|By Neil Irwin, The New York Times, 07/25/2014|
MarketMinder's View: But it isn’t! This is all based on the assumption young folks who haven’t much participated in this bull market might never have another chance. But that’s not how markets work, and it has no grounding in history. We’ll likely have several bull—and bear—markets over the next few decades. We agree it matters when you invest, and investors shouldn’t assume straight-line returns over time, but folks also shouldn’t assume market cycles will stop or that “the remarkable rally in stocks is cannibalizing the market returns that otherwise would have occurred in the decades ahead.” Markets are pricing in the next year-plus. Who knows what wondrous things they’ll price in over the far future!
|By Ambrose Evans-Pritchard, The Telegraph, 07/25/2014|
MarketMinder's View: It’s still far from certain whether the EU will approve to sanctions that amount to more than an annoying poke. Not that we’re questioning the investigative reporting here or the motives and morals of the countries in question, but experience tells us getting a bloc of 28 nations to agree on big policy moves (particularly those in the economic arena) is mighty difficult. If they do pass the “draconian” sanctions theorized here, though, they likely don’t carry enough of a global economic impact to put this bull market at risk. They’d hurt Russia. Hard. But EU states don’t depend on their trade relationship with the Motherland for continued growth. Energy is an issue, but the EU has been preparing and storing up gas reserves just in case. For more, see our 07/18/2015 commentary, “About Ukraine and Russia …”
|By William D. Cohan, The New York Times, 07/25/2014|
MarketMinder's View: Well, actually, she’s settling for words—and words are only weapons if you’re insulting someone. But our beef with this metaphor (and metaphors in general) aside, the broader problem here is the assumption Fed policy (or anything else at large today) is driving markets to “misprice risk.” Stocks are high, but so are earnings. Yields are down, but so is default risk—economies are growing, balance sheets are healthy. Maybe, just maybe, investors just see all this strength and are pricing things appropriately. Hopefully for investors’ sake, the Fed will realize this and not try to use its regulatory toolkit to try to deflate a bubble that doesn’t exist. That’s the real risk here.
|By Brett Arends, The Wall Street Journal, 07/25/2014|
MarketMinder's View: Or burning anyone who concentrates in their employer’s (or any) stock, whether it’s a fresh IPO or a blue-chip warhorse, in their brokerage account of their 401(k). The planner quoted here gets it right: “Those with big stakes in their employers are taking on ‘multiple layers of risk’ and running the danger of ‘double trouble’ … if things turn down, as happened after 1999, they may see their savings and job vanish at the same time.” Owning too much of any single company stakes your financial future on something very narrow. Even if things are flying now, ask yourself: What if? By diversifying—limiting any one company to 5% or less of your portfolio—you can guard against company-specific risk. Don’t believe us? Ask any former Enron employee.
|By Paul Vigna, The Wall Street Journal, 07/25/2014|
MarketMinder's View: This format doesn’t grant us the space to discuss everything that’s wrong inside this piece, so we’ll stick with the biggies. 1) Stocks aren’t “out.” Stock demand is still high and rising. 2) Trading volumes don’t indicate demand. Or predict future performance. Or really correlate with market direction coincidentally. They. Mean. Nothing. 3) Participating in Airbnb isn’t “investing in yourself.” It’s finding another avenue to earn money. Most folks then do something else with that money. Maybe spend it. Maybe save it. Probably invest at least some of it for retirement—probably in stocks. Look, we get it, tech is cool. Some of the services and companies described here are new frontiers of the economy. But they aren’t the end of stocks. One day, they’ll probably become publicly traded firms, and the industries that spring up around will beget more publicly traded firms, and investors will own all those stocks. (Though, we’re kinda sketchy on the untested direct corporate financing thing. Like, what backs it? What determines return? Is there a ceiling? Maybe do some more due diligence there, mmmkay?)
|By Alan Tovey, The Telegraph, 07/25/2014|
MarketMinder's View: Huzzah. But this neat little factoid is backward-looking. UK stocks surpassed their pre-crisis peak a while ago. It just goes to show you, by the time data confirm growth over any period, stocks have long since moved on. (Also, can someone please explain to us how the UK economy is like a cappuccino? Because we really just don’t get the graphic in here. Is it meant to imply the industrial sector is espresso, and Britain’s economy needs a second shot? Or that the services sector is like foam and it’s too frothy? Both are wrong, because the UK is just concentrating on the things it does best and making the ghost of David Ricardo proud. But we’re still curious.)
|By Staff, Jiji Press, 07/25/2014|
MarketMinder's View: If more cooperation between Japan’s business federation (keidanren) and government means the two sides are working together to improve corporate governance and foster competition in corporate Japan—and the business lobby is serious about shattering the status quo—then this is an encouraging sign. But if it means Prime Minister Shinzo Abe is desperate for political support as his poll numbers decline and is making tradeoffs and exemptions from potential reforms, then it’s discouraging. Which is it? Too soon to tell, but one could make a pretty compelling case that Abe is trying to curry favor and fend off rival politicians who smell weakness as his popularity ebbs.
|By Steven Russolillo, The Wall Street Journal, 07/25/2014|
MarketMinder's View: You might look at this and say, “Gee, that’s silly. After all, you’re a shareholder and this is business, and you own a slice of a business’s profits, which would be bigger in more business-friendly tax climes.” But on the other hand, saying “There are other fish in the sea, so I’ll sell,” is an entirely capitalistic way to register your personal displeasure with the practice of inversion tax deals, if you’re so inclined. We happen to disagree these deals are a significant drag on the economy or America’s tax dollars (and by extension, public investment), but the beauty of a free market is said market can judge these and other corporate practices as investors vote with their wallets. In our view this, not new (and quickly implemented) regulation, is the most beneficial way to “address” these things.
|By Eric Balchunas, Bloomberg, 07/25/2014|
MarketMinder's View: Just because you can soon go hog-wild for mainland Chinese stocks doesn’t mean you should—everything in moderation. China has some positives, sure—it’s growing swiftly, and its capital markets are opening—but it also has political and other risks. China is a small piece of the global market, and we think long-term growth investors are best off staying diversified, not concentrating in one Emerging Market. Also, note, index classification isn’t really a meaningful driver of stock returns. This piece implies mainland Chinese stocks should get a boost by becoming part of the MSCI Emerging Markets Index, but history shows this isn’t true (Israel’s reclassification from Emerging to Developed Markets being a recent example).
|By Jason Zweig, The Wall Street Journal, 07/25/2014|
MarketMinder's View: While this article purports to be about the merits of advisers charging exit fees, more broadly, it’s an example of the broad misunderstanding of the fiduciary standard in the investment industry. The fiduciary standard simply requires disclosure of potential conflicts of interest and other items. It does not eliminate conflicts or ensure low fees. Investors should always do thorough due diligence—discover all costs and potential conflicts of interest as well as the adviser’s expertise, values, track record and resources—to decide whether an adviser is the best fit for them. Relying on a rule won’t get you far. Simply, “the word ‘fiduciary’ isn’t a guarantee that your adviser will put you first.” It takes ever so much more. For more, see Todd Bliman’s 11/14/2013 column, “The Compass.”
|By Staff, The Yomiuri Shimbun, 07/25/2014|
MarketMinder's View: And Mexico is eager for foreign investors, so this could work out! Now, Japan investing in Mexican shale oil and gas extraction—and ultimately importing liquefied natural gas—won’t materially boost the fortunes of either country in the here and now. This isn’t a cyclical factor. But it is a very long-term positive for both countries and, if nothing else, a sign both are focusing on global trade and investment. That’s good for the world.
|By Jim O’Neill, The Telegraph, 07/25/2014|
MarketMinder's View: Wait. So. The world didn’t take Brazil, Russia, India, China and South Africa seriously before, even though they represent 21% of the global economy, but now that they have a $100 billion development bank, we’ll give them some street cred? Errrrrrr … given how key a role these countries already play, and given how much most of the world tends to ignore the IMF and World Bank, we’re pretty sure this won’t change much. Nor should it. Bully for them for creating an institution they believe will do good in the world and improve quality of life in less developed countries (and here’s hoping they’re right), but this just isn’t a significant global economic development.
|By Michael Rapoport, The Wall Street Journal, 07/24/2014|
MarketMinder's View: Starting in 2018, the International Accounting Standards Board (IASB) will require non-US banks to book loan losses based on expected losses over the next 12 months—currently, banks don’t record losses until they actually happen. Its US counterpart, the Financial Accounting Standards Board (FASB), has proposed a stricter standard, forcing banks to book all losses expected over the lifetime of the loan up front. Problem is, you can’t forecast into perpetuity—how can a bank know today whether a new 30-year mortgage will ever default?—so pricing a loan for some far-future possibility may yield bizarre results. However, we don’t think this is a huge negative for Financials. The rule operates on banks’ own expectations of loan losses, not market prices a la FAS 157. Mark-to-forecast seems a far better standard since it’s tied directly to banks’ primary business, lending, and not the market’s occasionally irrational pricing of some illiquid assets they might hold on their balance sheet.
|By Ian Wishart and James G. Neuger, Bloomberg, 07/24/2014|
MarketMinder's View: Color us skeptical on the likelihood these proposals become actual sanctions: "The options in the document for responding to Russia’s intimidation of Ukraine included something for virtually every EU government to dislike. France has held out against an arms embargo, German industry fears for its exports to Russia, Britain and Cyprus have been reluctant to scare away wealthy Russian investors, and Hungary has opposed wider sanctions altogether.” And all these countries (and 23 more) must agree on any measures enacted. That’s, like, hard. For reference: So far, the sanctions the US and EU have imposed on Russia—largely targeting individuals and specific companies—have been fairly muted.
|By Megan McArdle, Bloomberg, 07/24/2014|
MarketMinder's View: “Food and energy loom disproportionately large in the budgets of retirees. They’ve already acquired a lot of stuff, so they’re less apt to get excited about fantastic deals on television sets and furniture manufactured in China. On the other hand, they buy food and gas and medicine every month. When they see how much those expenses carve out of their income, they think, ‘My income is not keeping up,’ and the idea that the government is using the wrong inflation index seems like a reasonable explanation for why it’s so hard to make their money stretch. But however compelling this explanation may seem, it’s wrong. The government knows about food and oil prices. And it’s taking them into account when it calculates your Social Security check.” For more, see our 06/30/2014 commentary, “Should the Fed Hike Rates to Make It Rain?”
|By David Gelles, The New York Times, 07/24/2014|
MarketMinder's View: Here be the latest on this protectionist solution in search of a problem, which we covered in detail last week. Treasury officials are pressing Congress to pass a law effectively banning “inversion” M&A deals that would apply retroactively, likely stripping at least some recently agreed-to deals of their tax benefits. Democratic Senators support the notion, but Republican Senators don’t want to backdate a crackdown. Perhaps they find a middle ground, but even if this clears the Senate, passing the House is a tall order. In our view, that’s a plus. Protectionism is a negative, and an inversion smackdown is simply protectionism dressed as patriotism. Retroactive tax grabs are also no bueno—they undermine confidence in America as a good place to do business (for an extreme example, see businesses’ reaction to India’s recent move to backdate a foreign merger supertax to the 1960s). Just because we’ve done it before, as this piece documents, doesn’t mean it’s wise to do it again.
|By Brian Lund, Daily Finance, 07/24/2014|
MarketMinder's View: No. “Robo-advisers” are, after all, designed by humans, and their algorithms could be based on the same investing biases and industry mythology many less-savvy human advisers use. As this highlights, they also use the same risk-based approach to determine an investor’s strategy that the rest of the brokerage world uses—wrongly, in our view. Risk tolerance is important, but your long-term goals and time horizon should come first, and robo-advisers can’t help here. They can’t truly get to know you no matter how many survey questions you answer. They can’t have a back-and-forth dialogue to help you identify your long-term goals, objectives and time horizon. Nor can they counsel you through the many emotions and temptations the market’s ups and downs bring. For more, see Elisabeth Dellinger’s column, “Robots, Marie Antoinette and You.”
|By Scott Grannis, Calafia Beach Pundit, 07/24/2014|
MarketMinder's View: While we would go a bit further in our critique of quantitative easing (QE)—in our view, QE has hurt growth by discouraging bank lending—this nicely shows how the bull market hasn’t relied on the Fed’s “easy money” at all. “This is a genuine economic expansion and the rise in equity prices is a reflection of that growth. It’s not a liquidity-driven mirage, it’s real.” And there are 11 charts to prove it!
|By Staff, Xinhua, 07/24/2014|
MarketMinder's View: By “real economy,” they mean businesses other than those state-run behemoths that enjoy cheap, plentiful credit. The big guys have long hogged bank lending, forcing small and private firms into the evil clutches of loan sharks or the treacherous waters of peer-to-peer financing, which can make them vulnerable to the death penalty if they do it wrong. Needless to say, this is a key problem to address. To help these firms gain better access to financing, officials pledged to create new banks dedicated to small/medium businesses, expand capital markets financing to smaller firms, broaden credit derivatives markets and cut a bunch of red tape. Only time will tell whether they see this through successfully—prior attempts haven’t borne fruit—but the whole shebang would be quite beneficial.
|By Carl Richards, The New York Times, 07/23/2014|
MarketMinder's View: There is some wonderfully sensible commentary here, though the article has a couple of warts too. Differentiating between knowledge and behavior is crucial for individual investors. All too often, investors know what the right answer is (need growth, buy stocks; don’t sell deep in a bear market; don’t concentrate in employer stock/high performing stocks/any stock) but they do it anyway based on a rationalization (“it’s different this time,” etc.). The knowledge doesn’t influence the actions, and the actions matter most. That said, there is a balance problem here. The article touts the merits of attaining knowledge—the past—and discounts a forward-looking view as risky. Yet the entire purpose of knowing the past is to help you put the present and the future in context. Finally, financial literacy is important (we are passionate about this at MarketMinder)—but there is a stark difference between being literate and being an expert, just as the fact someone can write a grammatically correct sentence doesn’t make him or her Hemingway.
|By Naftali Bendavid and Matthew Dalton, The Wall Street Journal, 07/23/2014|
MarketMinder's View: To be fair, the details won’t be released until Thursday. But to be judgy, it appears based on existing reports the EU is again going to avoid imposing material sanctions on Russia, targeting mostly individuals and very specific organizations, rather than sector-wide sanctions. What’s more, it appears the notion of ceasing arms trade with Russia is also failing. If they can’t agree to stop selling weaponry to Russia after last week’s downing of a civilian aircraft using Russian technology, we kind of think it might be a wee bit of a stretch to expect harsh sanctions overall.
|By Jeremy Warner, The Telegraph, 07/23/2014|
MarketMinder's View: So another big organization is out with their market take, and it’s another one of those investors-are-too-complacent, low-volatility-will-end-badly, too-long-since-a-correction, markets-are-frothy-blame-central-bankers(!) rants. But is it really bubbly that global stocks are up ~40% in the last two years? Prior to this cycle, based on S&P 500 data since 1926, bull market average annualized returns are roughly 21%, so it wouldn’t seem like it. Why are markets up so much? Earnings and revenues are up! A healthy private sector still isn’t fully appreciated by the skeptical public, as illustrated by this piece. Also, two of the three risks are dubious: a rate hike (no history of regularly causing downturns) and the wiggling of other central bank rates. The third risk, the success of macroprudential regulation in deflating bubbles is real, but it is misperceived here: The issue, in our view, is not whether the Fed can successfully deflate a bubble. It’s whether they cause collateral damage trying—or deflate a nonexistent bubble. Finally, a simple correction: The 2007-2009 crisis began following corrections in 2006 and 2007. It wasn’t placid right before the storm, nor were investors complacent.
|By Todd Buell, The Wall Street Journal, 07/23/2014|
MarketMinder's View: This January, Lithuania will become the 19th nation to use the common currency. For those of you scoring at home, the current 18 are: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Also interesting is the new voting rotation for the 19 national central bank chiefs that will take effect in 2015: The larger nations (Germany, France, Italy, Spain and the Netherlands) will share four votes, with the smaller 14 countries splitting 11. That means one major nation will sit out every five months, a factor potentially ruffling some feathers occasionally.
|By Matthew Lynn, MarketWatch, 07/23/2014|
MarketMinder's View: This article operates on a completely false either/or selection: That the reason stocks haven’t cratered over the crises in Ukraine, Gaza and Iraq is either that wars aren’t bad for stocks anymore or Fed bond buying. Ultimately, the thesis becomes clear: “Either way, investors can safely ignore war and politics from now on when they are structuring their portfolio.” This. Is. False. Politics are a key driver for markets—always have been, always will be. But war and geopolitics have pretty much always mattered only when they have huge global scope. Consider the “examples” of market impact listed here: “After the 9/11 attacks on Washington, DC and New York, the stock market fell dramatically. The Iraqi invasion of Kuwait sparked a wave of selling, and the Middle Eastern conflicts of the 1970s sent the oil price soaring and the stock market crashing.” 9/11, a tragedy of epic proportions, occurred 18 months into the bear market that began on March 24, 2000, and the September 10 level was regained 19 trading days later. The Iraqi invasion of Kuwait occurred after the 1990 S&L-crisis driven bear began, and it ended months before the US ever became militarily involved in early 1991. The Middle East conflicts—we presume this is the Yom Kippur War in 1973—began in October, but the 1973-1974 bear began January 11, 1973. (The OPEC embargo began two weeks after the Yom Kippur War and ended in March 1974, but the bear didn’t bottom for seven more months.) If conflicts are the proximate cause of all these downturns, why don’t any of the dates match? Finally, why wouldn’t larger conflicts (Korean War) cause one? Or similar conflicts (Iraq War in 2003, Arab Spring, etc.)? Perhaps the reality is the crises of the day now just aren’t big enough because it takes something really huge, a la WWII.
|By Sridhar Natarajan and Katie Linsell, Bloomberg, 07/23/2014|
MarketMinder's View: "Indigestion Burns Buyers " is one heck of a statement to describe a 0.38 percentage point dip in one month to date (15 trading days!). This largely seems to us like markets being markets and analysts practicing one of their favorite 2014 pastimes: Searching for meaning in the most myopic and microscopic of market movements.
|By David Gelles, The New York Times, 07/23/2014|
MarketMinder's View: Corporate inversions don’t mean outsourcing, relocation of investment or other facilities. Nor do they permit US firms to evade all US taxes, so it’s hard to see how they are a “virus” or “plague” afflicting the US economy. That said, politicians impeding the free flow of capital to avoid sensibly amending the US tax code risk a potential protectionist response, which is a negative. This is a long way from being done, and protectionism requires more than one player, but this is a matter to watch, in our view. For more, see our 07/17/2014 cover, “Economic Patriotism or Protectionism?”
|By Russell Gold, The Wall Street Journal, 07/23/2014|
MarketMinder's View: This proposed rule would require rail transport firms to upgrade thousands of tank cars employed in moving oil by rail over the two years after it becomes final. This is an increasingly common practice, considering the lack of other oil transport infrastructure in booming regions to get oil from, say, the Bakken shale in North Dakota to storage in Oklahoma or refineries along the Gulf Coast. Assuming this isn’t amended or killed, this is likely a plus and minus—an added cost for rail firms they might be able to pass on to oil producers (and, many steps removed, you). But one person’s cost is frequently another’s revenue, and that’s likely the case here.
|By Noah Smith, Bloomberg, 07/23/2014|
MarketMinder's View: No model will ever perfectly predict economic direction and, even if we live in academic economists' fantasyland (Ivorytowerland, where potential GDP matches real output, long-term forecasts come true and the wage-price spiral comes alive!), it still wouldn't be perfectly predictive of stocks' direction. Stocks are not only influenced by economic reality, but how folks feel about that reality. Models frequently fail to forecast the former, much less the latter.
|By Steven Russolillo, The Wall Street Journal, 07/22/2014|
MarketMinder's View: Well, global stocks corrected more than 10% in 2012 (the S&P 500 Total Return Index fell 9.6% then), and the Russell 2000 had one in 2014. So if you’re trying to use the time since a correction to forecast the next one (a complete fallacy), then we guess you also have to pick the right gauge. That a correction hasn’t hit the S&P 500 in over 1,000 calendar days doesn’t tell us whether or not we have a long ways to go until we see another or if one looms. The amount of time since the last sentiment-driven, short-term move won’t tell you anything about the next one. Folks’ fears and whims don’t move on a schedule. For more, see Todd Bliman’s column, “The Cost of Trying to Time Corrections.”
|By Simon Kennedy, Bloomberg, 07/22/2014|
MarketMinder's View: Sure, robots/automation might displace certain existing jobs in the future, but that doesn’t mean better and higher paying jobs won’t form as a result. For instance, many jobs disappeared as a result of the Industrial Revolution, but the shift to new manufacturing processes created even more opportunities. We shouldn’t fear automation—it is innovation and opens the door to more innovation as ideas collide. But what’s more, studies like the one included in this article aren’t very telling of what will actually happen to jobs in the next 10-20 years—they tend to assume a lot and extrapolate trends years into the future.
|By Saabira Chaudhuri, The Wall Street Journal, 07/22/2014|
MarketMinder's View: Smaller banks should want to hit $50 billion in assets. Right? Well, maybe not so much if that means they’ll get the “systematically important” designation, a label bringing higher capital requirements, Fed stress tests, bonus rules and more, all of which can be quite costly (and annoying). So, go figure, some smaller banks are self-installing a ceiling at about that $50 billion in assets mark. One bank noted here is even “restraining its lending growth” to try and stay below the threshold (unless they can land a whopper deal that would dramatically boost their assets to offset the costs associated with the requirements). All this is yet another unintended consequence of post-2008 banking requirements. We are waiting for the day when banks shed subsidiaries and certain lines of business to avoid the marker, in what we hope will be called, “a systemically unimportant spinoff.”
|By Peter J. Henning, The New York Times, 07/22/2014|
MarketMinder's View: The part of this that really caught our eye was the concept of creating a law that would hold corporate executives criminally liable for not releasing information about malfunctioning products, a la the ongoing GM recall investigation. Stamping out the intentional cover-up of such issues is a noble concept, and with that we have no gripe. But Federal legislation that would attach a criminal liability to issues that go knowingly undisclosed for more than 24 hours seems likely to accomplish little more than jacking up compliance costs, increasing executive pay (more risk, more reward) and incentivizing executives to avoid knowledge of such matters. The world is not a perfect place, and no doubt there are issues that crop up from time to time. But blanket fixes like this run the risk of being Sarbanes-Oxley-like overreaches. We are happy to report this is unlikely to pass through a gridlocked government.
|By Robert Pear, The New York Times, 07/22/2014|
MarketMinder's View: In two separate cases, Federal appellate courts in Virginia and the District of Columbia issued contradictory rulings in challenges to the Affordable Care Act’s subsidizing of premiums for policies sold on Federal Exchanges. The conflicting rulings virtually ensure the Supreme Court will ultimately decide the issue. Interesting as this may be, the development has no immediate market impact.
|By Douglas Anderson, The Telegraph, 07/22/2014|
MarketMinder's View: Yep, lifespans are increasing, and many do live beyond average life expectancies—that’s the meaning of an average. But none of that means immediate annuities are the only (or best) way to ensure lasting cash flow. It could just mean you need more growth-oriented investments to kick off cash flow later in life. Look, some investors will still pick annuities. But before assuming they’re the automatic best option, it behooves investors to weigh what they could be doing instead and determine which investment best suits their long-term goals and objectives.
|By Dr. Mark J. Perry, AEIdeas, 07/22/2014|
MarketMinder's View: “By tapping into previously inaccessible reserves of tight oil and gas trapped in shale rock formations miles below the Earth’s surface, US drillers increased domestic production of oil and gas by 40% between 2005 and 2013, bringing America’s output up to the highest level (44.11 quadrillion BTUs) last year since 1973, and just shy of the all-time record of 44.85 quadrillion BTUs in 1971.”
|By Liz Hoffman, The Wall Street Journal, 07/22/2014|
MarketMinder's View: While this is a state-level case, the state is particularly important for corporate America, as Delaware is the state of incorporation for many S&P 500 and public firms. This appears to be the first case testing Delaware’s “loser-pays legal fees” provision that resulted from a suit a couple months ago, and the plaintiff’s attorneys are directly challenging it here. For more, see our 06/11/2014 commentary, “Class Dismissed?”
|By Benoit Faucon, The Wall Street Journal, 07/22/2014|
MarketMinder's View: While Libya’s oil industry still faces hurdles and some turmoil, it is making some progress (albeit slowly)—Libya’s oil production has been incrementally rising from its 2011 low, two major export facilities are now back online, and the country plans to finally export oil from its biggest oil field next week.
|By Angus McDowall and Andrew Torchia, Reuters, 07/22/2014|
MarketMinder's View: A notable move for Saudi Arabia as it aims to welcome foreign investors to its stock market in the next year—more developed capital markets likely aid the nation’s businesses, attract capital and more.
|By Ryan Tracy and Victoria McGrane, The Wall Street Journal, 07/21/2014|
MarketMinder's View: Four years ago Monday, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. According to some estimates, only about half of the law is currently enforceable. A large part of the remainder constitutes a swath of “potential rulemakings” Congress punted to regulators, which are risks worth watching as they emerge. Fact is, the legislation itself—hotly debated, widely known—wasn’t as problematic as the potential rule crafted quietly by regulators that rears its ugly mug when least expected.
|By Suzanne McGee, The Fiscal Times, 07/21/2014|
MarketMinder's View: This spends altogether too much time delving down into the true meaning of Janet Yellen’s statement that certain teensy sectors were highly valued. Maybe her opinion is just and maybe not, but we’d suggest crediting any government official with having wonderfully clear-eyed visibility on the economy and markets is a bit of a stretch. Greenspan was three-plus years early with his “irrational exuberance” call. (Or wrong). Bernanke was way wide of the mark with his preliminary assessments of the damage of FAS 157. The Fed in the 1930s sucked about a third of the US money supply out of the economy in a recession. These are not the moves of an institution with a high degree of forecasting acumen. And even Yellen’s comments this week commit the same error her 2008 forecasts made: Forecasting based on past data. You don’t have to outright ignore what the Fed says–but we caution investors from investing based on what Janet Yellen (or any other central banker) says.
|By Jeff Sommer, The New York Times, 07/21/2014|
MarketMinder's View: If you pick a mutual fund, money manager, variable annuity subaccount, stock, bond, CD, real estate investment trust, MLP, ETF, ETN, call option, put option, straddle strategy, hedge fund(!) or any other investment product (are there any others?) based on past performance alone, this article is for you. Simple fact: Past performance is not predictive of future results. Dig deep to find the right option that’s aligned with your goals and objectives, not your greedy side.
|By Richard Evans, The Telegraph, 07/21/2014|
MarketMinder's View: After introducing a sweeping pension reform plan in March—highlighted by the ending of the effective requirement for pensioners to buy an annuity—the UK Treasury announced more details about the options and flexibility investors will have starting in April 2015. Options and flexibility are a plus, but these changes seem likely to give UK insurers the capability to offer high-priced riders and, potentially, even the deferred annuities so common in the states. In case you weren’t aware, the most “super” thing about those annuities are the “super” watered-down returns. For more, see our 03/20/2014 commentary, “Retiring the Annuity Requirement” and our sister website, Annuity Assist.
|By Paul Krugman, The New York Times, 07/21/2014|
MarketMinder's View: A sensible take on inflation in this expansion: “…It is important to realize that relative prices are always shifting around, and that some prices inevitably go up more than the average. As the figure shows, if you go back to the beginning of the Great Recession, food prices have risen more than the overall CPI (although hyperinflation it isn’t), but car prices have risen more slowly (and high-tech stuff has, of course, gotten much cheaper).”
|By Caroline Valetkevitch, Reuters, 07/21/2014|
MarketMinder's View: Well, no—reported earnings show the private sector’s health, not the entire US economy. And though many pundits are still waiting for evidence of stronger US economic growth, especially after the Q1 GDP pullback, earnings have grown for 18 straight quarters, including Q1 2014—a sign of the private sector’s strength. What’s more, stocks are a forward-looking indicator, not backward. Q2 results may bring a short-term reaction, but the likelihood one quarter’s earnings change market direction is low.
|By Jiang Xueqing, China Daily, 07/21/2014|
MarketMinder's View: We wish we agreed with the headline here, as China opening its financial markets and increasing the use of the yuan globally is a positive long-term development for both China and the world—it means deeper, more diverse global capital markets and easier global trade with the world’s second biggest economy. But alas, when we consider the still-stiff capital controls and the slow pace of tearing them down, we become more skeptical than this allows for. Especially just days after The Wall Street Journal reported, “China's major banks have halted an experimental program, sanctioned by the country's central bank, that helped citizens transfer large sums overseas despite government capital controls, according to people with knowledge of the matter.” It’s easy to impress with big percentage growth figures when you grow from near zero. Harder for the Communists is to stay the course if the economy gets further out from under its thumb.
|By Jessica Silver-Greenberg and Michael Corkery, The New York Times, 07/21/2014|
MarketMinder's View: This theory doesn’t pass the logic test, right in the headline: Folks, a bubble is all about a mispricing of risk. But if these risky borrowers who cannot afford to pay seek to borrow—and they pay high rates—that doesn’t appear to be happening. Hence, no bubble. Finally, this preys on still-latent fears of 2008 that incorrectly blame subprime. Absent FAS 157 and the government’s haphazard actions that created the crisis, there is little to no chance anyone is talking about subprime (secured) auto loans at rates priced commensurate with risk.
|By Liam Dann, The New Zealand Herald, 07/21/2014|
MarketMinder's View: This is a bit too dismissive of the conflict in Ukraine and Israel—going so far as to call them a mere “distraction to be shrugged off.” Now, we’d suggest they aren’t likely to create a bear market barring major, global escalation, but the scenario is at least worth following for that potential, however unlikely. On the good side, this does seem to stress the strength of this cycle and the fact it won’t easily be overturned. This type of article is a rarity today. Were it common, we would be more worried about potential euphoria. For more, see our 7/18/2014 commentary, “About Ukraine and Russia …”
|By Ambrose Evans-Pritchard, The Telegraph, 07/21/2014|
MarketMinder's View: Germany is frequently accused of not doing its part in helping the eurozone’s periphery by hogging all the wonderful export business and not importing enough from its neighbors. However, trade deficits are the least of the periphery’s concerns. In fact, Spanish exports have been surging for years now. Portugal’s also snapped back. The periphery’s problems were more tied to a lack of economic competitiveness, bloated public sectors and poor productivity, to name a few. But consider the alternative here: How on Earth do you expect Germany to fix this? Slap caps on BMW’s shipments to Spain? Are we sure Spanish dealers wouldn’t be upset by that? And what would the collateral damage be? In the globalized world we live in, it’s unlikely any countries’ finished goods exports are 100% made in their borders. And raw materials, well, they are used to make products abroad. This is just a very 1930s winners-and-losers theory about global trade, and a wrongheaded one at that. For more, see Elisabeth Dellinger’s column, “Don’t Fret German Austerity.”
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Market Wrap-Up, Thurs July 24 2014
Below is a market summary (as of market close Thursday, 07/24/2014):
Global Equities: MSCI World (+0.1%)
US Equities: S&P 500 (+0.1%)
UK Equities: MSCI UK (-0.1%)
Best Country: Portugal (+2.3%)
Worst Country: Japan (-0.5%)
Best Sector: Financials (+0.5%)
Worst Sector: Industrials (-0.2%)
Bond Yields: 10-year US Treasurys rose by .04 to 2.51%
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.