Today's Headlines

By , The Wall Street Journal, 10/21/2016

MarketMinder's View: Some people watch presidential debates for the fireworks. We watch them to see what economic misinformation the candidates spout, so we know what we need to help investors see correctly. And as always, we scrutinize both parties and candidates equally, because political bias is blinding and invites investment errors. We’re neutral, equal-opportunity correctors. So with that, we were a little confused when the titular candidate implied the US should be matching China and India’s eye-popping economic growth rates. That just isn’t realistic. “Should Americans actually be worried about the difference between them? Of course not. Contrasting the growth rate of an advanced economy to a developing nation is a misguided exercise–by definition, the two types of economies run at different speeds. … rich countries grow at a slower pace than emerging markets because the gains from industrialization diminish over time. Productivity levels accelerate for developing countries as they are able to introduce technology–such as electricity and more advanced machines–and capital injections into their economies. But for advanced economies, which have already made those leaps, productivity gains are harder to come by.”

By , The Wall Street Journal, 10/21/2016

MarketMinder's View: This piece basically encourages every error in the behavioral finance book. Folks, investing in passive products does not make you a passive investor. True passive investing, in the Eugene Fama spirit, requires buying an index fund or three to round out your desired asset allocation, then doing nothing, regardless of recent performance, market conditions or what have you. All the stuff suggested in this article is active management, just using ETFs. If you stay “on top of the markets and the events poised to move them” and trade accordingly, you are active—and subject to ill-timed trading—whether you use stocks or funds. Also not all of the ETFs discussed herein are even truly passive. Some don’t mirror a traditional, broad index. Many, particularly those “smart beta” funds championed near the end, are active as active can be. They are also often gimmicks, based on some hot trend. If someone creates an arbitrary index based on select criteria like valuations, percentage of revenues from one corner of the world or how many women sit in the board room—and then sells an ETF mirroring that index, that is active. It’s just cross-dressing.

By , The Telegraph, 10/21/2016

MarketMinder's View: While the headline takes the blame-Canada approach, the real issue here is the Wallonian regional parliament’s refusal to back the deal. To placate anti-trade sentiment, the European Commission put the Canada/EU trade deal to all 28 EU nations to ratify. If one country says no, then no deal. Belgian law requires its regional governments to back any international agreement it signs, so Wallonia’s refusal put a stake in the agreement. For markets, it’s a disappointment, but it also isn’t a surprise, given the popular turn against free trade and the well-known difficulty of finalizing multiparty trade deals. Plus, while markets generally prefer freer trade, the absence of more free trade isn’t negative. New protectionist barriers would be more of a concern, and right now, for all the talk on that front, there is very little action, and none of the sort that threatens to snowball into a global trade war.

By , Bloomberg, 10/21/2016

MarketMinder's View: This is all of very little consequence. It would be bizarre for stock buybacks to rise year in, year out. Nor does this bull market require a sequential increase. We recommend looking at the big picture instead: Is stock supply shrinking or rising? As long as buybacks and cash-based mergers outweigh IPOs and secondary offerings, stock supply is shrinking. Shrinking supply, against a backdrop of steady or rising demand, pushes prices higher. Just basic economics.

By , Bloomberg, 10/21/2016

MarketMinder's View: The referee in question is the Investor-State Dispute Settlement panel, which mediates when companies file grievances over rulemakings and other administrative barriers that run counter to a trade deal. These panels are a political lightning rod and the reason many in Europe and America oppose the major trade deals du jour. The popular narrative says they give corporations too much say-so over local laws, elevating them above elected representatives. As this piece shows, however, that isn’t really true. They have existed for decades, with all of zero impact on US laws and regulations. They also bring some positives: “One criticism is that the tribunals could force governments to pay compensatory ‘takings’ to foreign companies that incur costs as a result of safety or environmental regulations. But it has long been standard practice for trade treaties to protect foreign companies, for example by limiting the nationalization of foreign investment. Investors don’t always trust the courts of the nations they are investing in, and indeed from 1990 to 2013, at least 150 foreign-owned firms were nationalized, typically in emerging economies, or otherwise subjected to confiscation of value. Agreeing to refrain from such practices can attract more foreign investment and raise living standards.”

By , Reuters, 10/21/2016

MarketMinder's View: The rules, which force banks to provision for potential loan losses as soon as the loan is made, and not when it enters default, prompted concern some banks would have to write down assets and raise capital, in an eerie echo of 2008’s mark-to-market mayhem. That fear was always overblown, as the amount in question would pale next to 2008’s nearly $2 trillion in exaggerated and unnecessary writedowns, but raising capital now would still be a headache—particularly in Europe, where capital concerns plague Italian and German banks. So it’s nice to see that outside the US, at least, banks will have a grace period and needn’t raise capital immediately when the rules take effect. It eases a mild regulatory headwind for global Financials. As for concerns about America and Europe having different standards, markets have a long history of being able to price in regional differences like this.

By , The Wall Street Journal, 10/21/2016

MarketMinder's View: Nah. Apples and oranges. There is a difference between negotiations on maintaining the status quo (which would be Brexit) and establishing a new trade deal altogether. Not saying they’ll face no roadblocks, but we just aren’t sure this is truly the litmus test for Brexit talks. It seems more like an illustration of the fact the proposed US/EU trade deal faces a difficult road.

By , The Wall Street Journal, 10/21/2016

MarketMinder's View: We guess if you want to take the math of fractional reserve banking literally, then yah, maybe $275 billion in banks’ legal costs since 2008 might technically reduce lending capacity by $5 trillion or more. But that ignores some things that render the hypothesis null and void. Like, the $2.2 trillion in excess bank reserves in America presently, which imply banks had other reasons for not lending more enthusiastically. If you want to argue these penalties cut into dividends and buybacks, fine, that’s plausible. If you want to argue more legal activism has made banks more risk averse, that’s plausible as well, though qualitative. But we’re fairly sure items like flattish yield curves and falling net interest margins had a much, much larger impact on lending than a couple hundred billion in regulatory costs. Otherwise, trillions of dollars would not presently be gathering dust at the Fed.

By , Reuters, 10/21/2016

MarketMinder's View: Here is some good sense: “Despite its theoretical appeal, GDP is, in practice, a fallible measure – and increasingly becoming one that could be described as a grossly defective product. For one thing, the number shifts as more complete, up-to-date data becomes available. For another, national accountants change their definitions and approaches to better reflect the changing shape of the economy, such as the recent inclusion of research and development as investment. A deeper concern is that the concept of GDP – a measure of output within an economic territory – is becoming less and less relevant to the way economic activity is actually conducted. Devised in an era of largely closed industrial economies, GDP is much harder to estimate in today’s more open service-denominated economies.” This, and everything else described throughout the article, is a key reason investors shouldn’t rely overly on GDP or any economic statistic. It is handy as a loose measure of economic trends, but it does not perfectly capture commerce.

By , Bloomberg, 10/21/2016

MarketMinder's View: Folks: If quantitative easing worked as central bankers claim, this article wouldn’t exist. Period. For more, see today’s commentary, “Japanese Godzilla QE Shows Fed Mothra Feckless.”

By , The New York Times, 10/21/2016

MarketMinder's View: Not much of a market takeaway here, but we present it to you as a fun Friday thought piece. (Also, we love the theater.) Raise your hand if you have ever tried to attend a major theater/musical/sporting event, only to have to make a pro/con list when confronted with astronomical prices on the secondary market? (We’re raising both hands.) On the one hand, it’s annoying. On the other, the existence of that secondary market allows us access to the events we want to attend. If it didn’t exist, or if markups were capped, there probably wouldn’t be tickets available. On the other other hand, that market exists because official ticket prices frequently undershoot open-market prices, by a vast amount. It’s fair to argue scalpers who use bots to buy all the tickets the second they hit Ticketmaster are capturing economic rents by exploiting this inefficiency. “But there is an easy way to put these resellers out of business: The theater can charge higher prices to begin with. Such a move would surely increase the show’s profitability. From my standpoint as a theater consumer, that’s a good thing. Future talents like [‘Hamilton’ creator Lin-Manuel] Miranda would find it easier to fund their innovative theater projects. And with more projects funded, those consumers who don’t buy ‘Hamilton’ tickets — perhaps deterred by its uniquely high prices — would find a greater variety of other shows from which to choose.” If the bulk of theatergoers are paying high prices anyway, we might as well pay the artists and actors, not the middlemen. Our friends who spent years eating ramen noodles while trying to join Equity would surely appreciate this sea change.


By , CNBC, 10/20/2016

MarketMinder's View: September’s Leading Economic Index reversed from August’s -0.2% m/m dip, rising 0.2% and extending the overall uptrend. No US recession has begun amid an LEI uptrend since its 1959 inception.

By , The Telegraph, 10/20/2016

MarketMinder's View: This one is a doozy of a misperception, largely starting from this place: The Fed erred by talking tough and tightening in early/mid 2008, and that is what drove the crisis. The presumption is the Fed is repeating this error now, as some Fed members have talked of a December hike and some esoteric and rather off-base assessments of future economic conditions (like slowing nominal GDP, which is not “a pure measure of the economy” as it has all the standard measurement errors in GDP and doesn’t account for inflation). Look, the Fed didn’t act appropriately in 2008—on that we agree—however, it was more on the side of eschewing its role as lender of last resort in the Lehman debacle and ignoring time-honored crisis-fighting measures like dropping the fed funds target rate below the discount rate, allowing banks to borrow with no stigma and lend profitably to one another. It also didn’t speak up on FAS 157’s (mark-to-market accounting’s) unintended consequences until much too late, and even then, spoke much too quietly. None of that applies today. Furthermore, forward-looking economic indicators today—like the yield curve, ISM New Orders gauges in Services and Manufacturing and The Conference Board’s Leading Economic Index—point to continued growth. Those figures are much more reliable than backward-looking GDP contortions or the other less-than-predictive attempts to forecast growth cited.

By , BBC, 10/20/2016

MarketMinder's View: UK retail sales were flat in September, but rose 1.8% q/q in Q3, the fastest rate since 2014. That is strong evidence the Brexit vote didn’t crush consumption, despite what a few confidence surveys suggested in the months since the late-June vote. That being said, this coverage is still dripping with Brexit fears, tied mostly to the weak pound triggering inflation consumers can’t keep up with. This is all underpinned by a recent CPI report that showed prices rose a whopping 1% y/y in September. For some perspective, that is half the BoE’s target rate, and if it doesn’t rise, BoE chief Mark Carney will have to write a letter to the Chancellor of the Exchequer explaining why inflation is so low. Maybe prices do rise from here. But it isn’t set in stone and isn’t destined to be at problematic levels. For more, see today’s commentary, “Don’t Yield to Pound Paranoia.”

By , Bloomberg, 10/20/2016

MarketMinder's View: The $13 trillion referred to here is the total of the assets held on the balance sheets of the ECB, Fed and BoJ, all of which accumulated through these banks’ quantitative easing asset purchase programs. It’s actually a wee bit bigger than that, considering they omitted the BoE and a few small Nordic banks. That said, the argument here is that these central banks should blur the line between monetary and fiscal policy by extending the maturity of the government bonds owned into perpetuity, and perhaps even just forgiving them. Then, global governments could pursue fiscal stimulus, which central banks would support by buying the bonds issued—helicopter money, in a sense. A few issues here: One, there is no real sign the developed world needs stimulus, as the economy is growing fine. Two, there isn’t any actual evidence such actions would goose growth—fine-tuning growth rates has never been shown to be within governments’ and central bankers’ control. Three, the risk of politicizing monetary policy is real, as demonstrated time and again in developing nations. Four, higher long rates would likely add more stimulus than any of these measures by widening the yield curve—the spread between short-term and long-term rates, a proxy for banks’ lending profits. Buying bonds narrows this, making lending less attractive to banks. That is why QE has, to this point, failed to stimulate higher growth rates across the world—and more of the same is unlikely to change that.

By , The Wall Street Journal, 10/20/2016

MarketMinder's View: The suggestion here is that the tenor of today’s ECB presser, which focused on the mechanics of ECB bond buying, shows how markets are hopped up on ECB policy. But nothing here proves that point. Rather, it shows financial reporters are obsessed with central banks’ actions in the markets. But that is strikingly obvious from the selective reporting on the subject, which never really seems to answer this simple question: If central banks’ asset purchases are driving markets, why aren’t eurozone and Japanese stocks outperforming? If we could make one rule, it would be this: Reporters—before typing that “markets are dependent on central-bank buying” or anything of that ilk, answer the previous question.

By , The Undercover Economist, 10/20/2016

MarketMinder's View: We share this post mostly because it’s great fun. But in the course of being great fun, we’ll note that these prizes given to souls for “ridiculous research” often eventually prove to have value—even great value. Michael Milken, whose junk-bond work won him an Ig Nobel, is now considered to be quite an authority on many financial market-related matters and runs an eponymous institute disseminating his learnings. What is ridiculous to some—or obvious, or what have you—often seems that way because they can’t fathom how to use it. In that sense, we say: Bring on your ridiculousness, academics, we won’t ridicule.

By , Bloomberg, 10/20/2016

MarketMinder's View: That market is Frontier Markets’ darling Pakistan, which is up more than 20% year-to-date, bolstered by a raft of reforms, strong economic growth and improved sentiment. This article pays some loose credence to those factors, but seems wrongly fixated on past returns and widely known factors like MSCI’s upgrade of the country, slated for next May. Such upgrades and downgrades have a greater historical tendency to follow performance than lead it. This is true both on the sector and country level. Now then, there isn’t any reason Pakistan can’t outperform if the country maintains political stability and continues growing economically while sentiment still takes its time appreciating those factors. But base any investment decision on those factors, not a widely telegraphed status change and past returns.

By , The Wall Street Journal, 10/19/2016

MarketMinder's View: Chinese GDP grew 6.7% y/y for the third straight quarter in Q3, rekindling doubts over the reliability of official growth numbers. Many believe Chinese officials are massaging data and pumping stimulus measures to make growth rates match the official target. Fair enough when it comes to stimulus, which has been widely telegraphed. As for the statistical finagling, though, while we’re skeptical of all data from public and private sources, it’s unlikely actual growth is significantly lower than what’s officially reported. For one, consistent year-over-year growth isn’t all that unusual. The eurozone posted three straight quarters of 2.0% y/y growth from Q2 2015 – Q4 2015, and the figures around it show little skew. Again, we aren’t saying you shouldn’t be skeptical, just that the particular degree of skepticism here seems influenced by persistent hard landing fears. Also, while officials can engineer better-than-actual growth rates to some extent, they can’t impact quarterly conference call commentary from US and European firms doing business with China or economic cross-reads from trading partners. Firms, for the most part, report robust growth with the Middle Kingdom, and trade-with-China figures from most major countries are fine. Moreover, even if China were growing at 5% or 4% as some suggest, it would still add hugely to global output. While the growth rate is lower, China is now growing off a much bigger base, adding another Belgium or Thailand to global output each year.

By , The Wall Street Journal, 10/19/2016

MarketMinder's View: Yup. Just because use of passive products is growing by leaps and bounds doesn’t mean passive investing is doing so. As John Bogle, the godfather of index funds, said: “There’s passive strategies and there’s passive investors. And these are two different things.” Passive investing requires being, well, passive—owning an index fund or three for all of space and time, regardless of market gyrations. Rarely does anyone do that. But a lot of folks actively trade passive products, which can be anything from a broad index fund to an ETF targeting three times the inverse return of socially responsible female-run bank stocks in Estonia. Some of these notionally passive products aren’t even truly passive—instead, they’re managed by humans according to a given set of criteria, and rebalanced periodically as companies start and stop meeting those conditions. They’re considered passive because they’re “index” ETFs, but they’re really active in passive’s clothes. There is a slew of that so-called “smart beta” on the market right now. To each their own, but calling all of this a tectonic shift toward passive investing is wrong. Rather, it shows fads and gimmicks are alive and well. As for investment advisers’ increasing use of ETFs to build out their recommended strategies, that too is active, not passive. It can be a fine way to gain broad exposure to narrow categories without limiting diversification or driving costs higher, but it is as active as Jane Fonda in a 1980s workout video.

By , Bloomberg, 10/19/2016

MarketMinder's View: As a general rule, any piece arguing various indicators have lost their ability to predict recessions should include charts showing multiple business cycles. At the bare minimum, one recession. Yet several charts here don’t even do that, instead showing the VIX, Libor and others from 2014, 2015 or 2016 onward. If you view them in historical context, things look vastly different, and it’s readily apparent this time isn’t so very different after all. Then again, none of these have ever been timing tools anyway, and most aren’t all that predictive. Even the yield curve, which is arguably the only variable here with any demonstrably repeatable leading indicator powers, has historically inverted six months or more before a recession began, not on the eve. Which brings to mind our other main quibble: Flattish yield curves might presage slow growth, but they are not recessionary. Inverted yield curves (short rates exceeding long rates) are the real problem. Today’s yield curve, using the traditional overnight-to-10-year rate spectrum, isn’t inverted—it’s steepening.

By , Bloomberg, 10/19/2016

MarketMinder's View: Here is a lesson in the danger of falling for investment gimmicks. Earlier this year, when markets swung wildly, investors flocked to funds aiming and claiming to be less volatile than broad markets. But now some have gone topsy-turvy and are more volatile than the market. And it isn’t the good kind of volatility. It’s the downward kind, driving investors away, because they’re heavy on Utilities and other categories with less economic sensitivity. They did great when stocks fell in the winter, then they fell to Earth. Always remember: Past returns don’t predict the future. Furthermore, while we can appreciate some investors’ skittishness with market volatility, you simply cannot target low volatility in an all-equity strategy. There is no such thing as a low-volatility stock. Stocks are stocks. These funds simply pile into what was calmest most recently. Reducing volatility requires blending in assets that are inherently less bouncy, like bonds. Even then, seeking a less volatile strategy may actually reduce the chances of reaching your long-term goals. Volatility is required to reap higher-long-term returns, as risk and return are two sides of the same coin. It simply isn’t possible to reduce the potential for one without limiting the other, despite countless strategies and tactics that attempt to do so. While your personal comfort with volatility is important, always consider your time horizon and goals—and the amount of risk required to reach them—first.

By , USA Today, 10/19/2016

MarketMinder's View: According to Standard & Poor’s, 132 firms have defaulted so far this year, globally, 55% more than over the same period in 2015 and the most since 2009. Scary? Not at all. “The biggest driver in defaults has been the stubbornly low price of oil. More than half, 55%, of the defaults reported this year have been by companies in the energy and natural resources industries.” This shows an important point: Defaults tend to follow downturns—whether broad-based or pertaining to particular industries—they don’t cause them. GM went bankrupt in June 2009, after the bear market ended. There may be more pain ahead for natural resource-related firms, as the default rate is expected to keep climbing, but this shouldn’t endanger the broad economy. It’s a late-lagging indicator of resource industries’ recent troubles.

By , RTT News, 10/18/2016

MarketMinder's View: UK inflation is on the rise, and has now reached the Everest-like heights of … 1% y/y (or 1.5% excluding energy, food, alcohol and tobacco—“core inflation”). Though this coincides with news of the pound’s weakness—and a weak currency is traditionally linked to inflation—the recent increase stems more from Energy and clothing prices’ moderate rebound from last year’s extremely low levels. As UK firms’ currency hedges expire, the cheaper pound may contribute a bit later on, but given it’s one of many inflation drivers, we wouldn’t take sharp price increases as a given. In any case, stocks and economies are far more resilient toward inflation than most believe. Inflation is always and everywhere a monetary phenomenon, and continued economic growth and rising incomes often go hand in hand with a rising money supply and moderately higher inflation.

By , Bloomberg, 10/18/2016

MarketMinder's View: Meanwhile, in America, inflation is also up*—to 0.3% m/m in September (1.5% y/y). Some have leapt on this (and other) inflation data as evidence central banks are finally curbing deflation, but we don’t see why. Toss out Energy (up 2.9% y/y), and inflation is just 2.2%—right around where it has hovered all year. We didn’t blame central banks for slowing inflation (or disinflation, if you’re into Econspeak) when Energy prices were falling, and they get no credit now that Energy prices have recovered somewhat. Central banks can barely manipulate money supply, never mind oil supply. Second, a couple months’ price movements don’t make a trend, and trends aren’t predictive anyway. Nothing here indicates prices are behaving any differently than they have for the bulk of this expansion.  *More evidence Britain’s rise isn’t purely Brexit blowback.

By , The Financial Times, 10/18/2016

MarketMinder's View: Companies looking to go public recently have been “disorientated” and “befuddled” by investor demands for more reasonable (i.e., lower) valuations, often at “a 10 per cent discount at least compared with stocks already trading.” A number of firms have pulled back their offerings, surprising many who thought IPO activity would surge when global markets recovered from early-2016 doldrums. Regardless of the cause, a quiet IPO scene is bullish, not a sign of weakness. For one, wild valuations and anyone-can-get-rich sentiment surrounding IPOs are a sign of overheating markets near the end of a bull; today’s skepticism indicates this point isn’t in sight. Second, rising equity supply (in the long term, and all else equal) is a drag on prices. A tepid IPO market hinders stock supply expansion—a positive for markets. 

By , Bloomberg, 10/18/2016

MarketMinder's View: A survey of money managers shows cash balances have reached 5.8%, a post-2001 peak. While this isn’t predictive (people generally overestimate the impact of “new money” coming into the market), it is telling about sentiment. Cash balances have been elevated for most of this bull market, spiking during the debt ceiling standoff in 2011 and Grexit brouhaha in 2012. They jumped last summer, when China shocked the world by devaluing the yuan a bit, and rose again around Brexit. All of this illustrates just how skeptical investors are during this bull market compared to the one before. Doggedly dour sentiment has weighed on returns, but it also extends the wall of worry and, at least so far, this bull market’s lifespan.  

By , The Telegraph, 10/18/2016

MarketMinder's View: This article’s calculations of money lost by frightened investors pulling out of stocks ahead of the Brexit referendum are pretty speculative, but the core point is a good one: Asset allocation—the choice between stocks, bonds and cash—is the most important decision investors make, and it’s easy to get swept up in the tidal wave of worry that precedes or accompanies big events like Brexit. The consequences can be damaging and lasting. “To whom do those who sold in a panic now turn? Their money is earning them nothing in cash thanks to continued low interest rates and they are probably fearful of going back into stocks in case a falling market compounds their original error. This whole experience could put them off investing at any time in the future, which will likely mean they suffer even greater losses, if they are sidelined in cash over the long term.” These can be financially devastating decisions, wiping out any money saved on fees by a hefty margin. Though there is no guarantee expert counsel will produce winning choices, simply hearing another (perhaps calmer) perspective may help ease your nerves during the rollercoaster’s worst swings and temper your impulse to trade at the wrong time.

By , Bloomberg, 10/18/2016

MarketMinder's View: A decade ago “Peak Oil” referred to peak supply—namely, the widespread fear production would peak and the world would run out of crude. The shale revolution killed that one, and now peak oil demand has assumed the “Peak Oil” throne. How things change! We guess peak demand is more plausible than peak supply, if only because market forces and technological advancements logically point that way. Heck, that’s a big reason we’ve long argued we’ll never run out of oil, even in Peak Oil 1.0’s heyday. That said, you can’t pinpoint when this will happen. The far future is unknowable—too many as yet unknown and unforeseen variables will impact oil demand over the next several decades. Maybe it’s 2030, as the World Energy Council currently envisions, or maybe it’s later (or sooner!). Time will tell. In the meantime, what matters for investors is this: Innovations and discoveries have a way of trampling on popular predictions and conventional wisdom—and, if history is any guide, they do so in a way that grows economies more often than not. Owning stocks much more often than not is the best way to capitalize on that growth.

By , Atlanta Fed Macroblog, 10/18/2016

MarketMinder's View: First, the interesting: This article points out that although foreign investors own far more US assets than the US owns foreign, the US enjoys much better returns on those investments, largely making up the gap. But the underlying assumption here—that if US investments weren’t so profitable, the trade deficit would be damaging and unsustainable—is far from correct. So is the presumption that countries running trade deficits automatically “borrow from the rest of the world to finance” them. Both ignore domestic wealth creation, wrongly view trade as adversarial instead of mutually beneficial, and ignore the fact current and capital accounts’ tendency to balance each other out is just math. It isn’t like the Import Bank of Uncle Sam borrows from China to buy Chinese widgets. Rather, companies make money here and buy from foreign firms. Those foreign firms can do one of two things: Invest those dollars here, or convert them to local currency and let their central bank invest them here. Sometimes the foreign firms or governments buy bonds, hence the perception we are “borrowing.” Other times they open new plants or other facilities. The US can run a trade deficit as long as American consumers and businesses find more products elsewhere they wish to purchase than the reverse—and it can run an investment deficit as long as foreigners find the US a more attractive place to invest than the reverse. Nothing about a supposed “imbalance” in one direction or other has any effect on any country’s economic well-being.

By , The Washington Post, 10/18/2016

MarketMinder's View: Do arbitrary calendar designations help you accomplish things you wouldn’t otherwise? Then we are pleased to announce that we’re in the midst of National Retirement Security Week, and this is an article listing several tasks you can tackle during it, because why not? Taking a bit of time to keep your financial plans shipshape is time well spent in our book—check it out.

By , The Washington Post, 10/17/2016

MarketMinder's View: It is the beginning of “National Save for Retirement Week,” so we highlight this article to kick off the celebration. As this piece aptly begins, “We get busy in life,” which makes it easy to put off important things like retirement planning. Heck, with the holidays around the corner, many folks will be hard-pressed for time for the rest of the year. However, though it can be overwhelming, retirement planning doesn’t need to be daunting—especially if you break it down into manageable segments. This piece provides some helpful high-level topics to consider. By no means is this an exhaustive list, but it’s a good place to start. And once you’re done reading this article, you can head over to our Markets Insights blog for more!

By , Bloomberg, 10/17/2016

MarketMinder's View: Chatter about a Democratic sweep—not only taking the presidency but also Congress in November’s election—has picked up in the past two weeks, particularly after Republican nominee Donald Trump has fallen in the polls. As we remind investors every time we comment on politics, no politician or party is good or bad for stocks. It is vital to remain politically agnostic when investing because bias of any sort blinds. This article sensibly notes that, while the chances are low, a sweep would technically remove the bullish gridlock that has persisted for much of this bull market. (We say low because, in the House, it would require one of the biggest swings since the 435 representative structure was launched in 1912, and incumbency and gerrymandering render that unlikely.) However! That doesn’t mean Democrats in Congress will freely hand over a mandate to Clinton to spearhead big legislative change. They will start positioning themselves for the next midterm election in 2018, so they likely won’t want to take big risks that could hurt their electability. Even if the Democrats take just the Senate, they likely won’t have a supermajority there, limiting their influence. Also, we would be remiss to say that there are still three weeks left in the election, and a lot can still change—nothing will be certain until the final results are in.

By , The Wall Street Journal, 10/17/2016

MarketMinder's View: This is a long essay, covering a wide sweep of history—the postwar era in global growth—and tries to make the point that the relatively faster growth we saw from 1946 - 1973 was an aberration. Hence, the theory politicians can boost presently slow productivity and GDP growth is incorrect regardless of the policies deployed. Look, we agree that governments' ability to boost growth rates is minimal. But this also presumes GDP and productivity stats are spot-on measures of growth in an adaptive and changing economy. We're less convinced. Was the economy necessarily "better" because GDP grew faster in the 1960s? Or is it better now, with all the accumulated innovation along the way deployed to better everyone's standard of living? Do we even know that stats designed to measure the production of "stuff" are capable of measuring services and technology output?

By , Washington Post, 10/17/2016

MarketMinder's View: Excuse the alarming title here, for though we disagree with the thesis—that debt the world round is rising and could pose a threat to the global economy—this piece also presents several reasons why the “d” word shouldn’t worry investors. The most important consideration about debt is not its absolute level, but rather, the borrower’s ability to service the loan and make all the necessary interest payments. Given how low interest rates have been during this expansion, those payments are plenty affordable. Governments and companies probably have room to push debt levels even higher without causing problems, as they have been able to refinance maturing debt (and in corporations’ case, repurchase outstanding debt) at lower interest rates. So though it’s true that the debt levels in certain areas may be much higher than currently estimated (obligatory nod to China’s opaque private sector and local governments), there isn’t a certain level of debt that will tip the global economy over the edge. Oh, and one more point: Private sectors across both developed and developing economies are the primary drivers of the global expansion. Government spending may add on the fringe, but it isn’t the most critical component to growth.     

By , Bloomberg, 10/17/2016

MarketMinder's View: If you thought Brexit chatter would simmer down after the referendum and would only heat up again when the Brits invoke Article 50, you are unfortunately mistaken: Speculation and noise seem just as rampant now as they were in the lead-up to June’s vote. Here, some “Remain” supporters are challenging the referendum results, arguing Parliament should also have a say in the matter—a claim Attorney General Jeremy Wright has dismissed. The court hasn’t set a date for its ruling, but if it’s in favor of the Remain claimants, it could impact Prime Minister Theresa May’s plans to begin Brexit negotiations in 2017. Whatever the verdict, a Supreme Court appeal seems quite likely. This lawsuit has been a source of lingering uncertainty since it was filed shortly after the vote, and as it wends its way through the courts, investors should gradually gain clarity—perhaps an incremental positive regardless of the final ruling.

By , The Telegraph, 10/17/2016

MarketMinder's View: Speaking of Brexit speculation, remember how many pundits were convinced just last week that Prime Minister May would pursue a “hard” Brexit—favoring immigration control over access to the EU’s single market—imperiling its economic ties with the Continent? Well, it appears her cabinet is discussing paying contributions to the EU to maintain its “passporting rights” so London’s financial firms can continue doing business with their European counterparts with minimal disruption. That doesn’t mean it’s certain as everything is basically speculation at this juncture, but that’s also our point: Nothing is set in stone right now (not even when Britain invokes Article 50). Lots of folks are chatting, and that’s about it. Actually, the most sensible line here is probably the last one, from the International Development Secretary: “If I were to sit down and play poker with you this morning, I’m not going to show you my cards before we even start playing the game.” For investors, what matters is all the various leaks and reports help markets assess the range of possibilities and discount change gradually, mitigating surprise power.    

By , The New York Times, 10/17/2016

MarketMinder's View: In this week’s segment of “Monday Market Mythology,” we have dollar-cost averaging, a popular method of investing one’s money. Here is how it works: You buy into the market at regular intervals (e.g., monthly or quarterly) rather than investing a lump sum all at once. Thus, the theory goes, you will buy in at some high points in the market as well as low points, and this “averaging out” removes some of the sting from day-to-day market gyrations. The evidence for this largely hinges on 401(k) participants, but we’ll point out they have no choice: It is the law, not an investing strategy. Since this is how you have to contribute, then we advise doing so. But outside this, if you are an equity investor with a lump sum, periodic investing and holding large sums in cash means large shares of your portfolio aren’t invested in keeping with your goals. It may feel better to invest periodically like this, but it is mathematically worse except in the event of a deep, protracted downturn. Always remember: Market volatility will never go away, so giving your money more time to grow is much more prudent than trying to dance around the short-term bumps.  


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Global Market Update

Market Wrap-Up, Thursday, October 20, 2016

Below is a market summary as of market close Thursday, October 20, 2016:

  • Global Equities: MSCI World (-0.1%)
  • US Equities: S&P 500 (-0.1%)
  • UK Equities: MSCI UK (-0.2%)
  • Best Country: Spain (+1.0%)
  • Worst Country: Canada (-1.5%)
  • Best Sector: Health Care (+0.2%)
  • Worst Sector: Telecommunication Services (-1.0%)

Bond Yields: 10-year US Treasury yields rose 0.02 percentage point to 1.76%.


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. S&P 500 returns are presented including gross dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.