|By Staff, Bloomberg, 12/18/2014|
MarketMinder's View: Nice graphics—flashy!—but this holds little value for investors looking towards 2015. The things that would potentially be big and bad—like the US, Russia, Norway and Denmark fighting over mineral rights in the Arctic or Putin invading the Baltics seem highly unlikely. Of the other fifteen “threats” listed here, most are unsurprising and/or too small to hit global stocks and/or unlikely to happen. There are several permutations of regional wars in the Middle East. Saber-rattling in Asia? Grexit? Look, it might be terrible to say, but nothing in Nigeria is likely to cause a global bear market. This would be more appropriately labeled, “An Extreme Pessimist’s Speculative Guide to the World in 2015.”
|By Rich Miller, Bloomberg, 12/18/2014|
MarketMinder's View: Well folks, it has been a considerable time since we’ve had a new Fed phrase for the financial media punditry to dissect and speculate about, but it seems Janet Yellen has given us a new word to monitor in 2015: Patient! It is a great word and a quality we recommend to all long-term investors. However, its presence in a central banker’s speech shouldn’t cause you to change your market outlook. The Fed will hike rates when it hikes rates—and history has shown that a rate hike isn’t an automatic negative for the economy or markets. For more, see Elisabeth Dellinger’s column, “Considerable Wrangling Over Considerable Time.”
|By Neil MacFarquhar and Andrew Roth, The New York Times, 12/18/2014|
MarketMinder's View: Well technically, Mr. Putin isn’t wrong—his country’s energy-dependent economy is completely at the mercy of oil prices, and thanks to rising global supply, prices have been nearly halved since June. As a result, the ruble’s slid the whole year, and despite the Central Bank of Russia’s efforts, plunged this week. But Russia’s tsar, er, president seems to suggest that evil speculators conjured up by “the West” are working against the Motherland. Which is a whole lot of Russian politicking likely designed to make folks overlook the weak economy out of patriotism. We’d suggest Russia’s current struggles needn’t imperil the global economy at large. For more, see our 12/17/2014 commentary, “The Red Scare.”
|By Tom Randall, Bloomberg, 12/18/2014|
MarketMinder's View: Well, this is all about future investment in oil production that the “bankers” estimate won’t happen over the next decade. So it’s a long-term forecast (shaky) and one that products production growth in 2015. There really is no such thing as a permanently “stranded asset”—one that is uneconomical to extract. Technology gets better, lowering breakevens. Lower prices probably bring more demand. And if production growth slows, as the article notes, prices likely rise thereafter. All this fancy talk really just illustrates how the market has always worked and why the market works, pure and simple.
|By Martin Crutsinger, Associated Press, 12/18/2014|
MarketMinder's View: More positive news for the US economy: The Conference Board’s Leading Economic Index (LEI) rose for the ninth time in the past 11 months, up 0.6% in November. Eight of 10 indicators increased, with the two biggest being the interest rate spread and the ISM new orders index—forward-looking signs growth likely continues rolling into the new year.
|By Joshua M. Brown, The Reformed Broker, 12/18/2014|
MarketMinder's View: This is a good reminder for investors who may be tempted to chase heat based on the news about Cuba: “But Cuba, when all is said and done, will continue to be a frontier market, with total annual GDP of $72 billion and per capital income of just $10,500. If there is a lasting boom in that country, you will have plenty of time—no need to chase this fund up 30% this afternoon.” To take this concept broader, this is just the latest example of Fad investing you should avoid. Here are some earlier examples: Bitcoin; Marijuana-related firms; some social media firms. Maybe someday those will be big, investible opportunities, but they aren’t now. Searching for The Next Thing to Go Huge and Viral in markets is speculating, not investing.
|By Mehreen Khan, The Telegraph, 12/18/2014|
MarketMinder's View: The nine charts here offer a potpourri of backward-looking, late-lagging, wonky and speculative claims for why Greece should leave the eurozone today. Employment. Past GDP comparisons. The trade deficit. Debt levels. Emigration. Surveys and political polls. Where is the sign any of these would actually improve if Greece left the euro? Sure, if they had their own currency, they could monetize the debt. Grrrrrrrrrrrrrrrrrrrrrreat. That’s not exactly a recipe proven to generate jobs, exports or competitiveness. And that last word is key—competitiveness. Because Greece’s issues are not that they are in a currency union. They are that this nation has decades of history of structural economic issues. Now, this also buys much too heavily into the theory a potential election may put an anti-austerity (not anti-euro) party in power who the EU/IMF/ECB troika might not negotiate with, possibly leading to a “Grexit.” For more, see our 12/10/2014 commentary, “The Greek Gambit, Redux.”
|By Neil Irwin, The New York Times, 12/17/2014|
MarketMinder's View: What’s charted here is actually the Ruble/Dollar exchange rate since September, WTI crude oil prices since mid-November and 10-year US Treasury yields since January. So, you know, not 24 hours. But that’s a minor quibble and one we’ll happily pardon since headlines’ purpose is to get clicks and, well, it worked! The larger issue here is with the thesis, which is more or less that Russia’s predicament is terrible for Russia but good for America, because falling oil prices plus a flight to safety is pulling down interest rates, making mortgages cheaper. Which is sort of the old quantitative easing (QE) argument all over again. Maybe low long rates do stimulate demand for loans! But they also flatten the yield curve, which generally makes banks less eager to lend. Low-rate loans aren’t as profitable. Now, the yield curve is steeper today than it was last May, before all the chatter about QE ending drove long rates higher. That’s good! And the US did overall fine during QE despite the flattish yield curve, historically low loan growth and falling M4 money supply. This shouldn’t upend the expansion or anything. It’s just faulty logic, which we feel compelled to point out in our never-ending quest to make the world a better place.
|By Dunstan Prial, Fox Business, 12/17/2014|
MarketMinder's View: OK let’s talk about this one. It claims the clock starts ticking whenever the Fed removes language stating rates won’t rise for “a considerable time” from its policy statement—and “considerable time” means “six months,” so if the Fed redlines that verbiage today, you should mark your calendar for a mid-2015 hike and commence whatever freak-out ritual you prefer. Here are two reasons why that is rather useless advice. One, the first rate hike in a tightening cycle isn’t inherently negative—history shows stocks and the economy fare fine. Two, the “six month” thing is based on a goof by Fed Chair Janet Yellen during one of her first press conferences, where she forgot that Fed people are supposed to be vague. Since then, she has been quite non-specific on timing.
March 19: “So, the language that we use in the statement is “considerable” period. So, I—you know, this is the kind of term—it’s hard to define. But, you know, it probably means something on the order of around six months or that type of thing. But, you know, it depends.”
June 18: “So what I want to say, the guidance that I want to give you, is that there is no mechanical formula whatsoever for what a “considerable time” means. The answer as to what it means is, it depends. It depends on how the economy progresses.”
September 17: “I do not think we have any mechanical interpretation that applies to this. It, of course, gives an impression about what we think will be appropriate, but there is no mechanical interpretation. … And it is important for markets to understand that there is uncertainty, and this statement is not some sort of firm promise about a particular amount of time.”
BREAKING NEWS: “Considerable time” is still in the statement, only a sentence later. The Fed added “we’ll be patient” and basically said these things are synonymous. So yah, more meaningless noncommittal obfuscation. Seems about right.
|By Richard Rubin, Bloomberg, 12/17/2014|
MarketMinder's View: Yes, our friends (?) in the 113th Congress fiiiiinally got around to renewing the dozens of mini tax breaks that expired earlier this year, giving Americans 13 days of clarity on their IRA required minimum distributions, charitable donations and other fiscal nuances. Quick! Call your tax adviser! But don’t plan for next year just yet, because they all expire again on January 1, giving the 114th Congress the pleasure of haggling over an extender for 2015 and maybe beyond. Now, we expect them all to be renewed again eventually, as they always are. It would probably be helpful if they’d just make the things permanent already, but that would rob them of one of their favorite campaign wedge issues, and we can’t have that! Anyway, in short, it’s all theater. But really, quick, call your CPA!
|By Dan Murtaugh and Lynn Doan, Bloomberg, 12/17/2014|
MarketMinder's View: So this is interesting but sort of misses the point: This conversation would never happen when oil prices were high, because politicians would be worried about blowback from voters (most assume exports mean higher prices—see here for more on why that isn’t true). Exports are much easier for folks to digest when oil is in the $50s than when it is over $100 and gas prices average somewhere in the $2s, depending where you live. None of this changes the fact that the export ban is a largely political issue that is well past its use-by date. When the US is one of the world’s top oil producers and drowning in a crude surplus, we just don’t need an export ban that originally aimed to shore up supply during the OPEC embargo in the 1970s.
|By Peter Eavis, The New York Times, 12/17/2014|
MarketMinder's View: In all likelihood, no, falling oil prices and issues in Russia likely won’t test whether regulators’ efforts have made the global financial system more panic-resistant. For one, junk bonds have been under pressure, but this is mostly confined to Energy firms and very speculative ones at that. The likelihood this creates a panic akin to 2008 is extremely small, considering the total exposure is about $200 billion (it took trillions of writedowns to create 2008); Energy firms hedge against falling prices; not all the junk bonds are issued by companies reliant on oil—some drill for natural gas, which is up year-over-year; and oil prices at present levels don’t put all these firms in the red—breakevens vary. As to the Russia concerns, banks in the US aren’t very connected to Russia, and even European banks have relatively limited exposure. Additionally, Russia itself has over $400 billion in forex reserves at the Central Bank of Russia, which it could use to forestall default if it chose to—that amount is sufficient to cover the next 12 months’ maturing dollar-denominated sovereign debt about three times over, so a default just isn’t likely. And even if it did default a la 1998, as many fear: 1998’s Russian Ruble crisis and Asian regional recession didn’t go global and didn’t create a financial panic. We may not know if Dodd-Frank, Basel III and the like strengthened the financial system for decades—while recessions are a regular occurrence, widespread bank runs and panics are fairly rare in the modern era.
|By Staff, AFP, 12/17/2014|
MarketMinder's View: Today in totally unsurprising news, Greece’s government didn’t corral enough votes in Parliament to elect its handpicked Presidential candidate. They needed 200 of 300 votes and got just 160. Round two is next Tuesday. Round three, if necessary, is December 29, and the required votes drops to 180. If that fails, Parliament dissolves, and it’s general election time. Some say that would spell the end for Greece in the euro, as the anti-austerity Syriza party leads polls, but that seems hasty. IF it comes to a snap election, voters could moderate during the campaign, just as they did in 2012. If they don’t and Syriza wins, they could moderate, too—just as they have since 2012, replacing anti-euro rhetoric with anti-bailout rhetoric. And if they don’t and Greece leaves the euro? Considering how long folks have feared and chattered away about this outcome, markets have likely long since discounted that possibility. See our 12/10/2014 commentary, “The Greek Gambit, Redux,” for more.
|By Keith Bradsher, The New York Times, 12/17/2014|
MarketMinder's View: Welp, it seems as though the US now plans to make solar energy even more expensive than it was before by increasing the taxes charged on solar panels imported from China. (Odd, given our government’s stated policy aim of seeking to expand the use of renewable energy.) The good news here is these tariffs, now nearly two years old, haven’t evoked a major retaliatory tariff from China—and, China’s comments here don’t allude to that changing. Tariffs on solar panels are a tiny matter unto themselves, given green energy accounts for a tiny slice of the US or Chinese economies. Which means that if this had erupted into a trade war, it would have been arguably the dumbest trade war of all time.
|By Andrea Thomas, The Wall Street Journal, 12/17/2014|
MarketMinder's View: In a long-awaited ruling, Germany’s Federal Constitutional Court struck down a 2009 amendment to inheritance laws permitting family-owned businesses to be passed from generation to generation without tax, providing the firms ensured they wouldn’t slash employment. It is estimated that about 92% of German firms are family-owned and would theoretically qualify for this exemption. However, before fretting the impact of this legislation, we feel compelled to note that the Court’s ruling basically cites a technicality, claiming the thrust of the law wasn’t unconstitutional and gives the government until mid-2016 to revise it.
|By Staff, Reuters, 12/17/2014|
MarketMinder's View: That apparently ginormous decline would be a -0.3% month-over-month drop in headline CPI, slowing the annual inflation rate to 1.3% (from 1.7% in October). Not surprising, considering oil prices’ continued plunge. Core CPI, which strips out energy and fresh food, rose 0.1% month over month—slowing from October’s 0.2%—bringing the year-over-year figure to 1.7%. Will that change the Fed’s plans? Who knows! That question assumes the Fed had actual plans, which we are darned skeptical of. The FOMC is 10 humans who meet behind closed doors to discuss their reactions to the latest economic data. Then they make decisions and write wordy, obtuse press releases based on those interpretations. Folks, they’ll hike when they hike. That’s it.
|By Staff, The Yomiuri Shimbun, 12/17/2014|
MarketMinder's View: Why the range? The Economy Ministry wants a 2.5-point cut, while the Finance Ministry wants 2%. Apparently they’re “seeking a middle ground,” but no word on whether that means a 2.25-point cut—but they say we’ll know by December 30, after which this likely goes to the full Parliament for approval. More interesting, though, is the behind-the-scenes wrangling over how to fill an estimated ¥1.1 trillion tax revenue shortfall. Proposals include a supertax on company size (unclear whether this means market cap, total assets or total liquid assets), reducing the allowance for loss carry-forwards and raising the dividend tax on corporations’ equity holdings. Which makes us wonder: How does reducing the corporate tax rate make Japan more competitive if firms will just get hit another way? Seems like another watered-down reform attempt, not the sort of deep change key to revitalizing Japan in the long run. Markets have long expected more.
|By Jim Brunsden, Bloomberg, 12/17/2014|
MarketMinder's View: So much for EU finance commissioner Jonathan Hill’s private letter saying this thing would die if member-states remain lukewarm on it—now he’s publicly saying he’ll press on with proposed rules to ringfence banks’ investment banking and retail banking operations, banning more proprietary trading in the retail arm. This is sort of a mashup of the US’s Volcker Rule and UK’s Vickers Rule, and it’s a solution in search of a problem if the aim is preventing another 2008. Diversified megabanks with big retail and trading arms held up ok back then, and governments told them to get even bigger by buying up failed investment banks like Bear Stearns and failed savings banks like WaMu. Narrow institutions were the ones that failed. Plus! Trading losses were nowhere near loan losses, which were nowhere near the nearly $2 trillion in largely unnecessary writedowns. All those factoids make these rules largely just (expensive) window-dressing, though, banks can live with them, as they currently are in the US and UK. All that said, though, there is no reason Hill can’t change his mind again, and the EU’s lawmaking process dictates that all member states must approve of stuff like this. So even if he wants it really badly, if national governments don’t, it dies.
|By John Kemp, Reuters, 12/16/2014|
MarketMinder's View: Here is an excellent article illustrating how oil producers do not necessarily respond with immediacy to even very large changes in oil prices with altered production. Simply put, this is a long-cycle industry, where huge costs, time and effort are sunk into finding and extracting oil from the ground. You may see new investment get curtailed—that would be natural—but firms sharply ratcheting down current output seems unlikely.
|By Greg Robb, MarketWatch, 12/16/2014|
MarketMinder's View: “Despite widespread reports to the contrary, the Federal Reserve might retain its policy-statement pledge to the market that it will wait a ‘considerable time’ before hiking interest rates.” Way to go out on a limb! They “may” or “might” choose to keep a couple words! While we’re at it, Janet Yellen may sing her prepared remarks in a high falsetto! She might choose to tweet the entire statement. She might decide not to release a statement after all. All those are possible. But you can’t really even gauge the probability of anything the Fed will do, as the cabal of 12 FOMC members isn’t a gameable market function. Which is ok, because an initial rate hike just isn’t historically a negative for stocks.
|By Szu Ping Chan, The Telegraph, 12/16/2014|
MarketMinder's View: They are: Falling oil prices (because they create a deflationary spiral), housing bubble, Russian aggression, another eurozone downturn and banks’ vulnerability to a downturn and, um, cyber threats. All are false fears and overstated. Like, it’s a myth that slowly falling prices incent consumers to perpetually put off purchases in hopes of a better deal tomorrow, sinking consumption. After all, it’s not like the US and UK shrank massively during the overall DEflationary Industrial Revolution. The UK doesn’t have a housing bubble, just a supply shortage in London. The eurozone probably stays in its choppy, uneven growth phase, which is way better than people expect. Vladimir Putin’s adventures have proven powerless to affect the global economy for a year now. Two big banks just barely passing arbitrary government stress tests (which were based on balance sheets as of 12/31/2013) doesn’t say anything about actual vulnerability during an actual crisis that probably won’t look anything like the BoE’s stress test parameters. The UK isn’t riskless! But these issues aren’t the sort of big, surprising negative typically necessary to knock stocks off course during a bull market.
|By Joseph Cotterill, Financial Times, 12/16/2014|
MarketMinder's View: Here is some perspective on Russia’s big 6.5 percentage point rate hike announced last night—and an interesting counterpoint to fears of the current Russian weakness evolving into a 1998-style currency collapse. “Some historical context to place Monday evening’s 650bps move in Russia, big as it was, in some perspective. The central bank lending rate in the 1998 Russian crisis was just a little nuttier. The CBR [the Russian Central Bank] hiked from 30 per cent to 150 per cent between May 19 and May 27 that year. To say nothing of the scale of rate moves, this was a very different crisis back then; when the Yeltsin government faced plummeting tax revenues, oil prices were halving (from $23 to $11 a barrel) and sovereign default was on the way given reserves were distinctly outnumbered by the debt. And ultimately, the CBR failed.”
|By Park Si-soo, The Korea Times , 12/16/2014|
MarketMinder's View: On the one hand: The more the merrier, and yay for free trade! On the other: More participants means more complex negotiations, and the Trans-Pacific Partnership is already stuck in diplomatic purgatory. If it comes together and includes Korea as well, it’s a long-term positive for the US and other participating countries. But it seems awfully optimistic to expect this thing to be done next year, considering the many twists, turns and stalemates thus far.
|By Staff, Yomiuri Shimbun, 12/16/2014|
MarketMinder's View: A good, concise look at the challenges facing Japan after Prime Minister Shinzo Abe renewed his supermajority over the weekend. “To push his growth strategy forward, it will be necessary to break through the bedrock regulations industrial organizations have tried to defend desperately to maintain their vested interests.” But, Abe has some distractions, like his lifelong ambition to erase the anti-war clause from Japan’s Constitution and restore his nation’s military might: “With his long-term government increasingly becoming a real possibility, Abe set constitutional revision as his ‘target and belief.’” So, we’re rather skeptical about this: “‘We have no time to sit back and relax. We have to get down to business right away.’ Abe said this as he directed Akira Amari, state minister for economic revitalization, to accelerate compilation of economic measures after summoning him to the Prime Minister’s Office on Monday.” Abe has sung that same tune for two years now, and yet: “The Abenomics economic policy package pushed by the Abe administration seems to be losing steam due to the delay in conveying its effects to regional areas.” For more, see today’s commentary, “Now What?”
|By Thomas H. Kee, Jr., MarketWatch, 12/16/2014|
MarketMinder's View: The thesis here appears to be that December is usually good but may not be this time, which may indicate where stocks go in 2015 or may not. Now, none of that really means anything, and there are effectively no takeaways from this piece. And in that way, it’s a sensible article after all, because there is no takeaway from December’s market action, and none of it means anything about the future—past performance won’t predict. But also, we would strongly suggest that “cost-basis improvement” or strategies “designed to control risk and reduce cost basis” aren’t really things—they confuse and conflate cost basis with buying on the dips, which is a poor, short-term oriented strategy, anyway.
|By Huang Xiangyang, China Daily, 12/16/2014|
MarketMinder's View: Euphoooooooooooria! This is what it looks like, folks: “You are totally out of touch if you do not talk about stocks these days in China. The bull run on the mainland equity market and the perceived wealth effect that goes along with it have made it hard for even the least-interested investors to remain aloof. … The spring of China’s equities market has arrived, enthusiastic pros claim, with many pointing to a benchmark high of 4,000 or even 5,000 points in the coming year, up from about 2,900 at present. ‘The only limit is your imagination,’ one famous financial blogger wrote.” Now, this article goes on to highlight many reasons not to get carried away, and we aren’t saying Chinese stocks are in a euphoric peak. But if you want to know what irrational exuberance looks like, it’s professional forecasters predicting a 72.4% gain next year.
|By Chris Giles, Financial Times, 12/16/2014|
MarketMinder's View: There is a lot of good information here, and anyone wondering about which countries benefit from lower oil prices (and which nations get whacked) should give it a read. However, it has some flaws—namely, it falls prey to the widely held myth that low oil prices are economic stimulus globally and specifically in nations that aren’t oil-dependent. While falling oil prices do have some benefits, like reducing gas prices and some energy costs for businesses, they don’t really give consumption a net boost. Spending usually just shifts from gas stations (not fun) to more discretionary goods and services (fun). It’s not like low oil prices give folks more money to spend overall, ya know? It is also basically impossible to know they’ll actually spend it. They might save it or pay down debt with any cash freed up by lower fuel prices. Now, that isn’t to say those things are economically bad, they are just decidedly not the things most folks think are so juicy about low oil prices.
|By Kristina Peterson and Siobhan Hughes, The Wall Street Journal, 12/15/2014|
MarketMinder's View: Hey look! Congress passed something! Which actually isn’t that surprising. Nor is it all that surprising the spending bill’s passage came at the 11th hour. The bill now goes to the President’s desk for the final John Hancock, which he says is forthcoming. So you know, no government shutdown, for all you government-shutdown fans. Though, it is interesting to us to note the different media and general reaction to the threat of a shutdown. Last year, leading up to the 16-day government shutdown, many shuddered over the potential impact on darn near everything and everyone. This year, the focus was largely on what Congress was looking to attach to the bill, not what would happen if the government shut down again—a sign of improving sentiment and a much more rational way to perceive a shutdown, because they are largely ineffectual.
|By Joshua M. Brown, The Reformed Broker , 12/15/2014|
MarketMinder's View: “They” refers to the intrepid journalists who make a living reporting on daily market movement, and “it all” refers to the rationale often given for wiggles and waggles: “They’re watching market prices fluctuate and assigning meaning where none exists. Stories are being told and headlines are being crafted so that there is something for you to click on from your app when you check the news. There is nothing to be mad about, it is what it is. But the sooner you learn this lesson, the savvier a consumer of financial news you’ll be.” 99.9999% of the time, there is no way to truly know what causes short-term volatility. We suggest tuning out the noise and looking forward.
|By Chuck Jaffe, MarketWatch, 12/15/2014|
MarketMinder's View: Four decent pieces of advice here: Only buy securities from registered professionals; keep an eye out for complicated investments or strategies (you should understand it well enough to simply explain it easily to someone else); be realistic when it comes to risk and returns—nothing can be low risk and high returning; and vet your advisers well enough to earn your trust before hiring them. These are all good, but we would add one very simple, clear-cut one: Be wary of an adviser who makes your investment decisions and takes custody of your assets. This gives them access to your money, and it isn’t necessary—you should demand your assets are held at a major, third-party brokerage house in an account in your name that you can access anytime. This is a major preventive measure and a crucial one. For more, see our commentary here.
|By Staff, The Yomiuri Shimbun, 12/15/2014|
MarketMinder's View: Japan went to the polls on Sunday in the snap election Prime Minister Shinzo Abe called after delaying next October’s scheduled sales tax hike, the second in two years. As was expected by basically everyone, Abe’s Liberal Democratic Party/New Komeito coalition government gained, increasing its majority from 325 of the lower house’s 480 seats pre-election to 326 of 475 seats after. Now, many in the press are hailing this “mandate” as key to Abe’s implementing the more contentious reforms so notably absent from his “Abenomics” plan of fiscal stimulus, monetary stimulus and structural reform. But we ask you: Is one more seat really so key? The coalition had a supermajority before and no reforms came. We are skeptical this is really anything other than a classic Japanese political move designed to maintain party power for longer. Should that prove true, we would suggest Japanese stocks will continue sliding down the slope of hope. (The Wall of Worry’s dastardly, negative cousin.)
|By Paul Krugman, The New York Times , 12/15/2014|
MarketMinder's View: OK party people! What time is it? Time to set aside your political bias to assess the potential impact of a Dodd-Frank rule change that was tucked into the fun-sounding Cromnibus act that passed Saturday night. The original rule required FDIC-insured institutions to move 5-10% of their swaps trading to uninsured subsidiaries. The amendment moves only a portion of that 5-10% back. Besides, there is no evidence this would have any beneficial impact in a crisis nor would this have prevented the mark-to-market accounting and bizarre government action-driven 2008 financial crisis. For more, see our commentary here. Also, it isn’t all that likely that major changes (positive or negative) are made to Dodd-Frank. We have a gridlocked government overall. This happens to be one change that had broad agreement, largely because the costs were clear and the benefits generally acknowledged to be lacking.
|By Staff, Reuters, 12/15/2014|
MarketMinder's View: Our take on this one is pretty simple: Watch what policymakers do, not what they say. There is no point in parsing over Fed verbiage, as words can and do change. But also, even if you could glean some hint about when a rate hike might happen from this sort of stuff, history shows rate hikes don’t tend to automatically produce negativity. There is no if-then equation to Fed policy and stocks. Also, can you really call something a “wild card” for financial markets when it is scheduled and has been the subject of billions of pixels worth of speculation?
|By Barry Eichengreen, The Guardian, 12/15/2014|
MarketMinder's View: If quantitative easing (QE) is “The Answer,” we wonder what the question is? How to slow lending? How to reduce inflation? How to unstimulate an economy? How to use a fancy-sounding central bank strategy that accomplishes none of its stated goals? That is QE’s actual track record in Japan (both now and in 2001 – 2006), the US and UK. Over a century of economic theory shows flattening the yield curve discourages lending, which means the reserve credits central banks create never amount to increased money supply. If anything, QE would spur the “spectre of deflation” by weighing on money supply growth even more, rather than be the panacea suggested here. Finally, we must point out part of the low inflation read seen presently is the result of vast increases in commodity (energy, raw materials) supply. Very little that the ECB can do is going to boost oil prices. Now then, EU nations could tax oil more—which would certainly raise the price—but if you tax something (spending on gas/energy) you also get less of it. So you know, that probably isn’t so stimulative, either.
|By Jason Zweig, The Wall Street Journal, 12/12/2014|
MarketMinder's View: If you are considering hiring a professional to manage your assets or give you investment advice, read this. If you are wondering whether your current adviser is on the up and up, read this. If you want to see a great piece of writing about the financial services industry, read this. It starts with a timeless reminder to do thorough due diligence, then shows exactly what that looks like. Ending with this gem: Create a hypothetical portfolio of global stocks and bonds, with ETFs just to make it easy. Then show it to the adviser and see what they’d recommend changing. “If his answer is hesitant, long, complex, or includes the words ‘tactical’ or ‘insurance products,’ he probably makes investment management more difficult than it needs to be.” We’d only add that overly complex strategies described in jargon you can’t understand is a classic sign of fraud.
|By Len Boselovic, Pittsburgh Post-Gazette, 12/12/2014|
MarketMinder's View: Some manufacturing has moved to China since the Middle Kingdom joined the WTO. That is a fact. But you can’t quantify the exact impact on US jobs, since technology also played a large role there—you can’t isolate any one variable. Plus, not having seen the actual study, we have to ask: Did they account for the jobs created by higher imports from China? Longshoremen at our seaports? Retail employees? Local workers to service whatever we imported? Anyway, more to the point, this is all backward-looking, and it clearly hasn’t prevented the US economy—or total jobs—from growing over time. This study merely highlights a sociological issue, outside of markets’ sphere. (Unless politicians try to “do something” about it. Then, let’s talk.)
|By Darrow Kirkpatrick, Time, 12/12/2014|
MarketMinder's View: “Need” is in the eye of the beholder. There are plenty of alternatives if you’re trying to figure out whether your savings can last your lifetime. But calculators are widely used and can help you set expectations if you understand their limitations—and know the good ones from the bad ones. That’s where this article comes in, showing all that’s wrong (and occasionally right) with these online tools, along with how and how not to use them. If you’re saving for, near or in retirement and trying to plan, this is a must-read.
|By Mark Gilbert, Bloomberg, 12/12/2014|
MarketMinder's View: Why fear? Because, we are told, the Fed dictates “everything from how much your car loan costs to whether the stock market rises or declines.” Car loans, yes, to an extent. Stocks, no. Monetary policy is one variable markets weigh, and there is no set relationship between rate movements and stocks. The rest of this veers into fearing rate hikes will trigger a panic because debt is way up since 2000. Thing is, it isn’t like all existing debt gets way more expensive when rates rise. With the exception of a few variable-rate loans, rates get locked in at issuance. US Treasurys will keep paying what they always paid. Rate hikes affect NEW bonds and loans. That’s it. (Oh and history shows the first rate in a tightening cycle isn’t bad for stocks.)
|By Yuka Hayashi, The Wall Street Journal, 12/12/2014|
MarketMinder's View: We were going to preview Sunday’s Japanese election, but there isn’t any point—the Liberal Democratic Party and coalition partners look poised to run away with the thing, resulting in the status quo. So instead we give you this fascinating piece, which is not overtly market-related but shows why those expecting the election to boost the chances of economic reform are probably too optimistic. Prime Minister Shinzo Abe’s lifelong ambition is to restore Japan’s military might, and he has spent significant political capital on that goal. More than he has on the economy. Military matters, like removing the anti-war clause from Japan’s constitution, remain on the agenda, likely distracting focus from the economy after the election. Just as they have since he took office two years ago.
|By Lorenzo Totaro, Bloomberg, 12/12/2014|
MarketMinder's View: Would Italy benefit from the current government sticking around and passing economic reforms? Probably. (Depending how they’re written, of course.) Is it necessary for the eurozone overall to stay on its shaky positive course? Nah. They’ve all come this far even with Italy and Greece tottering, and markets have long since become used to political brinksmanship and shakeup in the eurozone periphery. This government going and another one coming would just continue Italy’s status quo of the last four years. Great? No. Ok for Europe and the world? Probably.
|By Damian Paletta, The Wall Street Journal, 12/12/2014|
MarketMinder's View: Alright folks, please look past all the politics and party association of who’s saying what here, because what’s important here has nothing to do with any of that. Bias blinds, and markets don’t care about ideology. We are merely highlighting this to inform you the US debt ceiling returns on March 15, and politicians are already bickering and threatening a stalemate! It’s baaaaaaaaaaack! As that date approaches, there will likely be lots of grandstanding, warnings about the consequences of delay, rumors of default and maybe some market volatility to go along with it. If that happens, remember this: The debt ceiling has been lifted well over 100 times, brinksmanship is normal, and hitting the debt ceiling doesn’t mean we default. See this, this, this and this for why.
|By Paul Mozur, The New York Times, 12/12/2014|
MarketMinder's View: Oh well. This would have been nice, dropping tariffs on about $1 trillion in gadget sales annually. Markets love that sort of thing! But the absence of a positive isn’t a negative—it’s just the status quo, which serves the world fine. This also isn’t surprising. WTO members have tried and failed for years to hash out a trade deal. When you have dozens of countries with competing self-interests and trade negotiators motivated by domestic politics, you generally don’t get a deal. On the bright side, maybe a few bilateral deals shake out! That’s usually what happens.
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Market Wrap-Up, Wednesday Dec 17 2014
Below is a market summary (as of market close Wednesday, 12/17/2014):
Global Equities: MSCI World (+1.0%)
US Equities: S&P 500 (+2.0%)
UK Equities: MSCI UK (-0.4%)
Best Country: Norway (+3.8%)
Worst Country: Netherlands (-1.7%)
Best Sector: Energy (+3.9%)
Worst Sector: Consumer Staples (+0.3%)
Bond Yields: 10-year US Treasurys rose .08 to 2.14%.
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.