translate to “easier,” but it does mean the market is much more accessible for individual investors than in past decades.
|By Neil Irwin, The Washington Post, 12/02/2013|
MarketMinder's View: This ignores one very important fact: Stocks are forward looking—not backward. They’ve priced in an eventual slowing to the Fed’s bond buying since Bernanke alluded to it last May. And the fact is markets could be pricing in the reality of QE—that a taper will actually be economic stimulus. For more, see Brad Pyles’ 10/31/2013 article, “Why This Bull Market Has Room to Run.”
|By Staff, Reuters, 12/02/2013|
MarketMinder's View: US manufacturing continues to improve—a nice tailwind for the economy and markets.
|By Nouriel Roubini, The Guardian, 12/02/2013|
MarketMinder's View: We have much to quibble with here. First, the biggest contributor to the 2008 financial crisis was the implementation of FAS 157’s fair value accounting. The housing bubble was part of the backdrop, but losses associated with bad loans amount to about $300 billion—insufficient to drive a financial crisis. However, FAS 157 required the paper destruction of around $2 trillion in banks’ capital. Additionally, housing prices aren’t artificially inflating because of monetary policy—overall, they’re rising due to increased demand and restricted supply. If monetary policy were such a huge inflater of housing bubble 2.0, why is loan growth sluggish in the current expansion?
|By Charles Stein, BusinessWeek, 12/02/2013|
MarketMinder's View: For every seller, there is a buyer—the market is an auction, which means cash flowing into stocks from bonds (to the extent that is even measurable) isn’t necessary for stocks to rise. Fund flows may be illustrative of prevailing sentiment, but they are not predictive of market direction. Late 1999 and early 2000’s big fund inflows were one facet alluding to overoptimistic sentiment, but just that. And they followed years of positive inflows. Assuming 2013’s inflows—one year after massive outflows—means a bear is surely on the horizon not only misunderstands fund flows, it gives one data point much too much credence.
|By John Redwood, The Telegraph, 12/02/2013|
MarketMinder's View: Yes, they can—but not for the reasons mentioned here. The explanation here is the theory the Fed’s operating on—attempting to stimulate the economy by increasing loan demand. However, the supply of loans is much reduced—in our view due to the Fed’s QE bond buying. The lower long-term rates relative to short term, the less profitable a long-term loan. QE is a weight on the economy—markets have risen despite it thanks to healthy fundamentals in the overall robust private sector.
|By Michael McKee, Bloomberg, 12/02/2013|
MarketMinder's View: Here’s a pithy, two-minute video explaining why all the handwringing and celebrating over what a weekend’s retail sales might be is overdone.
|By Archie Norman, The Telegraph, 12/02/2013|
MarketMinder's View: Well-intended as some regulation may be, “regulation has a ratchet effect. It is imposed but rarely repealed, resulting in ‘archaeology of regulation,’ layers upon layers occurring over decades.” These so-called ‘layers’ of regulations are often solutions in search of problems, and can often cause headwinds for markets down the road.
|By Katrina Bishop, CNBC , 12/02/2013|
MarketMinder's View: November eurozone manufacturing PMI beat expectations and expanded for a fifth straight month. Yes, there is still variance from nation to nation, but that’s to be expected in a diverse, 18-nation bloc and doesn’t indicate anything about future fundamentals. In our view, though the rate may be slow, conditions in the eurozone overall seem to be better than many appreciate.
|By Neil Irwin, The Washington Post, 11/29/2013|
MarketMinder's View: There isn’t much of a discernable relationship between one day’s sales and an entire year’s worth of economic growth. Black Friday deals are nice to score and a fun tradition, but investors should look much more broadly to see how the US economy is doing.
|By Xavier Rolet, The Telegraph, 11/29/2013|
MarketMinder's View: While many bemoan the slow recovery in UK manufacturing and exports, many positives are going largely unnoticed. Here’s a look at some of the highlights—a timely example of reality exceeding perception.
|By Spencer Jakab, The Wall Street Journal, 11/29/2013|
MarketMinder's View: None of these alleged signs of “froth” mean stocks are overvalued. Nor are investors “downplaying other danger signs.” They’re doing the opposite: ignoring the many positives underpinning this bull market. A growing—and potentially reaccelerating—global economy, rising corporate revenues and earnings and a relatively calm political environment, combined with still-skeptical investor sentiment, create a nice backdrop for this bull market to continue.
|By Staff, Jiji Press, 11/29/2013|
MarketMinder's View: While this news seems nice, it isn’t necessarily a sign Japan is getting stronger. Many Japanese consumers likely pulled big-ticket purchases forward to beat the sales tax hike that takes effect next April.
|By Lydia DePillis, The Washington Post, 11/29/2013|
MarketMinder's View: We’ll not weigh in on whether getting a loan from a pawnshop is a viable business strategy. But that this is even an issue shows you just how much quantitative easing (QE) has limited the supply of loans. By reducing long-term interest rates, the Fed flattened the yield spread, shrinking banks’ profits on lending. Creditworthy borrowers can get loans just fine, but iffier prospects—many small businesses—can’t. Many thus turn elsewhere, to more expensive lenders. This is a big reason growth has been slow during this expansion.
|By Heribert Dieter, The Wall Street Journal, 11/29/2013|
MarketMinder's View: The European Commission and others complaining about Germany’s trade surplus overlook an important fact: Germany’s high exports are the result of high foreign investment. Most German goods are produced abroad. If Germany cuts back, German investment in Eastern Europe, developing nations and even the US would fall, introducing unnecessary economic headwinds.
|By Ambrose Evans-Pritchard, The Telegraph, 11/29/2013|
MarketMinder's View: While soil degradation is an issue, it isn’t guaranteed to cause global famine—and it probably won’t. Since the dawn of civilization, human ingenuity (aided by free markets) has proven quite adept at allocating scarce resources and overcoming difficulties like these. For more, see Todd Bliman’s classic column, “A Common Thread Between Horse Manure and Peak Oil.”
|By Ben Sills and Lucy Meakin, Bloomberg, 11/29/2013|
MarketMinder's View: Once again, investors demonstrate ratings agencies’ fecklessness. The world has long known the Netherlands has some economic headwinds, and markets started dealing with these long before S&P announced its decision.
|By Gregory J. Millman, The Wall Street Journal, 11/29/2013|
MarketMinder's View: A pending regulatory change requiring banks’ boards “to approve contracts involving ‘critical activities’” could expose board members to greater liability, potentially hollowing out the pool of people willing to serve as directors. Big banks with big legal and compliance resources likely don’t see a talent drain, but community banks could come under pressure, potentially resulting in more M&A and limiting competition over time.
|By Harry Wilson, The Telegraph, 11/29/2013|
MarketMinder's View: UK banks get some more breathing room, which could ease some of the pressure on lending—a long-awaited positive.
|By Staff, EUbusiness, 11/29/2013|
MarketMinder's View: With Georgia and Moldova signing association agreements with the EU, global trade just got a bit freer—something markets like.
Market Wrap-Up, Wed 04 Dec 2013
Below is a market summary (as of market close Wednesday, 12/4/2013):
Global Equities: MSCI World (-0.5%)
US Equities: S&P 500 (-0.1%)
UK Equities: FTSE 100 (GBP) (-0.7%)
Best Country: US and Sweden (-0.1%)
Worst Country: Japan (-2.0%)
Best Sector: Information Technology (+0.1%)
Worst Sector: Industrials (-0.8%)
Bond Yields: 10-year US Treasury yields rose 0.05 percentage point to 2.84%.
Editors' Note: Tracking Stock and Bond Indexes