Today's Headlines

By , The Wall Street Journal , 08/27/2015

MarketMinder's View: Data! Revised Q2 data(!) show US GDP grew at a 3.7% seasonally adjusted annual rate, up from the 2.3% initially reported. Now then, here are a few things to consider: Exports rose 5.2% in the quarter, against a backdrop of fears the strong dollar would quash them. That didn’t happen, but it isn’t stopping pundits from saying it will! As noted here, “A stronger dollar and lackluster overseas growth may be a headwind for the rest of the year.” Why it would suddenly become one now when it hasn’t been for over a year is a bit beyond us. We guess these fears are just persistent. (As an aside, this article also notes “Net exports contributed 0.23 percentage point to GDP, only the second time since the start of 2014 that trade hasn’t been a drag on top-line economic growth,” which precedes the prior quote about the strong dollar. However, you should consider that net exports (exports minus imports) is a totally flawed way to view trade’s economic impact. Imports aren’t a negative. Also, this doesn’t mean exports haven’t grown because of a strong dollar, it means imports rose more, which is good.) But another meme included here that seems widespread today is relatively quick growth is all about inventories. Which isn’t correct. Initially, the US Bureau of Economic Analysis reported inventory change detracted -0.08 percentage point from headline growth. Now they say it added 0.22. So even if inventories hadn’t been revised, growth would have been 3.4%. Oh and corporate profits grew. Anyway, it’s all backward looking, but it basically serves as further confirmation the US economy was on solid footing as recently as June. It likely still is.

By , The Wall Street Journal, 08/27/2015

MarketMinder's View: Yeah, but the IMF, World Bank, Fed and other supranational organizations have warned about this or that since this bull market began. Heck, Yellen warned last spring that biotech stocks were overvalued, and they went up big over the next year and a half. The World Bank has warned of a China “slowdown” since 2012. The IMF since mid-2011. Even a broken clock is right twice daily. It would have cost you a lot of money to heed those warnings. Particularly since this downturn seems mostly like a correction, which tend to come and go quickly and aren’t tied to fundamentals. We have never seen anyone with any ability to accurately time corrections, and that “anyone” includes Fed officials, the World Bank, World Bank, IMF (et al), too.

By , CNBC, 08/27/2015

MarketMinder's View: This article strikes us as very strange. It operates on the premise small business owners and mom-and-pop shops are now (read: post-2008) alert to stock market volatility because it could trigger a negative wealth effect, slamming their sales. But in open, liquid markets, cyclical turns in stock markets are a pretty darn reliable indicator of future economic conditions, so they have always been relevant to small business owners and Main Street. (Whether those business owners fretted volatility is a separate matter.) However, stocks’ moves do not cause those conditions. Now then, the present market move, at its low, was -11.9% (S&P 500 total return, source: FactSet)—a correction. Corrections can and do happen with regularity in bull markets and they don’t signal anything about the economy’s fundamentals.

By , Vox, 08/27/2015

MarketMinder's View: The titular idea is a fed-funds target rate hike in September. Now, the Fed erring is always a risk worth assessing, so in that sense we agree. And we agree inflation is presently low. However, this article errs by arguing for keeping interest rates super low until inflation perks. Here is why: Economists generally agree monetary policy affects the economy at a lag, but no one is certain as to what the lag actually is! So using currently low inflation to support the argument is driving by looking exclusively out of the rear window. (Or side window, to the extent inflation data could be considered coincident.) Now, the Fed says it is targeting 2% inflation, as measured by the headline Personal Consumption Expenditures (PCE) Price Index. But that gauge could easily change (and arguably should, particularly considering it was selected before oil collapsed). Currently, core PCE is running at 1.3% y/y. Might the Fed think that by acting now they will prevent an acceleration beyond their target? What’s more, this places far too much emphasis on monetary policy for the economy’s health. The low fed-funds rate is not, as it happens, to the economy as oxygen tubes and saline drips are to a hospital patient. What’s more, the connection between rates and unemployment isn’t nearly as direct as cited here. And low rates reducing the government’s financing costs is directly counter to what the Fed aims to do, and it would be very troubling if that were their rationale. What’s more, all of this is odd because the article closes by presuming the Fed should basically target inflation and do nothing else. So why list all the other stuff?

By , Bloomberg, 08/27/2015

MarketMinder's View: Valuations always matter, but they aren’t predictive. They matter in the sense they are a signpost of sentiment (except the Shiller PE or cyclically adjusted price-to-earnings ratio, which is twisted beyond recognition). No matter how you torture this data series, what you will find is, historically, cheap stocks sometimes get pricier. Expensive stocks sometimes get cheaper. But roughly the same amount of the time, expensive stocks get pricier and cheap stocks get cheaper. There is no there there.

By , The Wall Street Journal, 08/27/2015

MarketMinder's View: We are sure some overleveraged investors did get margin calls when volatility struck last week. But a couple points here as to why we think this is massively overstated in this article: First, the outstanding loan balances here are all in the tens of billions, which is a drop in the bucket relative to global markets, these firms’ capital and assets under supervision as well as pretty much any metric you might cite. The growth rate is fairly quick, but the level is small. Hence, we don’t see this as a threat to the banks in question. Second, this is all being driven by a correction that, to this point, isn’t even that large by historical standards. It’s fast! But it isn’t that big.

By , The Telegraph, 08/27/2015

MarketMinder's View: Wait. It seems like about 10 minutes ago that the fear du jour was eurozone deflation, not inflation. Well, whatever. Yes, eurozone M3 money supply did grow at a post-Financial Crisis high 5.3% y/y in July, and lending to households rose 1.4%. However, we’d suggest this is mostly a sign of eurozone banks’ improved health and not due to quantitative easing (QE), which is a deflationary policy, not an inflationary one. When a central bank creates new reserve credits (the source of the allegedly hot 12.1% y/y M1 money supply growth figure cited herein) and buys bonds with them, that depresses long-term interest rates. For this to boost money supply and inflation, banks must then lend those funds. However, as the M3 figures show, banks aren’t lending as fast as the ECB is creating reserves. Why? Because by buying those bonds to reduce long-term rates, it narrows the gap between banks’ funding costs (short-term rates) and loan revenue (longer-term rates). Neither the UK, US nor Japan saw loan growth and inflation surge after launching big QE programs. We doubt it is so very different here.

By , Bloomberg, 08/27/2015

MarketMinder's View: It is thoroughly unclear to us what you are supposed to glean from an analysis of how the Fed historically reacted to volatility. The people are, you know, different. Of the current rate-setting committee, only Chair Janet Yellen and Jeffrey Lacker were there the last time the Fed hiked rates. Half of them joined the fold in 2009 or later. Chalk this one up as more useless Fed speculation.


By , The Wall Street Journal, 08/26/2015

MarketMinder's View: The issues discussed here—exchange traded funds briefly trading below their underlying securities’ aggregate market value and circuit breakers preventing speedy price discovery—are indeed worth considering, and there may be room for improvement. But, this isn’t reason to abandon stocks, and we think some perspective is in order: These anomalies primarily impacted people who panicked and sold as stocks tumbled. This is just one more reason to stay patient and disciplined and avoid hasty decisions based solely on market movement in the heat of the moment.

By , The New York Times, 08/26/2015

MarketMinder's View: This is a very sensible take on why fears over an imploding Chinese economy are off the mark. Slowing Chinese growth is nothing new—China’s economy has gradually decelerated for several years now, and there are no signs the slowdown is materially steepening.  Consumption and services now account for about half of China’s economy, and they are growing quite nicely these days. Plus, the Chinese government has implemented targeted fiscal and monetary stimulus to goose growth, and there is a lot more they can do if needed. Even if China is not growing at 7% as some suggest, 5% or even 4% growth in the world’s second-biggest economy isn’t a drag on global output. It helps offset the weak spots.  

By , Bloomberg, 08/26/2015

MarketMinder's View: Well, the market has certainly dropped double digits many times in the last 75 years, but the title refers to the fact the S&P 500 fell more than 12 standard deviations below its 50-day moving average from Friday through Tuesday. The last time this happened was 1940, and some analysts have had some fun comparing the run-up to both drops in search of clues for what might happen next. (The analysis might also be a bit tongue in cheek.) We would suggest skipping the charting exercise and opening a history book instead, because if you do so, you will discover why markets plunged in mid-May 1940: France fell as German troops and tanks maneuvered around the Maginot Line. That was a huge, negative surprise—no one expected Germany to skirt France’s vaunted defenses by way of Belgium (and the forest). Everyone had faith in that massive, heavily fortified network of forts and trenches. When it failed, markets were forced to price in even more terrible destruction than they already had. World War II was a huge, fundamental negative for stocks, which had been in a bear market for about two years by the time Germany invaded France. We aren’t in a world war today, thankfully, and we can’t identify any huge, fundamental causes for the last three days’ plunge. It has all the hallmarks of a furious correction selloff, albeit a big one. We expect markets to rebound as they resume weighing the overall positive long-term fundamentals (though as ever, short-term moves are impossible to predict).

By , MarketWatch, 08/26/2015

MarketMinder's View: This scenario—where the Dow Jones Industrial Average (DJIA) would fall an astounding 70%—is based on Tobin’s Q ratio, which divides stocks’ market capitalization by the amount of money all companies would have to spend to replace all physical and intangible assets.  The ratio—currently around 1—has averaged about 0.7 since World War II and bottomed out at around 0.3 in the early 1980s’ bear market. Reverting to its all time low is how we get to DJIA 5,000. Should Tobin’s Q fall to its post-war average, the Dow would fall more than -25%. The problem is: There is no Q ratio level that consistently signals a bear market. The 1990s bull did not end until the ratio topped 1.6, and the 2007-2009 bear began when the ratio was below 1. Using valuations as a market forecasting tool ignores the fact valuations often exceed their long-term average for long stretches as bull markets mature and investors become more optimistic. Markets don’t necessarily revert to some mean level, and there is no such thing as an inherent fair value. Stocks rise until they run out of steam or get walloped by a huge, unseen negative, neither of which appears to be happening right now. The wall of worry remains alive and well, and we see no no big, bad negatives investors are ignoring. For more, see our discussion here.

By , The New York Times, 08/26/2015

MarketMinder's View: This piece expresses a litany of long-running, widely held and largely misperceived fears: the strong US dollar relative to emerging market currencies, extreme Chinese stock market volatility, bloated Chinese debt and bank balance sheets, plunging commodity prices and slowing global growth. Currency issues (and other signs of trouble) in Russia, Brazil and Turkey are tied mostly to political factors and, in the case of Russia and Brazil, reliance on oil. Those are local issues, not global, and the US outperformed these and other Emerging Markets because it was (and remains) on stronger economic and political footing, alongside far lower expectations. Moreover, Emerging Markets currency crises, historically, have not ended global bull markets. As for the rest? China’s stock market is disconnected from its economy. China’s local government debt issues are well-known, and the banks and state have ample firepower to deal with them (officials have already taken several steps to do so—some centrally planned, some market-oriented). Cratering commodity prices reflect a supply glut, not weak demand. Despite fears of faltering global growth, the Conference Board’s Leading Economic Indexes for many major countries point to continued expansion. To us, these are just more bricks in the proverbial wall of worry bull markets love to climb. For more on China, see our thoughts here.

By , The Telegraph, 08/26/2015

MarketMinder's View: William Dudley, president of the New York Federal Reserve, said this morning a Fed rate hike next month now seems “less compelling” given recent market turmoil. Some cheered his comments, thinking the Fed putting off tightening monetary policy is a good sign for the economy. But in our view, even if the Fed does raise rates in September, this will very likely not derail the expansion—it would take much tighter credit conditions to do this. Exactly when the Fed will begin raising rates doesn’t mean all that much, and trying to figure out when this will happen isn’t actionable for investors. Bull markets usually go on for several years after rates begin rising, and we have no reason to think it will be any different this time around. Also, Dudley is just one of the FOMC’s 10 voting members, and they all have different opinions, preferences, biases and interpretations of economic developments, so nothing here makes the Fed’s next move any easier to predict.

By , New York Magazine, 08/26/2015

MarketMinder's View: The deeper dread being that should the economy tip into recession, policymakers have little ammunition to battle it, given interest rates remain near zero and high debt may dissuade politicians from fiscal stimulus. This is an entirely academic question, though. Recessions don’t just come out of nowhere. They are usually preceded by tight credit conditions—which show up in inverted yield curves, falling lending and monetary contraction. Today, the yield curve is positive, lending is rising, broad money supply (M4) is accelerating, and several indicators show private-sector demand and activity are healthy. Also, the policymakers-are-out-of-ammunition theory assumes fiscal or monetary stimulus is necessary for the economy to break out of recession. This isn’t necessarily the case either, as economic cycles happen naturally—the economy won’t just contract forever. At some point, things need to be produced, new technologies emerge, and banks resume lending. Finally, central banks have lots of tools at their disposal beyond slashing rates and quantitative easing (which isn’t stimulative anyway). They can cut reserve requirement ratios and focus injections of liquidity where needed, as well as other measures they can create as conditions warrant. For more, see our thoughts here.

By , The New York Times, 08/25/2015

MarketMinder's View: Story of the day—if not the week—hands down. We recommend reading twice daily for maximum results.  

By , The Wall Street Journal, 08/25/2015

MarketMinder's View: So the first six paragraphs here are fine as a brief discussion of how (and why) many investors struggle to scale volatility properly. But those nuggets are overshadowed by the rest of the piece, which uses the cyclically adjusted P/E (CAPE) ratio to gauge whether stocks were attractively cheap at Monday’s intraday low. This exercise holds two big problems for investors. First, that intraday low lasted for microseconds, and assessing its attractiveness as an entry point is entirely academic. Second, as we’ve written many times, CAPE is a poor and largely useless valuation metric. The past 10 years of earnings don’t predict the future. Nor does past price movement. That doesn’t just make CAPE’s long-term average meaningless, it makes CAPE itself entirely meaningless. As for the conclusion, while it has kernels of truth—indeed, you can’t identify the perfect entry point until long after it has past—it also sort of overlooks the obvious: If you accept as historical fact and exceedingly likely future that stocks rise over time, and your long-term goals require that growth, seeking perfect “bargain” buying opportunities is rather fruitless.

By , The Washington Post, 08/25/2015

MarketMinder's View: Dour headline aside, this is actually a fairly even-handed, objective look at what’s happening in China’s economy and what it means for the world. Yes, there does seem to be a bit of a disconnect between the government’s market-oriented reform plans and its actions, and that has folks a bit spooked. But that is a political issue for Chinese stocks, not really a global economic issue. Chinese domestic stocks (A-shares) are rather disconnected from the Chinese economy, which is in better shape than many presume. “Also lost amid the talk of collapse is the fact that, despite real and worrying problems, China’s economy is still making gains. There is a debate about how fast China is growing—the government predicts 7 percent GDP growth, but some experts believe the true figure could be as low as 4 or 5 percent. Even if the figure is near the lower end of that range, it is growing still. China’s industrial sector is struggling badly, but there have been positive signs in terms of services and consumption—the very sectors China hopes to develop. The latest data show the services sector has become the biggest driver of economic growth in China, expanding 8.4 percent in the first half and accounting for 49.5 percent of GDP, according to government statistics—which, while not perfect, are generally thought to give a sense of trends.”

By , Bloomberg, 08/25/2015

MarketMinder's View: This has some interesting factoids on Chinese demand, which appears far firmer than most feared as WTI crude oil prices slid below $39 per barrel on Monday. But in our view, it is a bridge too far to call these factoids evidence oil is too low today. Maybe it is, or maybe supply growth remains far higher than demand growth and continues exceeding expectations and US shale producers try to squeeze out every last drop of revenue and Iran ramps back up in anticipation of eased sanctions. The technical indicators highlighted here won’t tell you any of that. Moreover, whether oil is at $45, $35 or lower, it doesn’t really change the fact low prices whack producers’ profits, making Energy firms relatively unattractive for the foreseeable future.

By , Bloomberg, 08/25/2015

MarketMinder's View: While this piece isn’t perfect, it does highlight the fruitlessness of trying to pin volatility on any one thing. Yes, corrections often have a scary story—this one has China—but whether you can pinpoint a cause or not isn’t really actionable. Volatility happens, and accepting this as the tradeoff for stocks’ long-term returns is vital.

By , Financial Times, 08/25/2015

MarketMinder's View: We highlight this rundown of Brazil’s many headwinds to illustrate a broader point: Attempts to paint Emerging Markets as uniformly weak ignore the country-specific issues facing the troubled nations. Brazil’s troubles stretch beyond commodity-related weakness to include corruption, weak political institutions and the fallout from years of misguided government intervention (which left the country with high inflation, an inverted yield curve and sky-high interest rates). These issues aren’t illustrative of the broader Emerging Markets landscape—particularly the commodity importers. On balance, the developing world is still contributing to global growth and should keep doing so as the strong more than offset the weak.

By , FiveThirtyEight , 08/24/2015

MarketMinder's View: While pithy, the advice here is sound: Selling based on short-term negative market volatility, no matter how sharp, is the wrong move for longer-term, growth-oriented investors. As this piece points out regarding short-term declines, “every one of those declines has been followed by a rebound. Sometimes it comes right away. Sometimes it takes weeks or months. But when it comes, it comes quickly. If you wait until the rebound is clearly visible, you’ve already missed the biggest gains.” Now, this may linguistically overstate the scope of the present decline—calling a correction a “crash” seems a stretch to us—but that is a minor quibble. We aren’t arguing you should never reduce equity exposure. Just that it only makes sense to get out of stocks when you see a bear market—an extended market drop of -20% or more due to deteriorating market fundamentals or an unforeseen big negative—forming. Otherwise, remaining in the market and weathering the bumps is the price to pay for stocks’ long-term returns.    

By , The Wall Street Journal, 08/24/2015

MarketMinder's View: We present this as a sampling of the reactions to Monday’s volatility with this caveat: Read this article at a higher level rather than buying into any of the commentary. Instead of wondering about the possibility of markets being stuck in a “vicious cycle” that may deter the Fed from raising rates, take note of the fact the ongoing correction is spurring all the typical kind of correction-like fears. It isn’t being dismissed or explained away by a euphoric public. As the old saw goes, bull markets climb a wall of worry, and doesn’t that seem to have gotten a few more bricks lately? For more, see today’s commentary, “Navigating a Choppy Stock Market.”        

By , The Economist, 08/24/2015

MarketMinder's View: Yes, China’s domestic equity markets have plunged over the past two months. Yes, Chinese economic growth overall has slowed, and the declines have been more acute in certain sectors (e.g. heavy industry). No, this doesn’t mean impending doom for the entire Chinese economy (and by extension, the global economy). As this piece points out, “The services sector supplanted manufacturing a couple of years ago as the biggest part of China’s economy, and that trend has only accelerated this year. The alarm on Friday stemmed from an unexpected fall in the purchasing managers’ index (PMI) for manufacturing sponsored by Caixin, a respected Chinese financial magazine. That gauge has been lilting southward for a while. By contrast, Caixin’s PMI for the services sector jumped to an 11-month high in July.” Nothing in recent data suggests something has fundamentally changed: China continues transitioning from industrial- and export-led growth to consumer- and services-driven growth.    

By , The Washington Post, 08/24/2015

MarketMinder's View: According to this take, a Fed rate hike sometime in the near future will unleash chaos, threatening price stability, employment and the overall financial picture. But this presumes the Fed is propping up the economy, whether through near-zero interest rates or, before last October, quantitative easing (QE). However, many of the Fed’s actions (QE2, Operation Twist, QE3) flattened the yield curve and likely stymied loan growth rather than accommodating the non-financial economy with loans. That is one reason why growth hasn’t been particularly fast, in our view. But either way, US GDP has been at record highs for about three years—ditto for corporate profits, R&D spending and overall business investment. Even late-lagging unemployment has fallen significantly. We believe the economy can handle an initial fed funds target rate bump up from near zero to a smidge more than near zero. We also think the Fed finally getting on with a hike would actually be beneficial from a sentiment perspective, too. We expect a Fed hike that ends in the rather benign fashion would remove a long-standing false fear, allowing investors to finally move on.  

By , Financial Times, 08/24/2015

MarketMinder's View: There are lots of good tidbits here about the limitations of stock indexes—especially the media’s preferred market proxies, like the US’s Dow Jones Industrial Average. As this piece sensibly notes, the Dow is price-weighted—share price influences a component’s index weighting, causing an awful lot of skew. When you factor in how few stocks the Dow actually holds—20 in 1916 and its current 30 starting back in 1928—the index just doesn’t represent today’s universe of US stocks very well (even though the media acts as it does). While no index is perfect, we prefer using broader, market cap-weighted indexes with a global emphasis rather than any one domestic index—investors seeking long-term growth are better served investing globally, in our view.

By , Calafia Beach Pundit, 08/24/2015

MarketMinder's View: While most seem to blame China for recent volatility, there is an undercurrent of fear pointing to Energy prices and commodity firms. This does an excellent job overall of putting that fear into perspective. Enjoy.

By , The Guardian, 08/21/2015

MarketMinder's View: Anything is possible, but markets move on probabilities, not possibilities, and we see little evidence a hard landing is likely in China. Weak China fears have cycled in and out of headlines since 2011—this is just another iteration of a long-running theme, and things aren’t much different today. Growth has slowed, but the numbers remain enviable by most standards. Most countries would kill (not really, it’s a metaphor) for 6.0% y/y industrial production growth, 10.5% retail sales growth and 11.3% growth in annual fixed investment. Not to mention 7% y/y GDP growth or even 5%, if private sector estimates are more accurate than China’s official figures. 5% growth this year would still add about $500 billion to world output. That isn’t a crisis, folks. As for other Emerging and Frontier Markets, yes, those depending on commodities will have a hard time. But others—Korea, Taiwan, India, Malaysia, Vietnam and more—benefit from cheap energy and raw materials. Markets are focused on fear right now, but over time, they should resume weighing fundamentals, which are far better than most appreciate.

By , The Wall Street Journal, 08/21/2015

MarketMinder's View: So first of all, we’re perplexed by the headline, as it implies an investor’s relationship with their broker or adviser is adversarial. That really isn’t how it should be. You hire an adviser, and technically they work for you, but the best ones work with you, managing a portfolio to meet your long-term needs as they evolve. And second of all, extending a fiduciary standard to every investment professional advising on a retirement account—advisers and brokers alike—won’t do what this article implies it will. It won’t destroy brokers’ traditional business model, as it doesn’t ban trading commissions, and it has several loopholes to preserve the sale of pricey products that might benefit the broker more than the client. Under the proposed standard, a broker could sell someone a variable annuity in their retirement account so long as they disclose the conflicts of interest and reasonably believe it is a good fit for the client. That isn’t hard to rationalize, folks. Overall, if the traditional fiduciary standard doesn’t ensure all registered investment advisers provide top-notch advice and low-cost, high-value services, we fail to see how the watered-down version proposed by the Department of Labor would do any better. In our view, it actually makes things worse, as it further blurs the line between investment sales and service. Congress and the SEC drew that line for a reason in the 1930s and 1940s, and the brokerage industry’s constant attempts to muddy the waters have done investors a big disservice over the last several decades, in our view. For more, see our commentary, “Be-Laboring the Fiduciary Standard.”

By , Xinhua, 08/21/2015

MarketMinder's View: The index hit 47.1, which means only 47.1% of the 420-plus firms surveyed reported rising business activity, which most interpret as a contraction in the manufacturing sector. So, a couple things about this. One, Caixin’s purchasing managers’ index (PMI) includes small and private firms, which have struggled amid tighter credit for years now—the official manufacturing PMI, which concentrates on the large state-run firms comprising most of Chinese output, is usually higher. Two, this index has bobbed in and out of contraction for years now, yet China’s economy never actually shrank. It grew. A lot. Its growth rate just slowed modestly. Same goes for China’s industrial sector. So this isn’t some new reason to be massively bearish or fear a Chinese hard landing. It is really just more of the same in China’s long, gradual slowdown (and this global bull market).

By , Bloomberg, 08/21/2015

MarketMinder's View: The latest standoff on the Korean Peninsula sent South Korean stocks to a two-year low, and volatility could very well continue as tensions mount—not just in Korea, but globally. However, history overwhelmingly shows regional conflicts—even those involving major powers—don’t end bull markets. After correcting at the outset, stocks rose throughout the Korean War. Barring an extremely unlikely global escalation of Korean tensions, the risks for world stocks appear small. Stocks did fine in 2013, the last time North Korea said it was in a state of war with its Southern neighbor.

By , The New York Times, 08/21/2015

MarketMinder's View: As a wise man once said, irony can be pretty ironic sometimes. When he became Greek Prime Minister in January, Alexis Tsipras was a radical anti-austerity firebrand who vowed to tear up the bailout memorandum and shift the balance of power in the eurozone. Now he is a pro-euro pragmatist who signed his very own bailout memorandum, chock full of austerity, and who vows to implement every last measure, restore Greece’s fiscal and economic credibility, and shepherd Greece through tough times while making nice with Europe. Some people in his party, Syriza—an acronym for Coalition of the Radical Left—have decided he is no longer sufficiently radical or leftist and split into a new party, the Popular Unity Party, last night. Now they are vowing to tear up the bailout memorandum and leave the euro, making them the populist firebrands everyone fears. So eurozone leaders all seem to hope Tsipras capitalizes on his sky-high poll ratings and wins a solid, bailout-supporting pro-euro mandate. But only time will tell. Anyway we don’t have a dog in this fight, and as ever, we favor no political party regardless of the country. We just find the twists and turns utterly intriguing and entertaining. As for markets, Greek political uncertainty is nothing new. The country has had five governments in five years and two big votes this year alone. Markets are quite adept at handling all this, and the risks of contagion remain low.

By , The Washington Post, 08/21/2015

MarketMinder's View: While this is overall a mixed bag, we quite liked the discussion of markets’ alleged reaction to Wednesday’s release of the Fed’s most recent meeting minutes: Blaming the minutes for Thursday’s volatility assumes it took efficient markets over a day to fully digest the report, which just isn’t how markets work. We also enjoyed the thorough thrashing of the bizarre circular logic behind this week’s Fed-related jitters. That said, we’d hesitate to pin Thursday’s drop on China, Greek electoral uncertainty or oil prices—or any one thing. Volatility just happens sometimes. Beyond that, we find the comparison between today’s potential “rate rage” and quantitative easing’s “taper tantrum” a bit revisionist. When former Fed head Ben Bernanke first alluded to tapering the Fed’s bond buying in May 2013, he didn’t put a date on it. He just said it was out there and on the table. So there was no timing to delay—they were always going to taper when they tapered. Also, despite some initial volatility (which never even reached -10% to become an official correction), stocks recovered swiftly and had one of their best years since WWII. Rate rage (which Google tells us is indeed a thing) does remind us of taper terror, but only because both are widely held Fed-related false fears—bricks in the “wall of worry” bull markets climb.

By , The New York Times, 08/21/2015

MarketMinder's View: We agree with the headline and the last sentence: “The best response for most investors trying to grapple with the latest bout of volatility is to take a deep breath, appreciate the remarkable run-up of the last five years, and remember that if you panic at the thought of losing 4 percent of your money in four days, that money really shouldn’t be invested in the stock market to begin with.” But most of what’s in between is a real head-scratcher. Markets didn’t look bubbly before this week. Nor did stocks overshoot fundamentals from 2009 through 2014. There is no law saying stocks must move one-to-one with corporate earnings or GDP—which would actually be really weird, because GDP isn’t the economy. Imports detract from GDP, but some companies—like a big one whose name rhymes with Mall-tart—thrive by selling imports. Yes, stock earnings yields are lower today than at most points of the last four years, but that is normal and expected as a bull market wears on and increasingly optimistic investors pay more for future earnings (the earnings yield is the inverse of the P/E ratio)—and earnings yields aren’t abnormally low by historical standards. Oh, and if equity earnings yields exceed bond yields, then stocks are compensating for excess risk. As for the allegedly negative fundamentals discussed, low oil prices are a big whopping positive for every sector but Energy (and we guess Materials, which suffer relatedly from low metals prices) and countries that don’t depend on oil rents for economic growth or fiscal revenue. Low oil prices’ positives vastly outweigh the negatives. And “emerging market strains” today aren’t any worse than early 2014, summer 2013, 1997 or 1998. They brought pullbacks in 2013/2014 and corrections in 1997 and 1998 and didn’t end either global bull market. Considering Kazakhstan is only a tad bigger than Greece—and the impacted nations in the late 1990s were far more significant globally—we rather doubt it will end this bull market.

By , Vox, 08/21/2015

MarketMinder's View: This chart is just cool, and the write-up has fun factoids, to boot! Enjoy!

By , The Telegraph, 08/21/2015

MarketMinder's View: We’ve occasionally written in this space that OPEC is increasingly obsolete, as its ability to control global prices isn’t exactly what it was in the 1970s, thanks to the US shale boom. This piece explores the other reason for OPEC’s increasing fecklessness: The cartel is fracturing, as members have competing interests and different degrees of reliance on oil revenues for economic growth and public spending. Saudi Arabia is really the only member with the capacity to cut output, but all signs suggest it doesn’t want to, lest it lose market share to America. And that doesn’t make Venezuela, Iran and others happy, as they need higher prices. Especially Venezuela, which basically has no economy outside the state-run oil industry and is starving for hard currency (and, as a result, toilet paper). So it is entirely possible OPEC goes the way of the dodo—yet another reason we don’t see oil prices soaring any time soon.

By , The Wall Street Journal, 08/21/2015

MarketMinder's View: Actually, Markit’s services and manufacturing purchasing managers’ indexes rose a tad from July, so, cool. We aren’t going to shout from the rooftops about growth accelerating this month, as PMI fluctuations don’t translate directly to the economy’s direction, but this should help put to rest fears China and Greece are denting the rest of the world.

By , The Wall Street Journal, 08/21/2015

MarketMinder's View: Tip of the day: Articles packed full of jargon like this will rarely provide clarity or an actionable takeaway. We have tried for years to figure out what “risk off” and “risk on” mean, and we are pretty sure they are merely an elaborate hoax perpetrated by sell-side analysts, who toss them around and then point and laugh at everyone who thinks they’re real. As for bond markets, it is fairly normal for investors to flee to the safety of Treasurys when they get spooked, and maybe we’re seeing that now. But it is really just the Treasury market version of normal volatility, and this stretch doesn’t change our longer-term outlook any more than stocks’ wiggles change the outlook for equities. Like stocks, bonds move most over time on supply and demand. In bond markets, supply and demand have played tug of war with each other all year, keeping bonds volatile but largely flattish for the year. We expect that to continue. 


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Global Market Update

Market Wrap-Up, Wednesday August 26, 2015

Below is a market summary as of market close Wednesday, 8/26/2015:

  • Global Equities: MSCI World (+2.1%)
  • US Equities: S&P 500 (+3.9%)
  • UK Equities: MSCI UK (-2.7%)
  • Best Country: United States (+3.9%)
  • Worst Country: UK (-2.7%)
  • Best Sector: Information Technology (+4.7%)
  • Worst Sector: Materials (0.1%)

Bond Yields: 10-year US Treasury yields rose 0.10 percentage point to 2.18%.

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.