Today's Headlines

By , The Wall Street Journal, 10/24/2014

MarketMinder's View: Parts of this are a bit buy-and-holdy, and it downplays the opportunities to capitalize on trends that arise throughout the market cycle. But those wee drawbacks aside, it is a handy look at some of the ways our brains and feelings trick us. These are four lessons every investor who isn’t a robot or otherwise lacks an emotional “off” switch would benefit from learning.

By , The Wall Street Journal, 10/24/2014

MarketMinder's View: The sciencey stuff in the first half is interesting, but probably not actionable. The second half, however, is full of good solid sense about how people err in perceiving their own ability to withstand market volatility—and what they can do about it. Why is this important? “For most investors, the most damaging risk is probably … ‘deviating from your long-term plan in pursuit of short-term emotional comfort in a time of unease.’” The four-part questionnaire at the end can help you avoid this trap.

By , MarketWatch, 10/24/2014

MarketMinder's View: This piece highlights an NBER paper claiming stocks do best under Republican governments but the economy does best under Democrats. This. Is. Hogwash. Stocks don’t prefer either party. Of the 13 bear markets since 1926, six started on a Democratic President’s watch and seven started under a Republican. The reason one is higher than the other is that there is an odd number. Differing economic growth rates during Democratic and Republican administrations stems from countless variables, many beyond the President’s control. Politically, we think the biggest swing factor is gridlock. When Congress can’t agree on anything, they can’t reshape property rights, regulation or the distribution of resources and capital. Stocks usually love the stability of the status quo.

By , The Washington Post, 10/24/2014

MarketMinder's View: No it didn’t. It just got argued, once again, which doesn’t make it remotely accurate. This time, two economists tried to model “secular stagnation” and came up with three reasons why it’s a thing and could stay a thing. Those reasons are household deleveraging, inequality and declining population growth. Let’s take a look. Households did deleverage quite a bit after the financial crisis, but borrowing bounced last year and is accelerating. Not that you need higher household borrowing and less saving to boost interest rates and boost growth—a bizarre thesis considering the paper goes on to argue we need super low rates to boost growth. (When arguments argue against themselves, they fail the logic test.) Moving to inequality, we have never seen reliable evidence it is widening. Most studies use pre-tax, pre-entitlement median household income. Which doesn’t account for a) programs created to address income gaps, b) the fact more houses are headed by singles today than 30 years ago and c) age. The household income of a 24-year-old college grad in her first job versus the household income of her parents, combined, in their prime earning years, is not inequality. It’s just life. Finally, demographic trends aren’t market drivers. Though, we’d also point out, Millennials outnumber Boomers. Japan didn’t have a lost decade because its working-age population started declining. Those economic troubles had a wee bit more to do with Japan’s structurally unsound state-sponsored neo-feudal-mercantilist economy.

By , Bloomberg, 10/24/2014

MarketMinder's View: Wheeeeeeeeeee! Growth! We’d give you more analysis, but these early releases never give you much to go on—consumer spending grew, exports fell, and it’s all backward-looking. But still, whee, growth.

By , Bloomberg, 10/24/2014

MarketMinder's View: Why did the SEC reject two firms’ applications to create the first “non-transparent” actively managed ETF? (Which is sort of like your typical mutual fund, which reports holdings quarterly, except it’s also an ETF.) It largely comes down to this: They “proposed a product that was too slow, that wouldn't allow for incorporation of information into prices on a microsecond-by-microsecond basis, that wouldn't let market makers make near-risk-free profits by trading quickly in multiple markets. And the SEC said, no, that's not allowed. Modern equity markets are about speed and efficiency. If your product doesn't align with those values, you can't trade it.”

By , The Telegraph, 10/24/2014

MarketMinder's View: Let’s be clear: The service sector didn’t “falter.” Growing 0.7% q/q—a 2.8% annualized rate—is not a fall, stumble or wobble. It is growth, and not of the snail-speed variety. Same goes for total GDP, which grew at the same rate. The UK is doing fine. As for all that stuff about a Q4 slowdown, it all seems a tad speculative. Though, it suggests expectations are nice and low, giving reality a fairly easy hurdle to beat.

By , The Telegraph, 10/24/2014

MarketMinder's View: There are some quite sensible nuggets here, including the headline argument that too big to fail is a myth. Markets didn’t seize in 2008 because Lehman was too big. They panicked because the government’s inconsistent, haphazard response scared the pants off people. When the government arbitrarily picks winners and losers in a crisis—forcing Lehman to go bankrupt after engineering JPMorganChase’s purchase of Bear Stearns under identical circumstances six months prior—investors and firms have no way to set expectations. Ergo, chaos. We also agree, in theory, that having credible resolution programs that allow banks to fail in an orderly manner is an ideal, market-oriented solution. We just don’t have much confidence the BoE’s plans accomplish that. The framework assumes the bank will pre-emptively identify banks on the brink and take them over before disaster hits. Ideally on a Friday. That just seems a little too rosy considering how quickly bank runs start and escalate during a panic. Washington Mutual was seized and sold on a Thursday, after a 10-day run. Things happen.

By , The New York Times, 10/24/2014

MarketMinder's View: We’re just skeptical that the “skin in the game” rule requiring banks to own a slice of any mortgage-backed securities they create does all that much to make the banking system stronger. We’re also skeptical of the related concern here, which is that regulators’ decision to scrap down payment requirements on the high-quality mortgages exempt from the skin in the game rule somehow makes the system extra-vulnerable. Seems like everyone’s missing the elephant in the room: Fannie and Freddie didn’t go broke in 2008 because evil banks hoodwinked them into buying securitized loans the banks knew were “toxic” and were eager to dump on the poor, innocent, unsuspecting government-sponsored enterprises. They went broke because mark-to-market accounting rules were misapplied to those illiquid assets, eroding their balance sheets. The actual loan losses from the crisis were about $300 billion, and those were spread across the banking industry. Total writedowns were nearly $2 trillion. The rule was toxic, not the assets. The rule is no longer a factor, so much of this debate seems moot.

By , EUbusiness, 10/24/2014

MarketMinder's View: This has zero market impact, but it’s fun, and it illustrates how feckless and arbitrary the EU’s deficit limits are. If Italian PM Matteo Renzi makes good on his pledges here, we’ll probably see how ironic those spending limits are, too. As for France and Italy, this entirely political, administrative debate doesn’t have much bearing on their fiscal health or economic outlook. Again, this is just fun noise.

By , The New York Times, 10/24/2014

MarketMinder's View: We would say the following regardless of which political ideology this article espoused, as we favor neither party and tend to see all politicians as slick self-promoters and nothing more: Beware of political opinion pieces dressed up as economic analysis. That is what this article is. An ideological rallying cry without factual support. It does not portray reality. It argues sluggish growth in 2011, 2012 and 2013 showed America’s vulnerability to events like Japan’s earthquake, the eurozone crisis and the weather. Actually, we think the fact a Japanese recession, 18 months of shrinking eurozone GDP and other obstacles couldn’t knock the US expansion off track shows just how resilient our economy is! Also it would be very bizarre for the Fed to look for “signs of real recovery” when real output passed its prior peak 12 quarters ago—recovery usually comes after, you know, a recession. Not during an expansion.


By , The Reformed Broker, 10/23/2014

MarketMinder's View: While the takeaway—there is no permanent must-own stock on Wall Street—is fine, we’d suggest this is too myopic and narrow to reach big conclusions. A third of the Dow is only 10 stocks, and we’re talking about a 12-month period. Some of those stocks will be oil and commodity-oriented too. Those aren’t facing issues specific to their firm, but rather, the industry-wide headwind of falling oil prices. Sure, some others face company specific issues. But the article sourced here doesn’t prove the point. Oh and besides—the biggest firms in the world, those many would consider blue chip, have blown small caps out of the water over the last 12 months.

By , Bloomberg, 10/23/2014

MarketMinder's View: The Conference Board’s US Leading Economic Index (LEI) rose 0.8% in September, with nine out of 10 indicators—led by the interest rate spread—increasing. The one negative contributor? Average consumer expectations for business conditions, which are among the most limited components in this forward-looking indicator—-surveys tell you only how folks felt on a given day. US LEI has now increased in seven of the past nine months, and no US recession has begun while LEI is rising in its 50+ year history. Huzzah!

By , The Wall Street Journal, 10/23/2014

MarketMinder's View: While the ECB’s much-anticipated stress test results will be made public on Sunday, banks are being notified privately today. Though it’s amusing to imagine failing banks’ reactions—we’re picturing a shamed student who has to get his report card signed by his parents—experts expect most banks to pass, considering they spent the past year deleveraging and hoarding capital in preparation for this assessment. Though we wouldn’t be surprised if a high profile name or two failed, the completion of the ECB’s stress tests is a positive development. In our view, this regulatory headwind has been the primary culprit for weak eurozone lending, which should start to improve with this uncertainty passing.

By , The Telegraph, 10/23/2014

MarketMinder's View: Starting in January 2015, the BoE will deal with failing banks in a three-step process. Step one: Stabilize the firm. Freeze its stocks and bonds from trading, give it a lifeline for funding. The BoE will directly step in, move deposits to a solvent third party and/or bail-in bondholders, converting debt to equity. Step two: Restructuring, which attempts to fix the causes of failure, including firing the current executives (presumed to be to accountable for the failure). The BoE will replace them with outside selections made in roughly 48 hours (the BoE thinks it has a great Human Resources and Recruiting department). Then, the third step is resolution, in which either the bank ceases to exist or will exit liquidity support. A few questions about this plan: 1) What if the failure doesn’t happen on a timeline? All the steps here presume the bank is deemed to have failed after shares are halted from trading and an assessment is done. Then over “Resolution Weekend” new directors are selected, deposits moved, bail-ins are decided on, etc. Busy weekend! What if they don’t get that time? 2) How will they determine a failure is looming? Who’s to say the BoE’s hand-selected choices will make the best decisions? What if the failures are not exclusively the fault of management—but rather, the unintended consequence of regulatory changes, as in 2008? Or monetary decisions, like in the early 1930s? Who gets fired then?

By , The Wall Street Journal, 10/23/2014

MarketMinder's View: Though we question the overall effectiveness of stress tests—passing one doesn’t guarantee solvency the next time banks face financial trouble, given no two crises are identical—they have definitely impacted current eurozone bank operations and strategy. This piece gives a nice rundown of the “what” and “why” behind the stress tests.

By , Quartz, 10/23/2014

MarketMinder's View: This article shows how titles can be misleading. Now, we agree more or less with the thesis: “The US economy is really roaring forward at the moment.” But most of the data points here are pretty backward-looking (job statistics) or limited (University of Michigan consumer sentiment index). The data here mostly show past strength in lagging indicators—backward-looking numbers won’t tell you anything about where forward-looking stocks will go.

By , Bloomberg, 10/23/2014

MarketMinder's View: We agree—it isn’t the Fed’s job to, “stop banks from making bad decisions that cost them money,” especially when the loss incurred pretty clearly didn’t represent a systemic threat. But we’d go further than that. The notion the Fed can proactively deflate bubbles or head off risks through “macroprudential regulation” disavows history. They have no such track record of expertise. The idea bad banker behavior created the crisis in 2008 isn’t accurate, in our view. To hedge against that, the Fed would probably have to spend some time analyzing the man in the mirror.

By , The Wall Street Journal, 10/23/2014

MarketMinder's View: An intermission assumes the dramatic Hard Landing of China show was actually underway. However, the fear has circulated now for more than four years, with stocks rising the whole time. Heck, China has never grown slower than 7.3% in that time, which is pretty enviable by global standards. We don’t doubt headline writers will do their best to conjure up the drama and make it seem like China is just one slip-up away from having that long-awaited “hard-landing.” But the nonfiction tale of the world’s second-largest economy likely keeps chugging along—maybe a bit more slowly, but nowhere near cratering.

By , The Economist, 10/23/2014

MarketMinder's View: After you read this, we suggest reading this. Neither of the two are exactly happy-go-lucky, everything-is-awesome-in-the-eurozone articles. Both are dour. But if you look at the data included there is no deflation and the economy is actually growing. For investors wondering where sentiment is, this article is prime evidence false fears are still rampant. But even if the eurozone continues floundering or actually falters, it isn’t exactly new news the eurozone is struggling. Even the alleged solutions—quantitative easing, increased German spending—are old. Look, we’re not saying the eurozone is poised to power the global economy—nor does it have to, given the current expansion has done just fine more or less without the eurozone. But if headlines proclaim a widely known, largely false fear is the “world’s biggest economic problem,” that’s just another brick in the wall of worry bull markets love to climb.

By , MarketWatch, 10/23/2014

MarketMinder's View: Well, we aren’t exactly pessimistic about holiday sales, but we don’t really think the stock market needs any saving. That said, this article gives us the opportunity to highlight some major misperceptions many folks have about holiday retail sales. One, retail sales is a small subset of consumer spending—equating them, as this piece does, neglects service spending. Two, consumer spending isn’t the ultimate economic driver some believe—while it composes about 70% of GDP, it’s usually a very stable aspect of growth and not the swing factor driving economic cycles. Stocks don’t need gangbusters consumer spending to rise higher. And three, lower gas prices may help some folks consume, but it also means they aren’t consuming gasoline. Money spent is more or less money spent.

By , The Wall Street Journal, 10/22/2014

MarketMinder's View: Attention Social Security recipients: As noted in this article, you will receive a 1.7% bump in payments in the next 12 months, based on annual CPI-W! (That’s the Consumer Price Index for Urban Wage Earners and Clerical Workers, the basis for the Social Security Administration’s cost-of-living adjustments.) Huzzah? Whether you think that a paltry sum or a big windfall, it is largely based on the still-tame inflation rates experienced in many parts of the world lately. However, the thesis offered here to explain this phenomenon (slow economic growth results in tepid wage growth, which means little inflation) was debunked almost half a century ago by Milton Friedman in papers like this one. Headline inflation is being weighed down by falling commodity (energy, food, raw materials) prices. Core inflation, still slow, is being weighed down by slow loan growth, which is the result of monetary policy decisions like quantitative easing, which flattened the yield curve, reducing banks’ loan profits and, hence, their willingness to make loans. Inflation is always and everywhere a monetary phenomenon, and without loan growth, the money supply doesn’t grow.

By , Bloomberg, 10/22/2014

MarketMinder's View: So the hopelessly confused theory here is that now central banks' measures target weaker currencies so they can make their trading partners’ currencies rise, and we all know a rising currency is deflationary, so this is the latest fear-morph labeled a "currency war," a splashy name. But here is the reality: Most central banks' primary function is to target inflation, avoiding deflation and hyperinflation, if successful. So isn't this round of policy making just a (misguided) attempt to do that? Second, quantitative easing hasn't proven to be very inflationary in Japan, the US or UK. Why would it be different now? Third, inflation and currency values are not one-to-one, directly related. Inflation is an absolute phenomenon, currency values are always and exclusively relative. Hence, two countries could both experience high inflation or low inflation, yet one of the two would (assuming some movement) likely have a stronger currency than the other.

By , The Wall Street Journal, 10/22/2014

MarketMinder's View: Well, we are sure the sanctions are having an impact on Russia’s economy, which reportedly grew 0.0% in September. But we would humbly suggest that oil prices are a bigger deal than the largely toothless sanctions the West has put in place. When your economy is basically a one-trick pony, and that one-trick pony faces an enormous increase in the volume of tricks from other ponies, the price that pony can fetch for its trick likely falls. That is what is happening in the oil market today, and the oil industry is much more price sensitive than volume. This means the vast majority of Russia’s budget is hamstrung.

By , CNBC, 10/22/2014

MarketMinder's View: The short answer, from an economic and market perspective, is no. China cannot replace the West as an export destination for Russia, and Russia cannot replace America and the West with China. What’s more, the 30-year Gazprom deal signed between Russia and China may be denominated in yuan, but that isn’t negative for the dollar. The yuan is a non-player on the global stage in terms of transactions denominated in it or its share of foreign currency reserves. But even if it were, there is no sign that would be a real threat to the US. The British pound is alive and well, yet it pales in comparison the US dollar on the global stage. Ditto for the euro. And the yen! Moreover, not mentioned here but often connected to this reserve-currency fear, is the fear such a move would jack up interest rates on US debt. But this ignores the fact Japanese, German, French and UK rates are as low as or lower than US, and none have the primary global reserve currency. To the extent more countries can trade without converting to USD, that is an economic plus for the world. The US government doesn’t get a brokerage fee or tax on the trade, and there is a buyer and seller in every transaction. This is just a ghost story, pure and simple.

By , The Washington Post, 10/22/2014

MarketMinder's View: There are numerous logical flaws with basing analyses like these on median household incomes. Try these on for size: 1) The median income may not change, but the people earning the median income may dramatically shift. And in a separate study published this January, the same economist whose work is cited here found income mobility is no different today than it was 30 or 40 years ago. 2) Median household income doesn’t adjust for demographic shifts in what defines a household. 3) Wealth is not a fixed pie. What the 1% or 0.1% or 0.01% (yada) have doesn’t limit another’s ability to earn more. In our view, one should be more wary of attempts to fix income inequality than the statistic itself, which is on a shaky foundation. Oh by the way, the notion here that “the middle class doesn’t own that much in stocks” is off. Since 1999, Gallup polls have repeatedly shown more than half and often more than 60% of respondents own stocks. The stock market isn’t a white shoe club for only the superrich, it’s a retirement planning staple for many Americans. 

By , MarketWatch, 10/22/2014

MarketMinder's View: Are there historical instances where the Fed has helped head off a crisis in a timely fashion? Yep—as noted here, the actions in 1987 seem appropriate, largely because tightness in financial markets was one cause of the bear that began that August. However, we feel compelled to note that neither 2012, 2011 nor 2010’s corrections ended with the Fed announcements noted here. 2012’s and 2010’s were already over (June 4 and July 5, respectively—a month or more before each of the announcements noted herein). 2011’s ended after the announcement—and Operation Twist didn’t boost money supply at all, merely changing the types of bonds bought, not the quantity. You cannot simply look to the Fed to figure out when to buy. That would have proven a disastrous strategy many times in the past, when fighting the Fed was profitable. Oh by the way, here is a more telling statistic, in our view: During the 18 months FAS 157’s Mark-to-Market Accounting was in place (October 2007 – March 2009), the S&P 500 price index fell -57%. Since the March 9, 2009 bottom—days before FAS 157’s suspension and while Congress heard testimony on the rule’s deleterious impact—the S&P is up 187%. Maybe that’s a coincidence, but we kind of doubt it. Yes, there have been blips and corrections along the way. Yet there isn’t really any sign they were anything more than sentiment-driven blips in a broader bull markets—normal, causeless, fleeting.

By , The Economist, 10/22/2014

MarketMinder's View: Sheesh, how about looking at more than one month’s (August’s) data? Doing so would show that drop in August exports came after a record high in July. Industrial output and more surged in July as well. And most economists do not see the Q2 dip as indicative of trend, because the explanation was largely warmer weather pulling forward some activity into Q1 this year. Moreover, for investors, this is all very widely known. Europe is weak? The only way you haven’t heard this tale before is if you’ve been backpacking in Antarctica for the last five years. (We don’t recommend that.)

By , Reuters, 10/22/2014

MarketMinder's View: Well, we think they left out the word “Standards” from the article’s title, because the debate here in passing the “risk-retention rule” (aka, the skin-in-the-game rule requiring banks to hold 5% of any securitized loans on their books), the two dissenters basically argued lax lending standards were at root of the 2008 crisis. Now, we have no doubt standards swung to be too loose. And we have no doubt there were occasionally poor-quality securitized loans issued. However, neither of these individually nor the two combined are truly responsible for the downturn, as illustrated by the Fed’s profit on so-called toxic debt and the fact actual loan losses were dwarfed by mark-to-market writedowns.

By , CNN Money, 10/21/2014

MarketMinder's View: Yes, China’s economy is growing at a slower pace (7.3% y/y in Q3). And there is a chance China might not reach its 7.5% annual growth target. Should we be concerned? Not necessarily—China is still growing at a rate most countries would love. The hard landing so many fret still isn’t here. Plus, GDP growth alone isn’t the only factor to consider—the government has also been in the process of implementing reforms, which will likely be a long-term positive for China. For more, see Joseph Wei’s 08/07/2014 commentary, “China’s Balancing Act.”

By , Bloomberg, 10/21/2014

MarketMinder's View: “By estimating that zero stimulus would be consistent with a 10 percent quarterly drop in equities, they calculate it takes around $200 billion from central banks each quarter to keep markets from selling off.” So by starting from the presumption that the Fed’s actions are in fact stimulus, you find that the Fed has to do a lot to prop up stocks. But the problem isn’t the math, it’s the logic on this thesis, which starts from a fallacious point. Quantitative easing (QE) hasn’t been all that great for the economy—it weighed on long-term interest rates, decreasing banks’ profit margins. Banks had less incentive to lend, which meant money supply growth was painfully slow (which means not much new money could even have leaked into stocks, to the extent that was a thing at all—we think not so much). Now, maybe slow growth is good for stocks because it keeps worries higher for longer. That is possible. But it is equally possible faster growth would have benefited stocks more. Ultimately, this looks to us like trying to explain why markets bounced back the last few days, which presumes there was a fundamental reason they fell.

By , Bloomberg, 10/21/2014

MarketMinder's View: Oil prices have fallen as of late. But concluding that a few weeks’ long blip will cause companies to change behavior and pump less seems like an awfully big leap. Oil firms do not respond to every little wiggle in oil prices real-time—nor can they. It isn’t that easy to switch production on or off. Lastly, recent oil price swings don’t necessary result from longer-term supply and demand fundamentals—sentiment can also drive short-term volatility. Plus, we are a bit skeptical of the notion prices at $80 a barrel are below firm’s shale breakeven points.

By , The New York Times, 10/21/2014

MarketMinder's View: A couple of high ranking Fed honchos, New York Fed President William Dudley and Fed Governor Daniel Tarullo, have launched a bit of a political campaign aiming to refine the culture of big Wall Street firms, on the belief that this could prevent illegal or unethical practices, or just outright greedy behavior that “contributed to the [2008] financial crisis.” Tarullo separately stated that Wall Street firms can’t just apply a “Check the box” regulatory structure. The fallout if they don’t? The two implied big firms will be broken up. However, completely unaddressed was the issue of small firm behavior, like Countrywide Financial Group, which we are told wasn’t good. Or the nonpublic, small firms in the S&L crisis. They do bad things too! And what about other industries? Shall we say, break up GM due to the recall issues it faced last year? Are there cultural issues there, too? We were told it was necessary to bail out GM in 2009 because the macroeconomic fallout would be immense. Which is too big to fail in a nutshell. Our point isn’t that bankers are the Partridge Family or something, but rather, that there are baddies in every industry. Banking isn’t special. Oh and greed had nothing to do with the crisis. The accounting rule Mr. Dudley loosely identified in early 2008 did. Regulators attempting to regulate corporate culture is a rather ridiculous notion.

By , The Wall Street Journal, 10/21/2014

MarketMinder's View: Now, there is no evidence pandemics impact stocks—stocks rose 26% during deadliest on record, the 1918 influenza outbreak. But there is also no evidence an Ebola pandemic is remotely likely, which this article does a fine job of putting into perspective: “A virus’s goal is to survive, which means infecting as many new hosts as possible. There are a number of ways to do this. One is to be highly transmissible, jumping from individual to individual through proximity or casual contact. Think influenza, which causes its hosts to spew massive numbers of infectious airborne particles. Another way is to cause only minor disease, but to remain infectious over long periods. Cold sores, for example, are caused by the herpes simplex virus and are lifelong. Ebola does neither. The period of transmission begins only after symptoms appear. There is no evidence for airborne transmission, and while sexual transmission is possible, it is not likely a major route of infection. Images of health workers in alien-looking protective gear spread fear and anxiety, but Ebola is not very contagious. Transmission requires direct contact with bodily fluids. The reason to use hazmat suits is not the probability of contagion; it is that, if you are infected, the probability of death is high.” Is it possible the illness morphs? Is it possible that impacts stocks? Yes and yes. But neither are very probable and the typical media coverage of this event isn’t helpful to the majority of investors.

By , CNBC, 10/21/2014

MarketMinder's View: Here is one gigantic flaw of many in this piece: The market is not, in fact, “calmer”—it’s just up! The market closed moments before we typed this and it rose almost 2%. 2% up is equally as volatile as 2% down. Plus, searching for meaning in bouncy times is a fruitless exercise—market volatility is normal. Forecasting the degree of dovishness at the next Fed meeting or setting up the straw man of one big tech company’s earnings as a bellwether (and then failing to knock down said straw man) is a fruitless exercise for investors. We’d suggest ignoring the noise and just staying focused on your long-term goals and objectives.

By , Bloomberg, 10/21/2014

MarketMinder's View: Here is a little check-in on a little slice of the US economy—housing. “Sales of existing single-family homes increased 2 percent to an annual rate of 4.56 million in September from the prior month, also the fastest pace in a year. Purchases of multifamily properties—including condominiums—rose 5.2 percent to a 610,000 pace.” This comes on the heels of a rebound in multi-family and single-family housing starts in September. Taken together, housing’s recovery continues its advance, albeit unevenly. Existing home sales are a financial transaction and aren’t captured in GDP. But even if we are generous and suggest all furnishings and household goods are tied to existing and new home sales, and add their economic impact to new housing construction’s, the two account for less than 5% of US GDP. So like we said, a little check in on a little slice of the US economy.

By , The New York Times, 10/20/2014

MarketMinder's View: It is not impossible that these so-called “thought viruses” could cause fears, triggering stocks to fall and consumers to cease consuming. But it is incredibly unlikely. That back drop—fear or sentiment-driven moves—is associated much more with corrections, brief blips in a bull, than bear markets or recessions. In that way, of course “secular stagnation” fears, Ebola, worries of aging populations and 2011’s debt ceiling debate can influence stocks in the short run. But absent actual fundamental truth to back them up, false fears are bullish—as reality exceeds these expectations, the previously fearful are converted and buy stocks. This is really just how the wall of worry works, and these “thought viruses” are just bricks in it. The grand irony of this is that vastly more often than not, bull markets die when investors are drunk on euphoria (dare we say, irrationally exuberant?), not when they’re fearful. Finally, one thing we did enjoy was the discussion of the fact secular stagnation was a hallmark fear of the 1940s. Sure seems like that one missed the mark! (We’re betting it’s off again now.)

By , The Wall Street Journal, 10/20/2014

MarketMinder's View: Appointing two women just a month ago to his Cabinet was a big symbolic move for Prime Minister Shinzo Abe. Encouraging more female workers and executives was a plank in his “third arrow” of structural economic reforms. This is a symbolic embarrassment for him as the two cabinet members noted here are both embroiled in scandals. Though, the notion that this is a big setback for Abenomics misses the fact the entire program hasn’t taken many steps forward. If Abe intends to push through the more contentious aspects of the third arrow, he will need significant political capital. Scandals like this against a still-sputtering economy do not bode well for future reform efforts.

By , Reuters, 10/20/2014

MarketMinder's View: The ECB’s asset purchase program—a sort of quasi-quantitative easing (QE) program—has officially begun, with the initial purchases of eurozone covered bonds Monday. In our view, this small QE program likely flattens the yield curve, reducing banks’ profits on new loans and, as a result, their incentive to lend. This is a negative, but the program appears likely to be very small relative to the QE programs in the US, UK and Japan over the last few years. While those stymied loan growth and likely slowed the economy, none ended the bull market. We doubt this version is different. More crucially for boosting lending and eurozone growth, the ECB’s stress test results are finally due out this weekend. This, in our view, will be the more telling event for eurozone loan growth looking ahead. Having these tests out of the way—and the rumored shuttering of banks that fail—likely does more to stimulate future eurozone bank lending than anything the ECB could do at this juncture.

By , The Wall Street Journal, 10/20/2014

MarketMinder's View: With just over two weeks until Election Day, polls suggest gridlock could decrease if voters do what they say right now and put more politicians seen as “compromise-friendly” in office. Now, polls, particularly those on vagaries like “bipartisan” cooperation, often mislead. We think it is likely that on a partisan basis, Congress remains divided. As to whether the people elected sing kumbaya and pass more laws, we’ll have to wait and see on that one. However, we’d note that people have decried do-nothing gridlock for years, and yet it remains. We don’t really expect a sea change and widespread handholding now. Rather, the reporting here seems more like the typical buying-in-to-campaign spin that happens ahead of midterms, something that tends to increase stocks’ nervousness before the vote. Afterwards, as it gradually becomes clear gridlock remains, stocks revel in it and rise. As an aside, for those who will bemoan gridlock if (as is likely) it continues post-election, we feel compelled to note that when it comes to the government, by no means does bipartisan mean good, compromise mean sensible or active mean better for the country. For more, see our 10/09/2014 commentary, “Voting For Gridlock.”

By , The New York Times, 10/20/2014

MarketMinder's View: As investing technology continues to advance, in many cases investors continue to reap the benefits—like improved efficiency in fixed-income trading. The bond market has traditionally been a relatively opaque, shadowy market where deals are struck between big players, with high operating costs passed on to customers in the bond price they pay. Having this shift to be more electronic and less human likely improves market liquidity, efficiency and drives firms to compete on price. This seems to us like taking the positive lessons of technology’s role in reducing bid-ask spreads in equity markets and applying it to fixed income.

By , Bloomberg, 10/20/2014

MarketMinder's View: It seems Indian Prime Minister Narendra Modi is sticking to his campaign promises, ending a decade of fuel subsidies. While it’s a politically risky move—a market-based structure may raise oil prices for Indian voters—it’s a bullish development for Energy firms who’ve been discouraged from investing in India over the past decade, as the prices they are able to charge may not reflect the market elsewhere or be sufficient to recoup costs. It also reduces the budget pressure of a costly subsidy. While what happens from here remains to be seen, increased Energy sector investment would be a welcome development for India.

By , Bloomberg, 10/20/2014

MarketMinder's View: This seems about right to us: “’After the comprehensive assessment, when worries about capital levels are clarified, banks will be more open with credit,’ said Giuseppe Castagna, 55, chief executive officer of Italy’s Banca Popolare di Milano Scarl. He’s targeting annual loan growth of about 5 percent through 2016, following a 4.2 percent drop last year.”

By , Bloomberg, 10/20/2014

MarketMinder's View: Here is an interesting and thorough discussion of the impact of vast increases in world oil supply on producers’ profits from various regions. Oil projects vary greatly in complexity, which means oil price fluctuations could cause some to actually run in the red sooner than others. Here is an example from Brazil. The big increase in oil supply does threaten profit growth at oil firms worldwide, including those in the US. This is one key reason why the shale revolution is bullish for the world, but not necessarily for every sector in the world. Energy is one of those it doesn’t favor. As an aside, lower priced oil isn’t really stimulus for the global economy. A dollar spent on oil goes to an oil firm, which then pays people, buys equipment and so on. Spending on Energy is no different than spending on anything else.


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Global Market Update

Market Wrap-Up, Thurs Oct 23 2014

Below is a market summary (as of market close Thursday, 10/23/2014):

  • Global Equities: MSCI World (+0.8%)
  • US Equities: S&P 500 (+1.2%)
  • UK Equities: MSCI UK (+0.2%)
  • Best Country: Sweden (+1.4%)
  • Worst Country: Japan (-1.2%)
  • Best Sector: Energy (+1.4%)
  • Worst Sector: Consumer Staples (-0.2%)
  • Bond Yields: 10-year US Treasurys rose .06 to 2.27%

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.