Today's Headlines

By , Bloomberg View, 01/20/2017

MarketMinder's View: Wiser words were rarely written: “Politics is a huge distraction; it is rarely compartmentalized, and typically leads to ill-considered emotional decision-making. … Consider instead how lethal it might be to your portfolio to let your personal politics influence your expectations and outlook. This is inherently very dangerous to your objectivity because once your objectivity is compromised your investing decisions are invariably disastrous. Yes, Trump as of today is president. Your personal view of him -- either positive or negative -- is irrelevant to how you should be managing your investments.”

By , The Telegraph, 01/20/2017

MarketMinder's View: This article champions risk-tolerance surveys as a way to test whether you can handle investing in volatile assets, like stocks, without reacting emotionally when they dip and dive, and it suggests the results can and should guide portfolio construction. Well, we took the test attached to it, and we ran into all the problems that make these surveys suboptimal portfolio construction guides—and poor measures of actual risk tolerance. They ask how you might feel in some hypothetical situation when your portfolio has declined by a certain amount. Trouble is, as we’re sitting here, we can’t emotionally identify with that. Our feelings are too influenced by what’s going on in the here and now. We had a good breakfast, it’s Friday, the sun is supposed to peek through tomorrow afternoon, and life is pretty good. We can guess at how much our total portfolio could fall before we “would begin to feel uncomfortable,” but this guess probably won’t match how we’ll actually feel at the time, when life seems not pretty good and we had to skip breakfast on a Wednesday. Also some of the questions are just plain poor, like the one asking how much risk of loss you would accept to put 25% of your assets in a single investment, which does not include an option for “I wouldn’t do this, regardless of the investment’s risk of loss, because diversification is too important.” Now, we don’t mean to pick on this one survey, which is actually a lot more comprehensive than others we’ve seen. But no survey, no matter how long, should be the sole basis for your asset allocation. Comfort with volatility matters, but it is a small piece of a whole and pales next to long-term goals, time horizon, cash flow needs and others.

By , The Wall Street Journal, 01/20/2017

MarketMinder's View: While analysts’ issuing “buy” ratings on companies in order to get their clients’ foot in the door for meetings with executives may (or may not) be a new wrinkle, sell-side research reports have always been marketing more than anything else. They’re a tool investment banks use to drum up business, whether from retail investors or firms needing investment banking services. It is a poorly kept secret that they may not reflect analysts’ actual views on the company. Plus, these reports represent the sort of widely known information that markets have already priced in by the time you read them. They aren’t actionable. Just opinions, fluff and puffery. Oh, and none of this is new.

By , The Telegraph, 01/20/2017

MarketMinder's View: Are the weak pound and rising prices why UK retail sales fell -1.9% m/m in December? Or was it maybe just normal data variability? We’re inclined to say the latter, as we’ve seen similar sales volatility when the pound was stronger and prices were tamer. Economic data don’t move in straight lines, and one month does not a trend make.

By , The Wall Street Journal, 01/20/2017

MarketMinder's View: Yes, herding is risky behavior, and the herd is getting more optimistic these days. And yes, investors tend to be really optimistic as bull markets peak. But that does not mean individual measures of investor confidence are a timing tool. There is no set level of optimism that is inherently good or bad. These surveys aren’t predictive, and they have no way of assessing whether sentiment is out of kilter with fundamentals, which is what ultimately matters. Also, while animal spirits are stirring, they usually linger for a good long while before true euphoria arrives. And finally, bull markets don’t die of old age.

By , The Telegraph, 01/20/2017

MarketMinder's View: From the start, we’ve said both parties to Brexit negotiations (i.e, the UK and the rest of the EU) have strong incentives to keep trade free and avoid new protectionist barriers. It seems Germany’s Chancellor, at least, sees it the same way. Always watch what politicians do, not what they say, but the more conciliatory everyone’s tone gets, the more encouraging it is. For more, see today’s commentary, “The UK’s Brexit Wish List.”

By , Bloomberg, 01/20/2017

MarketMinder's View: “China’s economy accelerated for the first time in two years in the final quarter of 2016, cementing an economic stabilization that’s giving leaders a buffer as they transition to neutral policy and prepare for potential trade tensions with Donald Trump. Gross domestic product increased 6.8 percent in the three months through December from a year earlier, compared with a 6.7 percent median estimate in a Bloomberg survey. The full-year expansion of 6.7 percent was the slowest since 1990, but still landed right in the middle of the 6.5 percent to 7 percent official target.” In other words, more of the same, which contributes nicely to global GDP growth.

By , The Guardian, 01/20/2017

MarketMinder's View: It takes more than two data points to prove the thesis that Brexit is starting to destroy the UK economy. Particularly when the UK remains in the EU, with all the free trade encompassed therein. We repeat: Economic data are wobbly by nature. Overthinking all the blips is a fool’s errand.

By , The Wall Street Journal, 01/20/2017

MarketMinder's View: Last year, markets did great while Brazil’s now-former president was being impeached, and they quickly shrugged off Brexit, Trump and the fall of Italy’s prime minister. Now they’re rallying while Korean President Park Geun-hye’s impeachment trial unfolds, proving once again that supposed political earthquakes aren’t inherently bearish. Politics are just one driver, and stocks are really good at looking past circuses and focusing on what really matters.

By , BBC News, 01/20/2017

MarketMinder's View: “Is the UK witnessing a sudden exodus of bankers in the wake of Theresa May's confirmation that the UK will be leaving the European single market? In a word, no. At least not yet. Yes, HSBC has confirmed it wasn't bluffing about moving 1,000 jobs to Paris. Yes, the chief executive of UBS has said it will "definitely" move up to 1,000 bankers. Yes, Goldman Sachs has slowed planned investment in London from New York. So, Paris, Frankfurt and New York will all benefit from these firm commitments. But to describe the news of the last few days as an exodus is overdoing it. Some 360,000 people in Greater London work in financial services, for the whole of the UK, that number rises to over a million. So far we have seen definite plans to move up to 2,000 jobs. A trickle, so far, rather than a flood.”

By , The Wall Street Journal, 01/20/2017

MarketMinder's View: Now, this may prove to be academic if the new Trump administration repeals the Department of Labor’s Fiduciary Rule governing retirement plans, but it seems the annuity business may be able to chalk up a win either way. You see, the DoL Thursday proposed an exemption to its Fiduciary rule for certain peddlers of indexed annuities, complex animals that are often hugely financially rewarding for the salesperson and offer returns on par with Certificates of Deposit, after you factor in all the performance calculation quirks. Not even mentioned here is the fact one of the key selling points for annuities is their tax deferral.* The DoL’s rule applies only to retirement accounts—which are already tax deferred, making this “benefit” moot. *You don’t always benefit from tax deferral, as withdrawals will be taxed at your ordinary income tax bracket, which could exceed other, non-tax-deferred vehicles.

Archive

By , The New York Times, 01/19/2017

MarketMinder's View: Perhaps it’s true faster growth, if it comes under Donald Trump, would spur the Fed to hike rates at a faster clip than they otherwise might. But the notion that this means the Fed would douse growth by doing so is a bit overrated. The Fed has never really demonstrated much ability to fine tune growth and inflation, and assuming they can via the fed-funds target rate assigns too much influence from short-term rates. We mean, if keeping rates at zero and buying bonds galore under quantitative easing didn’t spur fast growth, why presume the opposite would necessarily be true? The theory also gives fiscal stimulus more causality for spurring growth than it deserves. Again, we tried fiscal stimulus in 2009, and neither growth nor inflation spiked. Now, the Fed could invert the yield curve by raising rates too rapidly, all else equal, and that historically has caused trouble. But that is a far cry from where the yield curve is presently and isn’t really what this article argues.

By , Australian Associated Press, 01/19/2017

MarketMinder's View: When the UK voted to leave the EU, many presumed it was a shot at free trade and globalization that would leave the UK isolated. While some argued leaving the EU would free Britain to more easily negotiate deals with other parts of the world, others rebutted by claiming nations wouldn’t have interest in inking bilateral deals with the UK—too inconsequential, they argued. However, the incoming Trump administration is in favor of a bilateral deal with Britain. And this article notes that Australian Finance Minister Matthias Cormann is similarly on board, as well as New Zealand and potentially India. Given that, it seems to us the handwringing over an isolated Britain was way premature.

By , Bloomberg, 01/19/2017

MarketMinder's View: Yes, it is possible that a massive solar flare could disrupt the world’s electrical power grid, derailing the modern economy. Note: We used the word possible. It is also possible that that space triggers an even bigger crisis if a meteor hits the Earth, wiping out humanity, which we figure would also be bad for stocks and the economy. It is possible the bubonic plague returns in a new, hyperstrong variety. It is possible that Kim Jong Un has nuclear weapons that actually work and uses them. However, in investing and assessing risks, possible is never the correct basis to start from. Probable is. And none of these things are remotely probable. Fretting them is a waste of investors’ most precious commodity: time.

By , Bloomberg, 01/19/2017

MarketMinder's View: We feature this not because it is surprising or really even hugely interesting that the UK will seek to retain UK financial firms’ ability to operate relatively unfettered in the EU post-Brexit, but because it is a reminder that speculation about the eventual state of affairs is premature. Turn down the noise about firms relocating—which largely seems like unjustified rumor at this point anyway. Perhaps Brexit proves bad for UK banks, perhaps not. It isn’t knowable today.

By , US News & World Report, 01/19/2017

MarketMinder's View: When first deployed back in 2008, the US government’s Financial Crisis bailouts—particularly, bank bailouts—were hugely unpopular and generally considered equivalent to flushing money down the toilet. Yet nine years later, these programs have turned a roughly $75 billion profit for the government (not taxpayers, unless our dividend check was lost in the mail). Now, as this article notes, that wasn’t the point! The point was allegedly to prevent a deeper recession or a financial system meltdown. There is no counterfactual to know what would have happened sans bailouts, but there is little to no evidence the bailouts stopped the panic, bear market or recession. The major bank bailout was unveiled in late September 2008: Stocks fell through March 2009 and the economy contracted through June 2009. There is much more evidence suspending (and later eliminating) mark-to-market accounting requirements for illiquid bank assets (FAS 157) was key to stanching the bleeding, as its implementation and suspension align with the crisis’s timing, and the rule itself resulted in banks’ writing down far more in losses than they actually incurred on loans extended.

By , The Wall Street Journal, 01/19/2017

MarketMinder's View: This looks at historical S&P 500 returns by president during their time in office to conclude that only Bill Clinton’s eight-year term surpasses Barack Obama’s. And it’s true, the eight years from January 2009 through the present have been overall quite good for stocks. Presidents undoubtedly do influence some of these returns to an extent—particularly in election and inaugural years—but overall, one shouldn’t overstate the case. Most eight-year periods in history are good for stocks, and the coincidence of his taking office two months before the financial crisis-driven bear market ended has a heckuva lot to do with this period looking so good. The huge majority of US economic activity is in the private sector, and isn’t hugely impacted by most government policies. (As an aside, we think it is incredibly bizarre to annualize two and a half months’ returns, as the table here does for the period from election day to inauguration.)

By , Bloomberg, 01/19/2017

MarketMinder's View: The US federal debt ceiling—a legislative limit on the issuance of new debt to finance already agreed-to spending—is scheduled to return from a 17-month hiatus in March, and the media is already beginning to wring its hands. This, as we have written many times, is unnecessary angst. The debt ceiling, as Jack Lew stated in this article, is a purely political device, used by politicians for generations to show they’re tough on debt. While it is possible that short-term rates see some minor, fleeting wiggles around deadlines, it is worth noting that the risk of default—failure to make interest or principal payments on US bonded debt—stemming from the debt ceiling is basically zero. Even when the debt ceiling is reached, the government can issue debt to refinance maturing bonds, leaving interest the key issue. And there is ample revenue to cover interest easily. The government would have to prioritize payments to an extent, but this is a) required by the 14th Amendment and b) Fed transcripts from 2011 show it is easily doable. Don’t buy the debt-ceiling default hype.

By , The Guardian, 01/19/2017

MarketMinder's View: Trigger warning: This article shows some political bias, in our view, expressed early on in discussions of Trump and tax cuts. It is also long and meandering, winding its way through that biased discussion to eventually unveil the thesis: Stocks are being buoyed by the Fed’s intentional dalliance with inflation, but it’s all an illusion that will end badly. But this mistakes policy for result, and it bizarrely presumes inflation measures have an equivalent, mathematical result across the entire economy. It also fails to account for timing. The bull market began on March 9, 2009. The Fed slapped on a 2% inflation target (based on the headline personal consumption expenditures price index) three years later, in January 2012. And it spent most of the period since 2014 undershooting that target! This is really just another iteration of the “this bull market is all about central banks” theory. Previous iterations argued the bull market was driven by quantitative easing and zero percent interest rates, both of which reality has disproven. This one seems no different. (P.S.: Inflation-adjusting market returns doesn’t “correct” them as claimed herein, it distorts them for many, many reasons.)

By , The Wall Street Journal, 01/19/2017

MarketMinder's View: “While most new presidents have enjoyed a spate of bipartisan goodwill as they begin a term in office, the poll finds that Mr. Trump is getting no honeymoon in today’s polarized political environment.” This is more evidence many on both sides of the political aisle approach the President-elect with fear. Given this backdrop, the potential for positive surprise should he prove less bad than feared is big.

By , Bloomberg, 01/18/2017

MarketMinder's View: By the numbers: “Prices were up 2.1 percent from a year earlier, the most since June 2014. ... The core CPI measure increased 2.2 percent from December 2015, after rising 2.1 percent in the prior 12-month period.” Don’t get caught up in the breathless takes on inflation being over 2%; December’s levels are still benign. After the large Energy price drop in 2015, headline inflation dipped well below “core” inflation (excluding food and Energy). With oil’s recovery in 2016, headline inflation has simply moved back to the core rate but is still below where it’s been for most of the last 50 years. Core CPI, meanwhile, spent all of 2016 bouncing between 2.1% y/y and 2.4%. There is no sharp acceleration here.

By , The New York Times, 01/18/2017

MarketMinder's View: This spills an awful lot of pixels for what amounts to a -0.4% pullback in the S&P 500 since January 6. It seems based on the weird premise that returns from November 8 through then were a product of irrational euphoria, as investors were overlooking myriad political risks, and since then investors have started properly assessing the situation. That is an odd claim to make, considering markets discount widely known information, and every financial publication we read has been trumpeting these alleged risks since November 9. Markets don’t move in straight lines, and pauses (and pullbacks) are normal. Given fundamentals haven’t noticeably shifted in recent weeks, we’re inclined to chalk this up as markets being markets. Consider the risks, as this article lists: 1) a rising dollar; 2) trade wars; 3) Trump not delivering on his promises of infrastructure spending and tax cuts. First, the dollar has no correlation with stocks—stocks and the economy have done fine alongside a stronger and weaker dollar. Trade wars could be a concern, if protectionist campaign rhetoric translated to protectionist policies, but presidents have a long history of being reborn as free traders once in office. Watch what politicians do, not what they say. And as for Trump delivering stimulus or tax cuts, we don’t see evidence the economy or consumers need that help. Stimulus accomplishes little when used during economic expansions (it’s best used at the depths of recession), and history shows tax cuts/hikes have little to no bearing on global markets. As for pundits also being upset by “global shocks that could unnerve the markets ... driven by the growth of populist political movements, across Europe in particular [where] higher volatility would kick in as central banks cease intervening so aggressively in markets,” populists are far from, um, popular in Europe and not close to winning elections. And if the ECB or any central bank stops intervening, well, thank goodness as that would allow the yield curve to steepen. That’s good, not bad.

By , The New York Times, 01/18/2017

MarketMinder's View: Have cake and drink your milkshake! Texas is not only big, it is deep: “The Permian, in production for almost a century, is so bounteous that it fueled the Allied forces battling Germany and Japan during World War II. [After a period of decline,] companies found multiple layers of shale — six to eight oil-rich zones, one on top of the other, like a layer cake — that offer companies the opportunity to drill through multiple reservoirs on the same real estate.” OPEC nations say it’ll be a while before American oil production recovers, but with break-even prices in the basin as low as $40 a barrel and market prices above $50, they can probably pump a lot more than most presume.

By , Reuters, 01/18/2017

MarketMinder's View: So a lot of the “surge” was weather-related as a warm November that sapped electricity and gas usage gave way to a chilly December, bringing the Utilities subcomponent up 6.6% for the month. More interesting in our view is looking away from Utilities, toward manufacturing and mining production and broadening out the timeframe to Q4: “Overall manufacturing output rose at an annual rate of 0.7 percent in the fourth quarter while the index for mining surged 11.9 percent in the quarter.” This corroborates evidence that US manufacturing remains a modest economic tailwind, while the Energy industry might have ceased being a drag.

By , The Wall Street Journal, 01/18/2017

MarketMinder's View: Here’s an illuminating look at variable annuity sausage making. The fight is ostensibly over switching actively managed variable annuity funds for less expensive “quantitative funds” and whether the latter, being computer-driven, qualifies as active management. The subtext: “The financial crisis underscored how risky the lifetime-income guarantees can be to insurers and led Hartford to take federal aid, since repaid. Hartford quit new sales in 2012 but continues to hold $42 billion of variable annuities on its books.” Most of the back-and-forth is inside baseball, but there are two important takeaways for anyone considering a variable annuity: “Lifetime-income guarantees” are anything but, sold to folks not because it’s good for them, but because they generate fat fees based on paper-thin promises. In addition, the investment options you think you have within a contract may not be around permanently, highlighting the restrictive nature of these contracts.

By , The Wall Street Journal, 01/18/2017

MarketMinder's View: Here’s an illuminating look at variable annuity sausage making. The fight is ostensibly over switching actively managed variable annuity funds for less expensive “quantitative funds” and whether the latter, being computer-driven, qualifies as active management. The subtext: “The financial crisis underscored how risky the lifetime-income guarantees can be to insurers and led Hartford to take federal aid, since repaid. Hartford quit new sales in 2012 but continues to hold $42 billion of variable annuities on its books.” Most of the back-and-forth is inside baseball, but there are two important takeaways for anyone considering a variable annuity: “Lifetime-income guarantees” are anything but, sold to folks not because it’s good for them, but because they generate fat fees based on paper-thin promises. In addition, the investment options you think you have within a contract may not be around permanently, highlighting the restrictive nature of these contracts.

By , A Wealth of Common Sense, 01/18/2017

MarketMinder's View: Indeed, while many equate risk with volatility, it isn’t that simple: “There are many definitions of risk and no perfect way to gauge them precisely.” Inflation risks, downside potential and behavioral risks, highlighted here, all matter too. So does the big daddy, the risk that you outlive your assets. Asset allocation should account for all of these, as well as your long-term goals, potential cash flow needs and time horizon. You can’t capture that with a simple risk-tolerance survey or rules of thumb.

By , CNNMoney, 01/18/2017

MarketMinder's View: At first blush, this probably sounds bad: “Governor Chen Qiufa of Liaoning, a major industrial region in northeastern China, said this week that false statistics boosted the province's economic data from 2011 to 2014, according to China's official state news agency Xinhua. ... In some cases, officials inflated government income by more than 100%, according to Xinhua. Revenue for one Liaoning county was reported to be 2.4 billion yuan ($350 million) in 2013, but an audit office later corrected it to 1.1 billion yuan ($160 million).” However, this is good news! The central statistics agency has long been battling regional governments doing similarly shady things, and this is a welcome dose of public transparency and accountability in an area (regional government finances) where there has traditionally been little of either. The crackdown should enable markets to get better information and function more efficiently.

By , The Wall Street Journal, 01/17/2017

MarketMinder's View: For months, pundits have speculated about how (and whether) Prime Minister Theresa May’s government will act on the results of Britain’s vote to exit the EU. Would the UK stay in the single market? Would Parliament get a say? Today, for the first time, May outlined the process and goals of Britain’s departure in greater detail: “No partial membership,” no “remaining in the single market”—instead, Britain will pursue a free trade agreement with the EU, which will allow it to negotiate deals with other countries as well. MPs will also get a vote on the exit deal at the end of the two-year negotiation period in 2019, likely to ensure political and popular buy-in. Now, this is far from the last word on the subject, and we agree with this snippet: “Mrs. May’s intervention represents an opening gambit in a hugely complex negotiation.” Right—but nonetheless, her speech gives markets additional clarity on the post-Brexit world and a starting point from which to assign probabilities to potential outcomes.

By , Reuters, 01/17/2017

MarketMinder's View: “Highest UK Inflation in Two Years” stories today remind us of basically identical stories from last month, and though headline December inflation outpaced November’s—1.6% y/y vs 1.2%—we still wouldn’t fear it. For one, much of the jump stems from Energy, tied to the bounce in oil prices. Excluding food and fuel, “core inflation” accelerated more slowly, from 1.6% to November’s 1.4% y/y—also the fastest rate in some time, admittedly, but still benign by historical standards. We won’t argue the weak pound played no role, as it has pushed up import costs, but people always overrate currency moves’ impact on broader prices. Much of the UK’s CPI basket is services, where the pound lacks influence. Plus, the UK economy has weathered bouts of much higher inflation during this bull market.

By , The New York Times, 01/17/2017

MarketMinder's View: As one president’s tenure draws to a close and another’s begins on Friday, remember that the Executive Branch is only one-third of the government and has very little influence over America’s economy. The private sector, our growth engine, is too vast and diverse to be under any one person’s thumb. Congress sets fiscal policy. The president picks Fed governors but has no control over what they do once appointed. New regulations usually take effect slowly and seldom cause the economic cycle to turn. “We all have a tendency to think that a president whose policies we disagree with will be bad for the economy and the stock market. But looking at markets in such starkly political terms can lead to bad decisions. Ask a conservative who refused to invest in stocks while they notched a 182 percent gain during the Obama presidency — or a liberal who shorted stocks after Donald J. Trump won in November.”

By , Bloomberg, 01/17/2017

MarketMinder's View: Indeed. As this article shows, sentiment toward Europe is pessimistic, far behind the budding optimism toward America and Britain. Investors are leaving in droves instead of bidding up earnings. They’re stewing over upcoming elections instead of appreciating continued economic growth and recent improvements in several metrics. Markets often do what few expect, and few expect Europe to do well this year. That doesn’t guarantee leadership shifts, but Europe does seem likely to take the baton at some point.

By , The Washington Post, 01/17/2017

MarketMinder's View: Buried in all of this talk about venture capital (VC) is a simple, and in our view incorrect, thesis: We’re at the end of major “disruption” cycles in Tech and Health Care, the economy can’t grow unless the former disruptors “become the disrupted,” and if VC slows the economy will thus “suffer.” Here are some of the issues with this line of logic. For one, it overrates startups’ economic contributions. Two, it presumes a sea change in the amount of time it takes VC investors to cash out and speculates this discourages new investment. Yet multi-year waits for startup IPOs or acquisitions are actually the norm: According to a venture capital trade association, aside from a brief acceleration around the heady Tech bubble days, time-to-exit has stayed between 5-7 years since 1992 and has only modestly increased since Sarbanes-Oxley. Secondary markets have also developed quite a bit during the interim, giving early investors another out. (To the extent they’re even desperate for an out, which most evidence shows they aren’t.)  

By , Bloomberg, 01/17/2017

MarketMinder's View: We also find plenty to question in the President-elect’s trade rhetoric, but distinguishing between rhetoric and action is crucial. Presidents regularly talk tough on trade on the campaign trail, then change course in office. Candidate Barack Obama also pledged to renegotiate or tear up NAFTA, punish China for manipulating the yuan and crack down on offshoring jobs. President Obama did none of those things. He also campaigned against the Bush administration’s free-trade deals with South Korea and Colombia, then signed both once in office. Beyond that, speculating about what certain political appointments mean amounts to taking a wild guess. Also, Texas and other states have already started lobbying heavily to preserve NAFTA, as mountains of jobs depend on it. Presidents are politicians, and seldom want to anger powerful constituencies through sweeping change. Protectionism is a risk, but what politicians do matters, not what they say. For more, check out our 12/09/2016 piece, “The Art of the Free Trade Deal.”

By , The Wall Street Journal, 01/17/2017

MarketMinder's View: While we’re the on the subject, folks are making way too much of Trump’s statement yesterday that the dollar is “too strong.” Headlines spoke of a “shot across the dollar’s bow,” “taking aim at King Dollar” and “the death of [the] Clinton-era strong dollar policy.” Everyone should slow down, take a deep breath, and read what this clever fellow says at the end of the article: “[Trump] can say what he wants about the currency, but the dollar responds to economic realities. Markets drive the value of currency, not politicians.” Yep. All else equal, money flows to the highest-yielding comparable asset. Plus, the US economy and stocks have done just fine during weaker dollar periods. Outside banana republics, currencies aren’t economic or market drivers, and over time they’re zero sum.

By , The Pittsburgh Tribune-Review, 01/13/2017

MarketMinder's View: While we refuse to say any device is really like the computer in Star Trek: The Next Generation until it responds to us with the late Majel Barrett-Roddenberry’s voice, this is otherwise true: “Some of the finest science-fiction fantasies of the 1980s are today affordable realities for ordinary Americans. Yet we continue to be told by pundits and politicians — left, right and center — that ordinary Americans' material standard of living today is no higher than it was when the late Gene Roddenberry first revived his famed TV-show franchise. … Most of what makes Americans today materially far richer than Americans of 1987 are things that are so familiar now that we take them for granted.” It goes on to list all manner of gadgets, household items and medical marvels, which are not only wondrous but increasingly affordable. For instance: People today are a bit twitchy that the Nintendo Switch will have a $300 list price when it’s released. But that’s actually cheap when you consider that in 1991, the brand-spanking-new Super Nintendo cost $199, which is $352.64 in today’s dollars. The new system has exponentially better graphics, power and capability, but it’s $50 cheaper than that 32-bit system of old. Now, we aren’t recommending you buy that videogame company, as we don’t recommend individual securities (not buying, selling, holding, shorting, gifting or anything else). But it is true that stock investors reap the rewards from all of this advancement and prosperity, as with technological change comes new earnings potential for publicly traded companies in all sectors.

By , Bloomberg, 01/13/2017

MarketMinder's View: Use just a smidge of logic, and it becomes obvious that if exchange-traded funds are now “the most actively traded securities in the market,” then there has been no “shift to passive management.” Passive means mirroring an index and holding it for all of space and time—set it and forget it. If people are actively trading ETFs, they are active, not passive. They might be trading passive products, but their strategy and tactics are as active as they come, making them prone to all the same behavioral errors as everyone else.

By , Reuters, 01/13/2017

MarketMinder's View: “Under the deal, EU and U.S. authorities will lift requirements for reinsurers to hold more capital against risks if they operate from the other side of the Atlantic, eliminating one key hurdle for cross-border expansion. Insurers will also benefit from lower supervisory requirements, a move expected to reduce costs.” If, that is, Congress ratifies it and the next president signs it, making this a key early test of what, exactly, the new administration will do about trade. This is one to watch.  

By , The Telegraph, 01/13/2017

MarketMinder's View: Normally we don’t feature stories focused on one individual, but this piece is fairly even-handed, using Mr. Soros’s experience as a teachable moment about the dangers of political bias in investing. We regularly point out that it is a blinding error, and investing successfully requires turning off your political preferences and emotions. This shows why. For more, see Chris Wong’s column, “Smarts Won’t Save You.”

By , Bloomberg, 01/13/2017

MarketMinder's View: Speaking of biases, this piece is chock full of wisdom on behavioral errors and how to combat them. Here’s a snippet: “Often what we believe is informative amounts to little more than gossip. There is nothing wrong with that, so long as you recognize your media diet for what it is. This matters for investors, as most of what is news is not only old, it often already is reflected in market prices.”

By , The New York Times, 01/13/2017

MarketMinder's View: Regardless of your feelings and opinions about the next presidential administration, economists’ skepticism is not a reason to turn bearish. To the extent they’re worried about potential policies (and not merely chafing at potentially losing influence), it’s all based on words (much of them contradictory) and speculation. Not actions. What the next administration will actually do is unknowable today. We daresay even the big man himself doesn’t know, as nothing adequately prepares you for the challenge of being president, and new presidents frequently take time to learn what they’re all about. Also, while we dislike ad hominem arguments, it is worth noting we heard similar warnings from the academic economics crowd in the runup to the Brexit vote. This and similar failures recently prompted World Bank Chief Economist Paul Romer, Bank of England Chief Economist Andy Haldane and others to criticize their chosen profession.

By , The Wall Street Journal, 01/13/2017

MarketMinder's View: No. As the article shows, “fad” rhymes with “bad” for a reason.

By , The Independent, 01/13/2017

MarketMinder's View: Rather, the factors included: “Significant sell orders for sterling from traders; automatic stop-loss orders; a Financial Times report considered to contain negative news for sterling; inexperienced sterling traders working at that time of night in Asia with ‘lower risk appetite.’” In other words, it was a market just being a market. Volatility, extreme or not, is just normal. Don’t overthink it, and don’t react to it.

By , The Wall Street Journal, 01/13/2017

MarketMinder's View: Just don’t.

By , MarketWatch, 01/13/2017

MarketMinder's View: The data collected here are all over the map, with nothing telling about returns over the two weeks, month and three months after the inauguration. Even if the numbers were more compelling, it would still fall under the category of “interesting observation,” as past returns aren’t predictive and it’s too short a timeframe to be actionable anyway. Always think long-term.

By , The New York Times, 01/13/2017

MarketMinder's View: “Most of us do not even want to contemplate the death of a spouse or partner — much less the prospect of having to take care of the financial end of such a loss while still grieving. There are, however, plenty of details that people can attend to in advance that can avoid some measure of stress when the time comes. Most people tend to ignore or procrastinate over such tasks — for obvious reasons — but planning can certainly ease some avoidable financial sorrows.” Indeed. This subject can be difficult to face head-on, but it’s vital.

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Global Market Update

Market Wrap-Up, Thursday, January 19, 2017

Below is a market summary as of market close Thursday, January 19, 2017:

  • Global Equities: MSCI World (-0.5%)
  • US Equities: S&P 500 (-0.4%)
  • UK Equities: MSCI UK (-0.8%)
  • Best Country: Norway (+0.3%)
  • Worst Country: Canada (-1.7%)
  • Best Sector: Industrials (-0.1%)
  • Worst Sector: Energy (-1.1%)

Bond Yields: 10-year US Treasury yields rose 0.04 percentage point to 2.47%.

 

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.