Today's Headlines

By , The Washington Post, 11/21/2014

MarketMinder's View: Whether you believe President Obama’s executive order on immigration is the cat’s meow, the worst or somewhere in between, it is a purely sociological thing. It does not alter cyclical economic factors and has no fundamental impact on markets. Markets don’t care about sociology. People care! But markets don’t. (Though, if this move brings more gridlock, markets would like that.)

By , The Wall Street Journal, 11/21/2014

MarketMinder's View: We are pretty darned ambivalent on this piece. On the one hand, yes! Diversify globally! Foreign stocks have taken it on the chin lately, but overall and on average, going global helps broaden your opportunities and manage risk. Chasing heat with a US-only portfolio purely because of recent performance is likely the wrong move. But, on the other hand, the reasons to buy foreign should not include hedging against a US rate hike (something history shows has no history of bearishness). Nor should they include sky-high valuations in the US. Partly because the sky-high valuation here is the wonky 10-year smoothed P/E ratio, which is even less predictive than normal P/Es, and partly because P/Es don’t show you anything but sentiment. The current one-year P/E is right around average, which suggests sentiment hasn’t run away from reality. Again, the reasons to keep some money in foreign now are because heat chasing is bad, and sentiment on foreign stocks is just too dour.

By , The New York Times, 11/21/2014

MarketMinder's View: Worried about the Japanification of Europe? Well here comes Jedi Master Mario Draghi with another mind trick over the euroland economy and capital markets! Wheeeeeee! Kidding. Actually, we hope this one goes kinda like the last time Super Mario tried to use the Force: He said some words and then announced a program that he never used.  Because actually doing something this time would probably mean massive quantitative easing, and that would be bad. It would flatten the yield curve further, whacking lending and boosting bank reserves—which banks must pay to hold at central banks. To get around that, they’ve been charging customers for deposits. So let’s add it up: They’ll lend less and suck money out of the system via deposit fees. That’s DE-flationary, folks! A one-way ticket to the Dark Side. This isn’t the stimulus you’re looking for.

By , The Guardian, 11/21/2014

MarketMinder's View: Hear ye, hear ye! Bankers are people! Not aliens! Not robots! (We think. But we’re open to the idea of bankerbot.) There. Ethical problem solved. Errrrr…or not. All kidding aside, the notion banking is inherently morally bankrupt is quite wide of the mark. Are there some liars and crooks? Of course. But show us a profession where that isn’t true! To paraphrase legendary investor Lucien Hooper, all professions have “incompetents, crooks and charlatans.” The study here proclaims to show otherwise, but its shortcomings seem fairly obvious—the sample is limited and the methodology bizarre. We aren’t scientists or psychologists, but we are unconvinced any of this is a thing. So that raises the question: Why focus on bankers? Why not make dozens of onerous rule changes in a vain attempt to stamp out criminal activity in all professions? Ooooooh. That’s right. 2008. Anyway, this is a sentiment-driven witch hunt, nothing more. The banking industry is no more prone to greed-driven criminal behavior, and the occasional disruption as a result, than any other. It is no riskier and no more in need of a clean-up. And we suspect our financial system would function more efficiently without all this scrutiny impeding banks’ ability to do their societally beneficial job of channeling savings into investment.

By , The Telegraph, 11/21/2014

MarketMinder's View: This might be a wee bit optimistic, considering a more realistic timeframe for Chinese liberalization is probably more like 30 years, assuming that remains a priority in future administrations, but philosophically, it’s on target. The entire world would benefit from a more open China with freer trade and freer investment—capital would be allocated more efficiently globally. A win for everyone! Folks often fear China’s ascent, but the implications are vastly positive. (Though, the “and if they don’t” scenario posited at the end is rather too dour, in our view.)

By , The Wall Street Journal, 11/21/2014

MarketMinder's View: Rate cuts aren’t totally magical in China, where the government ultimately controls the quantity of money through loan quotas. But it’s a noteworthy sign of verbal support and might goose sentiment some. Actually, what we find most interesting is the decision to widen the bandwidth between deposit and loan rates—another step toward financial liberalization, which will benefit China far more over time than a dinky rate cut.

By , Bloomberg, 11/21/2014

MarketMinder's View: We will happily concede that markets tend to rally when central banks announce big stimulus, because it is factually true. Who knew! That said, there is a yawning gap between a short burst and a sustained, sentiment-driven rally of bubblicious proportions. We haven’t seen that anywhere quantitative easing (QE) or massive monetary loosening was tried. Did stocks rise? Yah, but that’s sort of what happens during a bucking bull market, which manage to run on for over five and a half years even though the US and UK flattened the global yield curve with their QE programs.  Companies just found other ways to get financing to boost capex and earnings potential. Yay, capitalism. To see what markets really think of QE, we suggest looking at relative returns. The UK underperformed world stocks during QE there. Japan has underperformed the world (in dollars) since QQE (they had an extra Q for extra oomph) started last April. The US outperformed, but we’d chalk that up to an economy dynamic enough to keep growing (slowly) despite QE. That, to use a horrible cliché, is the exception that proves the rule.

By , The Wall Street Journal, 11/21/2014

MarketMinder's View: Rightly so. As the numbers here show, it isn’t a net benefit. It boosted export values, but not volumes—gains largely came from currency conversion. Output didn’t get happy. Even worse, the weak yen jacked up import costs—not bueno in an import-reliant island nation that took all its nuclear power plants offline three and a half years ago. That squeezes businesses and households, particularly since wages stayed stagnant. Is it any wonder Japan is in its third recession in five years? For more, see Tuesday’s commentary, “Sinking Fortunes in the Land of the Rising Sun.”

By , The New York Times, 11/21/2014

MarketMinder's View: Here is yet another example of the banker-bashing zeitgeist driving new, tougher regulations. This is sort of a running theme in US history. It was JP Morgan’s (and other banks’) squabble with Ferdinand Pecora and other political bigwigs that gave us Glass-Steagall. Have a panic, bash some bankers, make some rules, lather, rinse, repeat. Sometimes the new regulations are helpful, like the trifecta of securities laws in 1933, 1934 and 1940. Sometimes they are just things that fight the last war without much need or common sense, and that is the bucket these new rules seem to fall into. Regulators decided banks need more capital to offset their physical holdings of commodities and financial interest in infrastructure projects. Ooookkkkkkk. Look, we get it, no one wants another 2008, and “safety” is the watchword. But we are also fairly convinced banks’ owning warehouses with lots of metal in them won’t trigger another 2008. Yes, these assets are marked to market on banks’ balance sheets. But also! They’re liquid. We mean, not really, they’re actually metal in solid form, not molten. Financially liquid, priced to the minute in very public places, like the Internets. The prices also move on identifiable, predictable supply and demand factors, unlike the highly illiquid, thinly traded mortgage-backed securities that couldn’t handle mark-to-market in 2008.

By , The Wall Street Journal, 11/21/2014

MarketMinder's View: Call us crazy, but we see little evidence a “currency war” (more boringly known as a “competitive devaluation”) is something anyone really wants to fight. For one, many in Japan are freaked out the yen is too weak, rightly acknowledging the pain it inflicts on businesses and households struggling to pay higher import prices. For two, the dollar and pound strengthened mightily against the yen over the past 23 months, and their economies were the fastest-growing in the developed world. For three, Japan’s closest competitors, Taiwan and Korea, saw trade rise and their economies grow even as the yen weakened. It didn’t hurt them, and they didn’t seem to see a need to devalue, and they are like fine. Armed with these three little nuggets of wisdom, and the argument in this doomsday fairy tale falls apart.

By , EUbusiness, 11/21/2014

MarketMinder's View: So that’s nice. The time for fiscal stimulus indeed is when you’re struggling to bounce from recession. And the European Commission might have tucked some nice, pro-growth things in the package they’ll announce next week. But, reality check: It is a €300 billion package. The entire EU economy is about €13.1 trillion. So this is 2.3% of GDP. Kinda small.


By , Yahoo Finance, 11/20/2014

MarketMinder's View: Full disclosure: We are bullish, largely based on the underappreciated growing global economy and a lack of political interference to zap it. That said, not all bullish arguments are sensible. “This,” in this case, is the fact the S&P 500 has posted double digit returns in three straight years only three times. If this year ended today, the period 2012 – 2014 would be the fourth. However, this is a meaningless statistic, however you slice it, and it incorrectly perceives how to use history in analysis. It is trivia, not analysis, and it has no forward-looking implications at all. None. We’re also wary of folks bullish because, “the trend is their friend.” We’re all for clever wordplay, but that isn’t how we forecast future market conditions. The trend and this trivial point are in the past. The past doesn’t predict future market moves. Now then, it wouldn’t shock us if the forecast levels (2100 and/or 2350) came to pass in 2015. But that is not an earthshattering forecast, considering the high end of that range is really only about 15% higher than the present.

By , Associated Press, 11/20/2014

MarketMinder's View: With an October reading of 0.9%, the Conference Board’s Leading Economic Index (LEI) for the US has now risen in eight of the past 10 months. Eight of 10 LEI components rose, and the only negative contribution was from stock prices (average weekly manufacturing hours remained steady). But The Conference Board uses the average daily closing level of the S&P 500 to gauge this, which means that negative reading is entirely due to the brief spate of negativity at the start of the month (the actual index rose in October). Also, for investors, it’s probably best to strip out stocks if you’re trying to forecast stocks. All in all, it’s hard to find much to gripe about in this report—the US looks poised to keep on growing into the new year.

By , The Telegraph, 11/20/2014

MarketMinder's View: First of all, we fail to see how October’s purchasing managers’ index (PMI) readings indicate a “serious blow to hope that the recovery would resume towards the end of the year”—we still have a month and a half to go in 2014. Second, PMIs aren’t perfect gauges of economic conditions—they’re surveys telling you how many correspondents said output and demand rose (not the degree to which they rose). Three, calling for doom and gloom because of one country’s manufacturing number seems like cherry-picking. Even if that country is Germany, no single data point tells all about an 18-nation bloc. Four—and most importantly, in our view—composite eurozone PMI showed growth! The reading was 51.4—any reading over 50 indicates expansion. Grew! Not shrank! Dour sentiment is quite prevalent toward the eurozone—more than reality suggests is warranted.

By , The Economist, 11/20/2014

MarketMinder's View: “Secular stagnation”—the notion developed countries are doomed to subpar future economic growth because of demographics—became a thing in the late 1930s. Then, folks feared an aging/falling population meant a falling labor force and a population requiring fewer goods. Fewer goods = less output = less economic growth = bad. You might think the 70-plus years of overall growth since would disprove that theory, but those concerns (and some others) have returned lately with gusto, underpinned by the belief aging populations in the US, Europe and Japan will hit consumption, slowing potential growth. In our view, this thesis is as off now as it was then. For one, demographic changes don’t sneak up on anyone—life expectancies have been rising, so more elderly people in the world isn’t going to shock markets or economies. And two, we have faith that innovative capitalists will continue finding ways to increase their future wealth—and the wealth of others—in ways we cannot even imagine today. Maybe you think that’s pie-in-the-sky thinking, but that’s what most people thought in the late ‘30s too. And we wouldn’t so readily downplay the creativity that can currently be found in in Energy, Biotechnology, 3D printing, mobile computing and more. For more, see our 6/24/2014 commentary, “Longer Lives and Other First World Problems.”

By , CNN Money, 11/20/2014

MarketMinder's View: Though these are fine signs to look for, the article actually misses the biggest red flag you’re dealing with a rat: They take custody of clients’ assets. Giving a financial professional custody of your money—rather than keeping it in an account in your name at a trusted, third-party custodian—makes it that much easier for him/her/them/it to run off with it for good. It is extremely difficult for a financial professional to make off with cash he/she/they/it can’t get their grubby, thieving hands on. For more, see our 8/15/2014 commentary, “Crooks’ Common Threads: Three Red Flags to Watch Out For.”

By , Bloomberg, 11/20/2014

MarketMinder's View: It is true the Fed cannot directly control long-term interest rates, and it is true the fed-funds target rate exerts some influence over longer-term rates (though we’d be remiss not to mention that Greenspan actually did tighten during the period referenced—he flattened the yield curve). However, the rest of this is really a whole bunch of speculation and searching for meaning in bouncy bond yields this year. It is also an attempt to forecast a rate hike, despite there being little history to suggest this is necessary or a risk. Look, call us crazy, but we are just pretty darn skeptical the US economy—which has grown above its post-war average 3.3% rate in four of the last five quarters—can’t handle a small interest-rate hike from the present 0 – 0.25% rate. The alleged “difficulty” in doing so this time, cited herein, is media hype.

By , Xinhua, 11/20/2014

MarketMinder's View: Here are some more targeted stimulus measures to spur Chinese growth. For example, raising the loan-to-deposit ratio gives banks more leeway to lend, and encouraging more private banks aimed at small businesses can provide an incremental boost as China seeks to liberalize its economy. Now, nothing here is going to radically pump up China’s growth rate, but even if gangbusters Chinese growth is a thing of the past, that doesn’t negate China’s still-considerable impact on the global economy.

By , The Telegraph, 11/19/2014

MarketMinder's View: “It would be nice to think that merely by reforming the way money works we could magic away our economic problems, abolish the credit cycle, tame the bankers and generally cure the world of all known diseases. Yet there is no such thing as a free lunch. The reason we have fractional reserve banking, and a monetary system hedged around with taboos and constraints, is that warts and all, these things basically work. All alternatives are a giant leap in the dark, with likely disastrous consequences to judge by historical precedent.”

By , Bloomberg, 11/19/2014

MarketMinder's View: So we share this article mostly because it is great fun, but also because it does sort of highlight how technology’s advance is simultaneously great and terrible for investors. While it’s far off today, we shudder to think of all the behavioral problems that would results from an individual investor fixating on his or her city of stocks, worrying over a string of “rainy” (down) days or other factor. Realistically, greater visibility of markets provided just by the internet and 24-hour TV generate both transparency and promulgate emotional reactions to markets. And that’s only in 2D! For more, see Todd Bliman’s column, “Free to Fail.”

By , MarketWatch, 11/19/2014

MarketMinder's View: Well, yeah, these are risks—though the first five all relate to the risk of lost principal. In our view, this too narrowly deals with the issue of risk, which is much broader. What about the risk you outlive your portfolio or don’t earn a sufficient return to reach your goals and objectives? What about the risk you fear the risks outlined here, sell out prematurely, and watch the things you just fearfully sold rise past you? That’s opportunity cost, folks, and it’s a very real risk.

By , Professor Bainbridge Blog, 11/19/2014

MarketMinder's View: Wonk Warning! This is quite an involved article, but it’s also perhaps the most thorough discussion of the major issues at work in the debate over Delaware’s legislature potentially banning “loser-pays” provisions in the wake of last June’s ruling in the ATP Tours case that allows for such provisions to be added to corporate bylaws. With Oklahoma making a similar yet-more-extreme decision mandating loser-pays, and at least one US Senator stepping into the fray, this debate seems to be just warming up.

By , The Wall Street Journal, 11/19/2014

MarketMinder's View: In realityland (read: not Washington, D.C.) this isn’t a defeat for Keystone XL at all. You don’t need to pass a law to build a pipeline, you need the State Department to approve it, which the Administration has largely hemmed, hawed and opposed since moment one. This news, therefore, is actually not news at all. Hence, the passage (or non-passage, as it were) of this bill is really only a defeat for its sponsor, Louisiana Senator Mary Landrieu, who was bringing it as a measure to show how active she was on behalf of her constituency (largely pro-oil industry)—campaigning before the pending run-off election for her seat next month. And it remains to be seen if the bill’s defeat really even matters much for her re-election chances, too.

By , Bloomberg, 11/19/2014

MarketMinder's View: This presumes Japan’s sales-tax hike is responsible for the nation’s weak economy, which ignores the 2011 and 2012 recessions that we are guessing are not related to a tax hike that occurred in April 2013. The actual lesson from all this economic weakness? Japan needs structural reforms Prime Minister Shinzo Abe hasn’t delivered.

By , The Wall Street Journal, 11/19/2014

MarketMinder's View: OK, party people: It’s time to set partisanship aside so you can see the sensible takeaway in this article. Now, for one, ignore the “special interest” angle and the politicized take on economic conditions, which isn’t really very accurate. But rather, the real takeaway here is the sensible viewpoint that Fed leadership and policy shouldn’t be determined based on the whims of the public or elected officials. The Fed is politicized to an extent—it basically cannot help but be somewhat, given its public role and the fact it’s an arm (tentacle?) of government. But we should be extraordinarily wary of efforts that would further subject central bank policy to partisan politics, and that applies regardless of your political affiliation.

By , The Wall Street Journal, 11/19/2014

MarketMinder's View: The weak yen, peddled as export stimulus, is really not stimulus at all. Rather, it jacks up the price of imported goods and raw materials, raising energy prices and other input costs for businesses and consumers. Even the major multinationals who might benefit from growing exports aren’t clear-cut winners, in the sense export volumes haven’t increased significantly, and in many cases, whatever gain there is doesn’t fully counteract the rise in input costs.

By , The Wall Street Journal, 11/18/2014

MarketMinder's View: Monday, we discussed the possibility of a snap election. And today Japanese Prime Minister Shinzo Abe confirmed it. Not shocking—considering cabinet members alluded to it last week and Japan just fell in recession by one common definition. Abe’s latest move appears to be mostly politics. Absent this move, Abe’s term would expire in September 2015. Should he fail to pull Japan out of its current funk, he would likely face a more difficult election than he does today. Should he win the snap election, by contrast, his term would be extended by two years beyond next September.


By , MarketWatch, 11/18/2014

MarketMinder's View: The article’s discussion of risk isn’t quite on mark in the sense it largely equates volatility and risk. But the piece still offers a sound discussion of the risks presented by overconfidence. “In referencing researcher Terrence Odean's 1998 study entitled ‘Volume, Volatility, Price, and Profit When All Traders Are Above Average,’ Albert Phung wrote, ‘overconfident investors generally conduct more trades than their less-confident counterparts. Odean found that overconfident investors/traders tend to believe they are better than others at choosing the best stocks and best times to enter/exit a position. Unfortunately, Odean also found that traders that conducted the most trades tended, on average, to receive significantly lower yields than the market.’”

By , Bloomberg, 11/18/2014

MarketMinder's View: While many have feared lower oil prices hitting production, it seems US shale drillers are finding ways—relying more heavily on their “prime properties”—to keep production up. Just goes to show drilling is becoming more efficient and technologically advanced, to the point that rig count doesn’t really equal output direction and earlier breakeven prices are likely an inappropriate benchmark today.

By , Associated Press, 11/18/2014

MarketMinder's View: News flash: “Red warning lights” over slowing or stagnant growth have been “flashing” for years. The blinking eurozone light must be blinking less brightly than when it was in recession for 18 months during 2011 and 2012. The China hard landing light must be ready to burn out, too—it has been blinking since 2010. Japan, too, has long struggled to grow. The other Emerging Markets blinky light referenced here is not only an old factor, it’s a false factor—there is no evidence a tidal wave of capital swept into the Emerging Markets nations as a result of low developed-world interest rates, and even less evidence it will devastatingly recede. Meanwhile the bull market has continued to climb higher. These fears—bricks in the wall of worry—aren’t new or surprising enough to knock the bull off course. Plus, the global economy at large is still growing.

By , Bloomberg, 11/18/2014

MarketMinder's View: We won’t speak to whether Twitter is a good investment or not. However, the discussion about ratings agencies in general is a good one—showing just how backward looking credit ratings really are: “The thing about ratings is that they are typically a lagging indicator: The market usually knows a company's creditworthiness before the ratings agencies do.”

By , The Telegraph, 11/18/2014

MarketMinder's View: The heated debate over certain companies supposedly skirting corporate taxes continues, UK-style. Some believe one way to ensure companies pay their “fair share” is by enforcing a “turnover tax”—a set tax on total sales. But as with many government actions that may seem well intended, one must be wary of unintended consequences: “But, in fact, it is a terrible idea. Why? Because a tax based on turnover is a tax on investment. It penalises the companies that hang on to their profits and invest the money in new factories, products or distribution systems. The more we punish them, the less innovation and investment there will be – and that will be bad for everyone.”

By , Bloomberg, 11/18/2014

MarketMinder's View: If the standard you apply to regulating banks is, "A whole lot of banks failed in 2008, so clearly (insert practice here) was ‘woefully inadequate,’" then regulators will literally plumb every single practice in the industry. That’s a lot of testing—likely a time and money drain—especially considering we don’t even know what the next crisis will even look like! Further, there is no evidence bank modeling was behind the crisis or even a modest contributor. This just seems like yet another solution in search of a problem.

By , Yahoo Finance, 11/18/2014

MarketMinder's View: This is the 32,093,249,083,249,023,490th* article that seems to think recent performance somehow predicts what’s to come for markets. But past performance (or the volatility) doesn’t dictate future returns. Period.

*Maybe a little bit of an exaggeration—but, if so, not by much. The Internet is big!

By , The Washington Post, 11/17/2014

MarketMinder's View: So here is the argument that lower gas prices are bad because they show a dearth of demand in the global economy. Which would be possible if demand weren’t rising (see 2009 for example), but it is. Just not as fast as supply. Also, the analogy here between oil price movements and the performance of a certain NFL franchise with a controversial name makes no sense. Demand for those tickets is falling because the team hasn’t performed well, not because the size of the stadium is growing faster than demand for tickets at said stadium.

By , Financial Planning , 11/17/2014

MarketMinder's View: In our view, clarifying roles, i.e. via clear job titles like “broker” for employees of a brokerage firm that sells products versus “adviser” for registered investment advisers would be a plus. But as for the rest, it’s a lot of stuff we agree with in principle. However, the fiduciary standard as it exists now does not actually ensure the folks practicing it act on such high-minded principles. The best way to make sure your financial professional is keeping your best interests in mind is to look at what they’re actually doing: What are their values? How does their philosophy, structure, business model, etc. put your needs first? What are their resources and what is their experience? Believing that all you have to do to right the wrongs in this industry and improve advice is slap a fiduciary rule on providers is the height of naivety. If a financial professional is a crook and/or a schlep, they’ll be a crook and/or a schlep regardless of the rule.

By , The Wall Street Journal, 11/17/2014

MarketMinder's View: This is an interesting debate worth following for investors. As we reported here last June, a court case in Delaware—where many large, publicly traded US firms are incorporated—resulted in firms being allowed to add a “loser-pays” provision to corporate bylaws, which would require the loser of a lawsuit to pay all court costs. The legislature is considering passing a bill that would ban this. This matters for stockholders because of the prevalence of securities class-action lawsuits filed against public companies—many of which seem frivolous. This could radically alter the playing field for filing class action suits, which could be a plus for corporations in the sense their legal costs could fall. On the other hand, proponents argue it would be a minus for investors in the sense these lawsuits police corporate directors’ behavior. That being said, it seems odd to us that “lawsuits were filed in more than 90% of all corporate mergers and acquisitions valued at $100 million since 2010.” We simply do not buy that all those are examples of beneficial lawsuits. Perhaps this provision goes too far, but it seems to us some reining in is overdue.

By , The Wall Street Journal, 11/17/2014

MarketMinder's View: The thesis: A 25% decline would put stocks more in line with reality and boost the outlook for the next decade’s returns (!). So let’s have a bear market now with an eye toward bringing the cyclically adjusted price to earnings ratio (CAPE) down? Folks, there is no predicting returns a decade out—using CAPE or any other measure—and even if you could know that, you’d be better off analyzing the cycles along the way (which most often haven’t been a decade long). And besides, CAPE—a comparison of 10 years’ worth of bizarrely inflation adjusted earnings to stock prices—is high today in part because of the 2008-2009 recession’s impact on earnings. This all presumes a certain degree of mathematical rationalism to market returns a decade away. That’s theory, but not reality. The economic data here are skewed too. Labor market improvements follow GDP, which follows stocks. GDP growth rates, too, don’t correlate one-to-one with stock market returns because GDP is a quirky government stat that oddly accounts for things like imports negatively. Stocks aren’t a quirky government stat.

By , The Wall Street Journal, 11/17/2014

MarketMinder's View: Seems to us this is heavily influenced by the Energy industry—manufacturing grew, while mining and utility output fell. Falling oil and gas prices weigh on the measure of production and could disincent future production growth, assuming they show staying power. But at this point, we’d suggest drawing big conclusions is premature, which makes a lot of this report overly dour.

By , Bloomberg, 11/17/2014

MarketMinder's View: China and Australia are already big trade partners, particularly in the mineral resources and energy fields. But they are now signaling their intent to free up additional trade. Assuming the deal is inked and passes, 85% of goods shipped to China from Australia will be tariff-free (with that number increasing to 95% upon full implementation). This deal also incrementally opens the door to services exports to China, which deepens the Sino-Aussie trade relationship in a significant, if mostly symbolic at this point, way.

By , The Telegraph, 11/17/2014

MarketMinder's View: Far be it from us to suggest that whenever you see a nation labeled the “Sick Man of Europe” you should be skeptical, but the last few have been rather wide of the mark. Belgium is no different. A recent GDP calculation revision—one designed to factor in illicit trades common in Amsterdam—is responsible for reducing GDP and inflating debt a wee bit. But here is the thing. No country has ever defaulted because of their debt-to-GDP ratio. They have defaulted because they can’t make interest and principal payments on debt, which is usually signaled by the market demanding much higher interest rates from the issuer. Belgium’s 10-year bond rates were 1.06% on November 16, their lowest point in the last seven years. That is the opposite of a debt-doom scenario. (Oh, and we’ll take the market’s opinion of this over Fitch’s any day. The raters are not reliable.) Finally, we demand a study proving that higher Math and Science scores translate to better cyclical economic performance. We’ve never seen them and we don’t believe the logic behind theorizing the two are related is very sensible.

By , CNBC, 11/17/2014

MarketMinder's View: Japan’s economy shrank -0.4% q/q (-1.6% annualized) widely missing the expected +0.5% q/q growth—leaving the Land of the Rising Sun in a technical recession (by one common definition). This is likely a bit of a shocker for those who thought Arrows One and Two of Prime Minister Shinzo Abe’s “Three Arrow” economic revitalization plan—fiscal and monetary stimulus—would spur Japan’s economy to growth, even after the sales tax hike last April. This leads many to suggest Abe will delay the second increase in the national sales tax, planned for April 2015. And that is possible. But while the sales tax hike likely did greatly heighten pressure on Japan’s economy, it isn’t the root cause of Japan’s overall weakness. That is largely due to structural economic factors—rigid labor markets, protectionism and other offshoots from Japan’s quasi-mercantilist economic structure. Delaying the sales tax alone won’t fix those factors. Only Arrow Three—structural reforms—will get that done. Abe hasn’t fired that one much yet.


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Global Market Update

Market Wrap-Up, Thurs Nov 20 2014

Below is a market summary (as of market close Thursday, 11/20/2014):

  • Global Equities: MSCI World (+0.1%)
  • US Equities: S&P 500 (+0.2%)
  • UK Equities: MSCI UK (0.0%)
  • Best Country: Canada (+1.0%)
  • Worst Country: Spain (-1.8%)
  • Best Sector: Energy (+1.2%)
  • Worst Sector: Utilities (-0.6%)
  • Bond Yields: 10-year US Treasurys fell .02 to 2.34%

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.