Today's Headlines

By , The Wall Street Journal, 09/17/2014

MarketMinder's View: Don’t you feel like the title of this article should have an exclamation point or two after it? “Read the Full Text of the Fed’s Statement!!!” Just kidding, here’s one of the more dull things you’ll ever read (boldface ours): “The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.” Zzzzzzzzzzzzzzz. [Drools on keyboard.] And yet whether the two bolded words would be in this statement has led to a whole lot of misplaced handwringing this week. Talk is cheap, especially fedspeak. Which is basically marketing spin. For more, see our 09/16/2014 commentary, “Words, Words, Words.” About the only meaningful part of this Fed statement? That they will slow quantitative easing bond buying again, to a pace of $15 billion in October. Which is no surprise.

By , The New York Times, 09/17/2014

MarketMinder's View: A few things about this. One, globalization is not synonymous with the decline of US manufacturing. In fact, many US manufactured goods source parts from other places around the world, which is what globalization is: an interconnected global economy where nations specialize in what they do best and trade flows move freely. It would be to our great detriment if globalization “retreated.” Second, there is no decline in US manufacturing. US manufacturing output has steadily risen despite fewer workers in the industry. Why? Because technological advance is the real key that’s destroyed American manufacturing jobs. See it for yourself in this chart we created on the St. Louis Federal Reserve’s wonderful website comparing US industrial production and US manufacturing employment as a share of total payrolls. We manufacture more with fewer workers, and that’s good for the economy, not bad. To paraphrase Milton Friedman, we could go hire a bunch of folks to dig ditches with spoons. Employment would skyrocket. But is this a good use of scarce capital? In case you want even more on this, maybe read Todd Bliman’s 11/09/2010 column, “The Ever-Evolving Economic Engine” or this 04/28/2014 article by Businessweek’s Charles Kenny, “Why Factory Jobs Are Shrinking Everywhere.” It’s easy to blame China and foreigners, riling up the xenophobia, but the facts don’t comport to that theory very neatly.

By , Vox, 09/17/2014

MarketMinder's View: So the claim here is Obama, by not nominating two more “unemployment fighters” to the FOMC, has doomed America to many to years of unemployment because the Fed hasn’t been as accommodative as—wait for it—the UK(!). This is just plain ol’ backwards. First, the linkage between monetary policy and employment is not nearly this direct. Second, quantitative easing—the policy launched with the intent of boosting hiring—wrongheadedly flattened the yield curve, a disincentive for banks to lend because it meant the spread between banks’ funding costs and interest revenues were lower (less profitable lending). Bank lending is the transmission mechanism for the Fed’s policy to reach the real economy, so a lower yield spread will work against the Fed’s intent to “stimulate” growth, which begets hiring. But the big miss here is the commentary involving the UK. The UK recovery was back and forth until the Bank of England ended quantitative easing. They stopped buying bonds long before the US started winding down its program, and their economy accelerated! The Fed actions cited here as “unwisely tightening monetary policy” are the very actions that caused the UK economy to perk!

By , The Wall Street Journal, 09/17/2014

MarketMinder's View: We guess the desired reaction to “For Now” is something like, “Oooooooooooooooooooo! A potential downgrade!” But when you read the rationale, it’s a little more like, *yawn*. It’s all predicated on the long-run costs of social security, which is an entitlement program that could be altered at any point, like it has been historically. Second, it cites the dollar’s status as a reserve currency as the factor allowing the US to “carry more debt than other nations.” Yet Japan doesn’t have the world’s reserve currency and it does have more than twice the US’s debt load as a percent of GDP. The pound is also not the dominant reserve currency, and yet it has similar debt levels and low rates. See, Moody’s has it backwards. The simple truth is the vast amount of outstanding US Treasury securities is what allows the dollar to be the biggest player in the forex reserve market. Anyway, it’s a ratings agency—which aren’t exactly known for displaying oodles of forecasting prowess.

By , The New York Times, 09/17/2014

MarketMinder's View: Well of course you can’t. We mean, have you ever tried to eat a net export? It leaves you a little wanting. But you also can’t eat a median household income, because that, too, is just a statistic—subject to many flaws. You can’t just assume the families earning median household income in 1999 are the same families earning it today. You also can’t assume the term “household” is defined the exact same way today it was decades ago. Further, national median household income is a wee bit of a meaningless statistic. If you earn the median US household income and you live in a low cost-of-living area like South Carolina, you may be sitting pretty. If you earn the median US household income and live in the Bay Area, you might just be residing in a studio flat the size of a postage stamp with two of your closest friends. Finally, as to the claim that there is “so much other evidence” of an imperiled middle class, how about all the evidence suggesting the contrary? Like rising life expectancies, improved work conditions and the very real changes in the amount of hours worked it takes to consume goods like this.

By , The Wall Street Journal, 09/17/2014

MarketMinder's View: This operates on the notion that the Fed’s easy money has led to a flood of capital racing into Emerging Markets (EM), supporting EM equities. The trouble with this notion is the facts don’t support it—at all. For it to be true, then EM stocks should have done phenomenally well during the period 2010 – 2013—since this was when the US launched quantitative easing (QE) (as well as Japan and the UK for part of the period). Yet they lagged by a sizable margin. Also, the same thesis was rampant in January—a thesis widely known as the “Fragile Five” Emerging Markets (Turkey, Indonesia, India, Brazil and South Africa)—in which these EM nations would supposedly falter because they ran current account deficits that QE hot money plugged up. But considering the QE kept winding down and the fragile five soared, we think it’s fair to say this notion isn’t on target. We doubt it is different in this latest iteration.

By , CNN Money, 09/17/2014

MarketMinder's View: Well, no. Half the Nasdaq (52% by number of issues) are down more than 20%. But that doesn’t mean they are “in trouble” as past price movement isn’t predictive. In addition, it is normal for market breadth to fall as a bull market matures. For more, see our 06/14/2012 research analysis here.

By , MarketWatch, 09/17/2014

MarketMinder's View: This is a totally sensible take on August US CPI, which showed a headline dip of -0.2% m/m and a flat core read (excluding energy and food prices). What’s interesting about this is comparing this logical point of view with the eurozone inflation take. The causes for low reads are basically the same, but in the eurozone faster rising prices are coupled with deflationary spiral warnings. In our view, these two articles in concert tell you a thing or two about sentiment toward the eurozone and US.

By , Bloomberg, 09/17/2014

MarketMinder's View: Yep, headline inflation was 0.4% year-over-year in August, a slight upward revision from the prior 0.3% y/y read. But the bigger story here is what’s driving the slow inflation: Energy prices fell -2.0% y/y in August, a big detraction from that headline figure. Food fell too. Now, if it’s really so necessary to pump inflation up (taken for granted in this article, as evidenced by statements like, “…as it [the ECB] tries to avert a downward spiral in prices…”), perhaps the ECB should sabotage some oil rigs (without hurting anyone of course). That’d make energy prices rise! But it would be odd and not really very beneficial for the economy, if you get our drift. We are fairly sure, though, that affecting weather, geopolitical tensions and the shale revolution—big determinants of energy price fluctuations globally—are beyond the scope of the ECB’s mandate.

Archive

By , Reuters, 09/16/2014

MarketMinder's View: You can’t buy past performance. Period. Looking at an adviser’s track record is important—and the longer the better—but more for the things this shows about an adviser. Like whether their decisions have a history of being right more often than not, and whether their success was repeatable over time. But this is only part of the due diligence we’d suggest investors perform when picking a money manager.

By , The Guardian, 09/16/2014

MarketMinder's View: “Consider the evidence. There were five big sterling crises in the 20th century, and four of them came to the boil in September. In the circumstances, it's not hard to see why foreign exchange dealers will be at their desks early on Friday morning to await news from Edinburgh about the referendum vote.” Well, yes, it isn’t hard—but not because this is an actual thing. More because people pretty easily fall prey to coincidental arguments like this. It is a bizarre quirk that four of the pound’s worst moments occurred in September. That’s it.

By , BloombergBusinessweek, 09/16/2014

MarketMinder's View: If the US government allows US oil producers to swap lighter oil with Mexico’s heavier oil then that will likely be an incremental win-win for both countries—the US has quite the supply of lighter oil, but its refineries are better equipped to process heavier oil. And Mexico could “benefit from an improved mix of crude.” However, this doesn’t mean US exports will skyrocket—the oil export ban is still in place. Other obstacles exist, too, like infrastructure limitations.

By , Daily Finance, 09/16/2014

MarketMinder's View: This piece touches on several financial fraud red flags to watch out for. Here are two: advertised returns are too good to be true and “you’re told complicated yet compelling stories about why the returns are so strong.” But then it introduces this very dangerous point: “There are legitimate financial products that offer and deliver stable returns with no market risk (such as some annuities) but these are backed by old, valuable companies with many assets on the books. And they don't pay those too-good-to-be-true returns.” Annuity holders aren’t immune to market risk—consider inflation, fees, opportunity cost and all the rest. Plus, those “old, valuable companies” aren’t immune to bankruptcy (ahem, AIG). Nothing is risk free. Period.

By , BBC, 09/16/2014

MarketMinder's View: German investor confidence might be falling, but that doesn’t mean German stocks—or European stocks—will. Confidence surveys report how investors feel about recent economic and stock market data—and whatever big news is out there—but they don’t predict future returns or what folks will actually do (like, maybe, pay more for stocks). They’re a coincident indicator at best. For instance, the ZEW was at a low point for much of 2012, but the MSCI Germany still rose 30% that year (Source: FactSet, MSCI Germany Total Return Index (gross) in EUR, 12/31/2011-12/31/2012).

By , Bloomberg, 09/16/2014

MarketMinder's View: Here is an example of why measures aimed at protecting a domestic industry often end up harming consumers: They often end up limiting supply, driving prices higher. In the case of the US’s sugar tariffs and recent spat with Mexico, which provided 18% of sugar consumed in the US last year, it also crimps US food processors, who face higher costs. This isn’t a whopping negative or anything, just an illustration of why markets like free trade.

By , CNBC, 09/16/2014

MarketMinder's View: These two words—“considerable time”—have gotten a lot of play recently as folks try to interpret what the Fed’s decision about whether to keep them will mean. It’s all much ado about nothing. Whatever the Fed says tomorrow about the timing of the next rate hike—whether they allude to it coming a considerable time after quantitative easing ends or not—says nothing. Fed guidance isn't carved in stone. It’s written on paper that can be torn up and on Internet postings that can be revised.

By , MarketWatch, 09/16/2014

MarketMinder's View: Target-date funds, rightly or wrongly (wrongly, in our view), are meant to be a very long-term investment to guide investors toward their retirement date, gradually “gliding” down equity exposure as that date nears. They’re meant to be held for decades. An exchange-traded version, with minute-by-minute pricing and access, would seem to open investors to all sorts of short-term decisions, doing themselves more harm than good—and it seems investors realized this, saying thanks but no thanks to the available target-date ETFs. Though, we’d still strongly suggest folks also say thanks but no thanks to traditional target-date funds, too—see this and this for more.

By , The Wall Street Journal, 09/15/2014

MarketMinder's View: So, the conclusion is if inflation rises, we’re all doomed because the Fed will hike and then the music stops, Ukraine will become economically significant, P/Es will suddenly become predictive, gravity will shock stocks, investors will en masse remember that after August comes another month (that we’re already in), and corporate margins will revert to the mean. Suffice it to say, there is little or no historical evidence supporting these fears, including the Fed hike fears. For more, see this, this, this, this, this and this, respectively.

By , Morningstar, 09/15/2014

MarketMinder's View: This article commits what we believe are a few fatal mistakes: One, it considers all negativity equal (“Can you stomach a 10% decline? 20%? How about 37%, which is what happened in 2008?”). But all negativity is decidedly not equal, and not something you should or can prepare for. A correction—a short, sharp, sentiment-driven drop of 10-20%—is a normal part of a bull market. We’ve seen five since the financial crisis ended, and with these, the bigger risk is opportunity cost. A bear is a long, fundamentally driven drop of 20% or more whose start is usually followed by a recession. It is possible to forecast them, though not perfectly so, and it can be beneficial to sidestep some of the downturn, if you foresee it. The other thing is there is a lot of hypothetical “how would you feel if your portfolio fell XX%” going on here, and we’d like to point out that folks’ behavior frequently doesn’t match those words, written or spoken. Now, we agree the time to prepare for market conditions is before they happen. But when most articles—like this one—suggest it’s time to prepare for a drop, we’d suggest it’s probably more likely time to prepare for a melt-up to an eventually greedy point. When these get-ready-for-a-drop articles vanish, it may be time to get ready for a drop.

By , Bloomberg, 09/15/2014

MarketMinder's View: Words equal talk and talk is cheap. As we’ve seen both in the US and the UK for quite some time now, anything a central banker says is subject to revision, deletion, alteration, adjustment, removal, tweaking, changing or other alteration. Trying to game when the next rate hike will be based on the Fed’s words—forward guidance or any other part of the policy statement for that matter—is a pointless exercise. The Fed is not a market function and its actions cannot be reliably forecast. The best you can hope to do is assess the impact of those actions once they are made. For more, see our 09/16/2014 cover story, “Words, Words, Words.”

By , The Wall Street Journal, 09/15/2014

MarketMinder's View: A fair few problems with this thesis, in our view: One, the currency war alluded to (“Last time, the emerging markets were doing the complaining”) was talk of a currency war in late 2010. Did one break out? How do we know? Do we really care? The economy has grown for four years! Second, the US has grown faster since Ben Bernanke first alluded to tapering in May 2013, which is the opposite action of the weak-currency-spurs-growth meme. Finally, in a globalized world, the likelihood you can boost exports without boosting imports is low. That’s the lesson Japan has taught over the last few years. For more, see our 09/08/2014 commentary, “ECB’s Latest Move Spurs Currency War Chatter.”

By , The New York Times, 09/15/2014

MarketMinder's View: A few years ago, folks commonly accused corporate America of hoarding cash. Now, it seems the common charge is they are using cash solely to enrich themselves through stock buybacks, at the expense of investing in their business’s future. But “Corporations spend well over a trillion dollars on capital investments annually, using both retained earnings and borrowing, according to the Commerce Department.” And they’ve done so recently, too! Which is one of the reasons growth has accelerated over the last four quarters. Moreover, as noted herein, most buybacks are debt-financed, meaning buyback and business investment aren’t mutually exclusive. Now, this article is way too dismissive of the positive impact of buybacks to investors: Buybacks increase each shareowner’s stake in earnings and reduce share supply—both fundamentally bullish, as equity supply and demand are the ultimate forces moving stock prices.

By , Associated Press, 09/15/2014

MarketMinder's View: The headline figure was skewed heavily by the way the government adjusts auto production for calendar impacts—July’s 9.3% increase in auto production was inflated, as firms usually shut during the month remained open. This boosted July’s gain to August’s comparative disadvantage. All in all, as the article suggests, we just wouldn’t read much into the dip. Especially in light of the slew of growthy data it discusses late in the piece.

By , Reuters, 09/15/2014

MarketMinder's View: Forget the surplus chatter here—as we’ve often said, seeing imports as detracting from economic activity is a bizarre take. What this really shows more is the lack of impact of Russia sanctions. Exports to Russia fell by 14% m/m, yet the overall downtick in exports is pretty darn small (-0.2%).

By , Project Syndicate, 09/12/2014

MarketMinder's View: Here is the thesis: The world’s spirits are in the doldrums right now, which puts us at risk of—at best—economic stagnation and, at worst, rampant war. Here are the holes in the evidence:

1) The “new normal” meme refers to an early 2009 prediction of a sad future of below-average stock returns, which the past five and a half years have disproven.

2) National ennui didn’t drive evil tyrants to try to take over Europe and decimate innocent people.

3) Incidentally, the same author wrote this last month, which says: “So nothing I’ve come up with is a slam-dunk explanation for the continuing high level of valuations. I suspect that the real answers lie largely in the realm of sociology and social psychology—in phenomena like irrational exuberance …” So which is it? Are we depressed or euphoric?

4) Feelings don’t move economies. Capital, technology, resources and labor do. Capital has moved slowly since 2008, ergo slower growth. Capital is moving faster now, and so is growth.

5) We’re pretty sure depression was a consequence of the Great Depression, not the cause, and that second leg down in the mid-30s had way more to do with premature tightening of monetary policy than people’s feelings.

By , The Wall Street Journal, 09/12/2014

MarketMinder's View: While we’d take some of the numerical evidence here with a grain of salt—and the passive investing angle is a tad far afield from the subject matter—this is otherwise a handy discussion of three ways investors’ brains and feelings make them mess up again and again. Particularly insightful is the discussion on the dangers of misjudging your ability to stay cool when markets gyrate: “‘The vast majority of people overestimate their willingness to take risk. Fear is a strong emotion and often plays a much greater role in decision making than logic.’ Past behavior may be the best way to judge risk tolerance. If you panicked and sold stocks in 2008, you probably have a low risk tolerance, regardless of what you think today. If you went headfirst into technology stocks in 1999, you are probably susceptible to future bubbles, regardless of how contrarian you think you are now.” Now, don’t take this as advice to allow your risk tolerance to steer allocation—your goals should be your guiding light here—but rather, a check to potential overconfidence, which is a huge behavioral risk many individual investors struggle with.

By , The Washington Post, 09/12/2014

MarketMinder's View: Can we please dispense with the notion of Americans leaving the workforce in droves since 2000? Because while the labor force participation rate is down since then, the total labor force isn’t—it hit a fresh all-time high in March. The population has just grown faster. One would hope the Fed would look at both sides of a fraction before deciding what to do with interest rates, but even if they do, there is zero way to know how each FOMC member would interpret the numbers—along with the many other numbers they claim they consider at each meeting—so there isn’t much point to speculating how this one report could impact monetary policy.

By , Vox, 09/12/2014

MarketMinder's View: Private property rights and free enterprise, together, are the backbones of our thriving capitalist economy—so, at first blush, you might think it terrible that the Supreme Court is striking down a number of software patents on the grounds that “using a computer” to perform age-old human and commercial tasks does not constitute a new invention. But here is another way to look at it: Patents on things that don’t exactly represent new technology limit competition, keeping many would-be players—and potential innovators—off the field. There is a happy medium in intellectual property law—and, at the very least, a pretty big silver lining to the Supreme Court’s actions.

By , The Telegraph, 09/12/2014

MarketMinder's View: Well, “crippling” is relative. Compared to the travel bans and asset freezes levied on a few mid-tier Russian pols and execs earlier this year, we guess partly banning a couple of banks and oil firms from capital markets financing is like tough or something. But not nearly enough to whack global commerce. Ditto for Russia’s planned retaliations, which—according to Prime Minister Dmitry Medvedev—include barring western commercial jets from flying over the Motherland. So add a few hours to your next trip to China? But that’s about it in terms of global impact.

By , Reuters, 09/12/2014

MarketMinder's View: So here is the thing about the dollar: Currency swings don’t really tell you anything about a country’s economy, stock market, bond market or anything else. Not in an absolute sense or relative to the rest of the world. The dollar’s current run is not a “measure of how the economic fortunes of the United States and its major economic peers are diverging after six years of financial turmoil.” A rising dollar is no more a sign of economic strength than a falling dollar would be a sign of economic weakness. It is just bouncy-wouncy noise.

By , The Korea Times, 09/12/2014

MarketMinder's View: Free trade is generally a really big benefit—both economically and for stocks. Historically, however, it has been an extremely tough sell in Asia, where domestic producers are valued as symbols of national pride. Yet Korea has embraced it with gusto over the past decade, recognizing opening markets to competition allows you to make huge strides on the global stage—and they’ve benefited tremendously. Their reasoning is one investors (and countries!) everywhere should keep in mind when trade talks hit the news: “Korea originally benefited from and strongly supported the multilateral trade regime, the World Trade Organization. However, Korean companies found that they were slowly losing competitiveness, as the rest of the world began granting preferential treatment to their FTA partners from the late 1990s on. Moreover, having experienced the Asian financial crisis, the Korean government came to recognize the need to transform and strengthen the Korean economic structure. It was thus inevitable, rather than voluntary, for Korea to transform its trade policy from supporting the multilateral trade regime to pursuing bilateral free trade agreements to encourage competitiveness of Korean products.”

By , The Wall Street Journal, 09/12/2014

MarketMinder's View: Ladies and gentlemen, meet your bubble hunters! You know, the people at the Fed who are like totally making sure we never have another financial crisis again, because that is a humanly possible thing to do. Not! Look. It’s fine—good, even!—to be hyper vigilant about threats to the financial system, and the Fed is theoretically in a good position to do it, considering its wealth of insight into the banking system. But the problem here is there is no evidence Fed people are at all good at spying bubbles before they’re a thing—to say nothing of deflating them without any collateral damage. Same goes for the similar committees at the BoE and elsewhere. Just because officials want to be seen as “doing something!” to prevent a crisis repeat doesn’t mean they’re actually able to. Or that it’s even necessary, considering it was a misapplied accounting rule that caused the housing bubble to lead to hemorrhaging bank balance sheets—a phenomenon only one Fed person is documented as noticing before the avalanche started in early 2008.

By , Bloomberg, 09/12/2014

MarketMinder's View: We wouldn’t be quite so Debbie Downer about the eurozone. They’ve had a lot of good news! Like an economic recovery. And growthy PMIs. And rising Leading Economic Indexes. And Portugal and Spain doing great in bond auctions. And the Baltic states growing nicely. And Ireland in such great shape that it’s about to repay its IMF loans years ahead of schedule because it can borrow way cheaper. There are some headwinds, too, but so it is with any 18-nation bloc.

By , China Daily, 09/12/2014

MarketMinder's View: Yep, seems about right: After some economic indicators wobbled a wee bit in July, traditional and shadow bank lending jumped, suggesting policymakers are stepping on the gas some. Just another sign they’ll do what is needed to keep that long-feared hard landing as mythical as ever.

By , MarketWatch, 09/12/2014

MarketMinder's View: Well there you have it. If you have been lying awake wondering how retail sales could be flat last month when everything else looked strong, you can now rest easy because they were revised up. Yippee! This, in a nutshell, is why we don’t put much emphasis on any one month of any one indicator. They’re noisy and usually revised, and by the time you get the final (supposedly most accurate) reading, they are very old and have zero bearing on future growth or forward-looking stocks. Oh, and the real answer to the “puzzle” is that retail sales are a small subset of consumer spending, and they don’t include service spending, so yah.

By , The Economist, 09/11/2014

MarketMinder's View: True, geopolitical risk won’t go away—but that statement and most of this article imply the cascade of conflicts in the last five years is somehow new or unprecedented. What about the scores of skirmishes throughout the 20th century? There is nothing new or different for markets to price in—just the same old lack of world peace we’ve had since about always. Markets have long since learned how to deal. For investors, the question is whether we have World War III—and the answer is almost certainly not in the foreseeable future.

By , The Telegraph, 09/11/2014

MarketMinder's View: Well, huzzah to our friends across the Atlantic. The Brits have plenty of reasons to be optimistic about their economy—it’s the fastest-growing in the G7! So of course their confidence will be the highest, too—confidence tends to lag growth a bit. This is why we suggest not digging too deep for signs of what higher confidence means for a country’s growth prospects. How people feel today doesn’t tell you what they’ll do tomorrow. For more, see our 08/26/2014 commentary, “The Trouble With Surveys.”

By , The New York Times, 09/11/2014

MarketMinder's View: Let’s pop the many misperceptions here. First, the 2008 Financial Crisis was not caused by an imploding credit bubble—the misapplication of FAS 157 (mark-to-market accounting) to illiquid, hard to value assets wreaked havoc on bank balance sheets 18 months after a housing bubble began to burst. Second, central bankers have a pretty poor track record of spotting bubbles, so we have a hard time believing they could preemptively deflate them—especially without any collateral damage. Third, it doesn’t make much sense for the Fed to set some hard and fast exit strategy or predetermined “tightening course”—setting those expectations and not following through if conditions change risks undermining credibility (no-no time). And a final quibble with the suggestion, “this long bull market has been one of the smoothest and steadiest in history.” Sure, if you looked at a chart, the line has gone up since March 2009, but we’ve had five corrections in five and a half years. 

By , MarketWatch, 09/11/2014

MarketMinder's View: Those two words—“considerable time”—generated over 460 words in this article. The punditry will spend thousands more speculating over what it means if the Fed strikes those two words from its forward guidance, scrapping even the fuzzy hypothetical guesstimate of when they’ll hike rates. (For the record, Fed head Janet Yellen said those two words mean “about six months or so” after quantitative easing ends, but take that with many heaps of salt.) Our advice: Don’t get caught up in the noise. The Fed will hike when it hikes—it isn’t predictable, because the function has no rational variables—and we will all have to evaluate the decision on its merits when it happens.

By , The Economist, 09/11/2014

MarketMinder's View: Something is wrong here, but it isn’t either the stock or bond market. It is the super long-term, overly hypothetical, thinly supported mean-reversion argument. Also wrong: The assumption slow US GDP growth means high stock prices aren’t “justified.” Newsflash: Stocks aren’t GDP. GDP is an imperfect, backward-looking gauge that tries to capture an entire country’s economic growth but does some weird things like count government spending as a positive (even though it could be inefficient and crowd out more profitable innovators) and imports as a negative—even though they directly measure domestic demand. Stocks are publicly traded companies. Stocks move over time on supply and demand—a function of economic growth, the political backdrop and sentiment. These generally make stocks do wildly different things than long-term forecasts underpinned by arbitrary assumptions and based on mean reversion and straight-line math would predict. Oh, also, unless you can see the data and methodology, might we suggest being skeptical over citations of very old financial statistics—like US inflation since 1790—that are not publicly available?

By , Bloomberg, 09/11/2014

MarketMinder's View: This piece bizarrely implies a flatter yield curve is more of a tailwind than a steep one, which tells you all you need to know about the logic underpinning it. Yes, the US is in great shape! But slow growth elsewhere isn’t why. And low gas prices aren’t an economic tailwind—spending is spending. And it’s not like demand is even down in Europe and China.

By , The Wall Street Journal, 09/11/2014

MarketMinder's View: While the scams investors face can sound complex, the steps you can take to protect your portfolio are simple. This piece highlights a big one: “An easy way to make sure this doesn’t happen is to never give your money to a fund manager outright.” But it misses two others and instead gives a bunch of intimidating procedural advice that might make fraud seem harder to detect and defend against than it really is. So here are the other two. 1) Make sure advertised returns are realistic—not always up, not steady eddie every year no matter what. 2) Force the adviser to explain their strategy in words you can understand, so you can gauge whether it’s consistent with their advertised returns. For more, see our 08/15/2014 commentary, “Crooks’ Common Threads: Three Red Flags to Watch Out For.” 

By , Xinhua, 09/11/2014

MarketMinder's View: While China’s economic reform progress is encouraging and should provide many long-term benefits, reform tends not to be a short-term economic driver. Cutting dozens of restrictions to starting a business is great! But it still takes time to get a new business off the ground—and generating revenues—so the near-term economic boost is usually minimal. So reform hasn’t and probably won’t replace stimulus completely—the government has used targeted stimulus measures this year to support steady growth, and more wouldn’t surprise. Though officials have signaled they intend to pursue reform at the expense of slower (but steadier) growth, it’s also in their best interest to ensure the reform process is as pain-free as possible and the masses remain content. For more, see Joseph Wei’s 08/07/2014 column, “China’s Balancing Act.”     

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Global Market Update

Market Wrap-Up, Tues Sept 16 2014

Below is a market summary (as of market close Tuesday, 09/16/2014):

  • Global Equities: MSCI World (+0.3%)
  • US Equities: S&P 500 (+0.8%)
  • UK Equities: MSCI UK (-0.3%)
  • Best Country: US (+0.8%)
  • Worst Country: Austria (-1.6%)
  • Best Sector: Energy (+1.0%)
  • Worst Sector: Financials (-0.1%)
  • Bond Yields: 10-year US Treasurys fell .02 to 2.57%

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.