|By Carol E. Lee, The Wall Street Journal, 07/29/2014|
MarketMinder's View: The EU and US are expanding sanctions on Russia, to hit Russian state-run banks’ ability to access EU capital markets (similar to existing US provisions), curtail future weapons trade and limit export of oil exploration technologies. Though these sanctions are a bit harsher, they still aren’t hugely punitive and are unlikely to materially affect markets or the global economy.
|By Michalis Persianis, The Wall Street Journal, 07/29/2014|
MarketMinder's View: In March 2013, Cyprus turned to the EU, IMF and ECB (troika) for a bailout. The troika, however, responded with a new plan: Large, uninsured depositors would be bailed in—deposits above €100,000 would be exchanged for an equity stake in these banks, converting the depositors (typically considered highly secured creditors of a bank) into owners—a popular move at the time, considering anti-bailout sentiment in Northern Europe and the fact Russian oligarchs were among Cypriot banks’ biggest customers. The depositors took losses then, and they appear likely to take big losses again now, as Bank of Cyprus dilutes equity owners to try to clear the ECB’s stress tests. This doubling down on bail-ins comes after the EU announced the measure will be part of standard bank resolution looking forward, which all sends very odd signals to savers and could lead to bank runs down the line if other firms become imperiled. As this article notes, investors are different than depositors—“…They just want their money back.” For more, see Elisabeth Dellinger’s 03/26/2013 column, “What Cyprus Tells Us About Banking Regulations.”
|By Brian Bremner and Simon Kennedy, Bloomberg, 07/29/2014|
MarketMinder's View: Claiming that the “open monetary spigots at the US Federal Reserve, European Central Bank and Bank of Japan” are the reason why recent geopolitical turmoil in Ukraine, Gaza, Thailand and another chapter in the near incessant squabbling between China and its neighbors overlooks history. The simple fact is regional conflict normally does not affect stocks, as it usually isn’t significant enough to impact global growth, profits or revenues. For examples, see the Korean Conflict, Gulf Wars I and II, Afghanistan, The Vietnam War, virtually all of Israel’s history and more. If these events didn’t change market direction materially, why would the present?
|By Katie Holliday, CNBC, 07/29/2014|
MarketMinder's View: Wait—it’s a bubble in bubble talk? Claims of “froth” are bubbling up all over? Here’s the thing: If everyone thinks you’re in a bubble, you probably aren’t, because a bubble requires euphoria to blind investors to risk, buoying asset prices higher than they should be. Hence, bubble talk is unlikely to ever be a “self-fulfilling prophesy.” Bubble fears are actually self-deflating. The time to fear a bubble is when the tally of headlines claiming there is one is near zero. For more, see our 7/29/2014 commentary, “What a Real Bubble Looks Like.”
|By Yoon Ja-Young, The Korea Times, 07/29/2014|
MarketMinder's View: There is good news, bad news and a bizarre theory underlying both at work here. Starting with the good news: Korea’s government plans to slash the dividend tax rate—a real plus for shareholders. The bad news? The government reportedly plans to tax companies’ “excessive internal cash reserves”—no word on what that means, though the tax is rumored to vary by industry—by anywhere from 3-15% annually. The bizarre theory behind all this is Korean politicians’ belief the economy needs spurring and inequality is hampering growth. So they view this as a means to force businesses to boost investment, salaries and dividends to avoid this tax and get money off their balance sheets. However, we are skeptical this impact would follow with no unintended consequences. In our view, you likely get a wee bit of misdirected investment, some corporations leaving Korea or otherwise creatively avoiding the tax.
|By Editorial Staff, Bloomberg, 07/29/2014|
MarketMinder's View: While we’re never very optimistic multilateral trade deals get done, that Modi’s government—which swept into office amid high hopes of market-opening reform—is opposing removing these agricultural protections is just the latest point suggesting that reformer moniker isn’t earned yet. When you combine it with a budget that’s light on reforms and a finance minister who proclaimed the government’s policy direction was to avoid tough decisions, it seems Modi is far from “opening India up for business.” Yes, it takes time for any new leader to move the needle. However, promises are one thing. Actions are another—and that’s what investors should focus on in India.
|By Paul Krugman, The New York Times, 07/28/2014|
MarketMinder's View: This rather overstates the fiscal impact of inversion M&A deals (US firms buying smaller foreign firms so they can get a new tax address without jumping through costly IRS hoops). Companies that invert still pay taxes on profits booked here—they just avoid double taxation on overseas profits. The Treasury does lose some revenue, but not much—estimates are $20 billion in lost tax dollars over the next decade, or about 2% of the rise in tax revenue over the last 10 years (which ignores the probability they’d find other ways to pay less). Whether or not companies invert, they still have an incentive to invest here—it’s called growth. Inversions don’t put the US economy at risk. For more, see our 07/17/2014 commentary, “Economic Patriotism or Protectionism?”
|By Alexandra Scaggs, The Wall Street Journal, 07/28/2014|
MarketMinder's View: As this piece highlights, many “experts” predicted 2014 to be a pretty flat year for stocks. S&P 500 performance at the year’s halfway point has already exceeded those modest expectations, leading some to revise their forecasts and while others maintain the biggest gains for the year were already had—a sign of the still skeptical sentiment surrounding this bull. Professional forecasters did the same thing last year and were blinded by an over 32% rise in the S&P 500. This year, with corporate earnings and revenues up, a growing world, gridlocked governments and many doubters, we think stocks should deliver another nice surprise.
|By Nina Chestney, Reuters, 07/28/2014|
MarketMinder's View: While the UK should benefit over time from developing its vast shale resources, the bureaucratic process involved delays those benefits—potentially by a decade. Since markets tend to price in events over the next 12 to 18 months, we’d suggest not getting blinded by UK shale enthusiasm—this is a very long-term structural positive, not a near-term cyclical driver.
|By Staff, Xinhua, 07/28/2014|
MarketMinder's View: These three new private banks will target small firms, which have historically struggled to get bank loans, resorting to riskier avenues like loan sharks or peer-to-peer financing instead. While time will tell how successful this initiative is, it is another sign of China’s commitment to long-term financial reform and more broad-based growth.
|By Pedro Nicolaci Da Costa, The Wall Street Journal, 07/28/2014|
MarketMinder's View: Well, maybe, but in our view, all forward guidance is equally useless—for investors and central bankers. For central bankers, it backs them into a corner and raises the risk they lose credibility if/when they change their mind. For investors, it hoodwinks folks into believing central bank decisions are predictable. In our view, everyone was better off when Alan Greenspan communicated in noncommittal riddles.
|By Lu Wang, Bloomberg, 07/28/2014|
MarketMinder's View: As this piece points out, “buying the dips” is a pretty hot strategy early on in a bear market, as investors can’t fathom a deeper downturn. But there is a big difference between pouring money into a bear market and topping up during a bull. Today, it’s the latter. Not that we’d recommend such short-term tactics or waiting for the dips to buy. Always think long-term.
|By Neil Irwin, The New York Times, 07/25/2014|
MarketMinder's View: But it isn’t! This is all based on the assumption young folks who haven’t much participated in this bull market might never have another chance. But that’s not how markets work, and it has no grounding in history. We’ll likely have several bull—and bear—markets over the next few decades. We agree it matters when you invest, and investors shouldn’t assume straight-line returns over time, but folks also shouldn’t assume market cycles will stop or that “the remarkable rally in stocks is cannibalizing the market returns that otherwise would have occurred in the decades ahead.” Markets are pricing in the next year-plus. Who knows what wondrous things they’ll price in over the far future!
|By Ambrose Evans-Pritchard, The Telegraph, 07/25/2014|
MarketMinder's View: It’s still far from certain whether the EU will approve to sanctions that amount to more than an annoying poke. Not that we’re questioning the investigative reporting here or the motives and morals of the countries in question, but experience tells us getting a bloc of 28 nations to agree on big policy moves (particularly those in the economic arena) is mighty difficult. If they do pass the “draconian” sanctions theorized here, though, they likely don’t carry enough of a global economic impact to put this bull market at risk. They’d hurt Russia. Hard. But EU states don’t depend on their trade relationship with the Motherland for continued growth. Energy is an issue, but the EU has been preparing and storing up gas reserves just in case. For more, see our 07/18/2015 commentary, “About Ukraine and Russia …”
|By William D. Cohan, The New York Times, 07/25/2014|
MarketMinder's View: Well, actually, she’s settling for words—and words are only weapons if you’re insulting someone. But our beef with this metaphor (and metaphors in general) aside, the broader problem here is the assumption Fed policy (or anything else at large today) is driving markets to “misprice risk.” Stocks are high, but so are earnings. Yields are down, but so is default risk—economies are growing, balance sheets are healthy. Maybe, just maybe, investors just see all this strength and are pricing things appropriately. Hopefully for investors’ sake, the Fed will realize this and not try to use its regulatory toolkit to try to deflate a bubble that doesn’t exist. That’s the real risk here.
|By Brett Arends, The Wall Street Journal, 07/25/2014|
MarketMinder's View: Or burning anyone who concentrates in their employer’s (or any) stock, whether it’s a fresh IPO or a blue-chip warhorse, in their brokerage account of their 401(k). The planner quoted here gets it right: “Those with big stakes in their employers are taking on ‘multiple layers of risk’ and running the danger of ‘double trouble’ … if things turn down, as happened after 1999, they may see their savings and job vanish at the same time.” Owning too much of any single company stakes your financial future on something very narrow. Even if things are flying now, ask yourself: What if? By diversifying—limiting any one company to 5% or less of your portfolio—you can guard against company-specific risk. Don’t believe us? Ask any former Enron employee.
|By Paul Vigna, The Wall Street Journal, 07/25/2014|
MarketMinder's View: This format doesn’t grant us the space to discuss everything that’s wrong inside this piece, so we’ll stick with the biggies. 1) Stocks aren’t “out.” Stock demand is still high and rising. 2) Trading volumes don’t indicate demand. Or predict future performance. Or really correlate with market direction coincidentally. They. Mean. Nothing. 3) Participating in Airbnb isn’t “investing in yourself.” It’s finding another avenue to earn money. Most folks then do something else with that money. Maybe spend it. Maybe save it. Probably invest at least some of it for retirement—probably in stocks. Look, we get it, tech is cool. Some of the services and companies described here are new frontiers of the economy. But they aren’t the end of stocks. One day, they’ll probably become publicly traded firms, and the industries that spring up around will beget more publicly traded firms, and investors will own all those stocks. (Though, we’re kinda sketchy on the untested direct corporate financing thing. Like, what backs it? What determines return? Is there a ceiling? Maybe do some more due diligence there, mmmkay?)
|By Alan Tovey, The Telegraph, 07/25/2014|
MarketMinder's View: Huzzah. But this neat little factoid is backward-looking. UK stocks surpassed their pre-crisis peak a while ago. It just goes to show you, by the time data confirm growth over any period, stocks have long since moved on. (Also, can someone please explain to us how the UK economy is like a cappuccino? Because we really just don’t get the graphic in here. Is it meant to imply the industrial sector is espresso, and Britain’s economy needs a second shot? Or that the services sector is like foam and it’s too frothy? Both are wrong, because the UK is just concentrating on the things it does best and making the ghost of David Ricardo proud. But we’re still curious.)
|By Staff, Jiji Press, 07/25/2014|
MarketMinder's View: If more cooperation between Japan’s business federation (keidanren) and government means the two sides are working together to improve corporate governance and foster competition in corporate Japan—and the business lobby is serious about shattering the status quo—then this is an encouraging sign. But if it means Prime Minister Shinzo Abe is desperate for political support as his poll numbers decline and is making tradeoffs and exemptions from potential reforms, then it’s discouraging. Which is it? Too soon to tell, but one could make a pretty compelling case that Abe is trying to curry favor and fend off rival politicians who smell weakness as his popularity ebbs.
|By Steven Russolillo, The Wall Street Journal, 07/25/2014|
MarketMinder's View: You might look at this and say, “Gee, that’s silly. After all, you’re a shareholder and this is business, and you own a slice of a business’s profits, which would be bigger in more business-friendly tax climes.” But on the other hand, saying “There are other fish in the sea, so I’ll sell,” is an entirely capitalistic way to register your personal displeasure with the practice of inversion tax deals, if you’re so inclined. We happen to disagree these deals are a significant drag on the economy or America’s tax dollars (and by extension, public investment), but the beauty of a free market is said market can judge these and other corporate practices as investors vote with their wallets. In our view this, not new (and quickly implemented) regulation, is the most beneficial way to “address” these things.
|By Eric Balchunas, Bloomberg, 07/25/2014|
MarketMinder's View: Just because you can soon go hog-wild for mainland Chinese stocks doesn’t mean you should—everything in moderation. China has some positives, sure—it’s growing swiftly, and its capital markets are opening—but it also has political and other risks. China is a small piece of the global market, and we think long-term growth investors are best off staying diversified, not concentrating in one Emerging Market. Also, note, index classification isn’t really a meaningful driver of stock returns. This piece implies mainland Chinese stocks should get a boost by becoming part of the MSCI Emerging Markets Index, but history shows this isn’t true (Israel’s reclassification from Emerging to Developed Markets being a recent example).
|By Jason Zweig, The Wall Street Journal, 07/25/2014|
MarketMinder's View: While this article purports to be about the merits of advisers charging exit fees, more broadly, it’s an example of the broad misunderstanding of the fiduciary standard in the investment industry. The fiduciary standard simply requires disclosure of potential conflicts of interest and other items. It does not eliminate conflicts or ensure low fees. Investors should always do thorough due diligence—discover all costs and potential conflicts of interest as well as the adviser’s expertise, values, track record and resources—to decide whether an adviser is the best fit for them. Relying on a rule won’t get you far. Simply, “the word ‘fiduciary’ isn’t a guarantee that your adviser will put you first.” It takes ever so much more. For more, see Todd Bliman’s 11/14/2013 column, “The Compass.”
|By Staff, The Yomiuri Shimbun, 07/25/2014|
MarketMinder's View: And Mexico is eager for foreign investors, so this could work out! Now, Japan investing in Mexican shale oil and gas extraction—and ultimately importing liquefied natural gas—won’t materially boost the fortunes of either country in the here and now. This isn’t a cyclical factor. But it is a very long-term positive for both countries and, if nothing else, a sign both are focusing on global trade and investment. That’s good for the world.
|By Jim O’Neill, The Telegraph, 07/25/2014|
MarketMinder's View: Wait. So. The world didn’t take Brazil, Russia, India, China and South Africa seriously before, even though they represent 21% of the global economy, but now that they have a $100 billion development bank, we’ll give them some street cred? Errrrrrr … given how key a role these countries already play, and given how much most of the world tends to ignore the IMF and World Bank, we’re pretty sure this won’t change much. Nor should it. Bully for them for creating an institution they believe will do good in the world and improve quality of life in less developed countries (and here’s hoping they’re right), but this just isn’t a significant global economic development.
|By Michael Rapoport, The Wall Street Journal, 07/24/2014|
MarketMinder's View: Starting in 2018, the International Accounting Standards Board (IASB) will require non-US banks to book loan losses based on expected losses over the next 12 months—currently, banks don’t record losses until they actually happen. Its US counterpart, the Financial Accounting Standards Board (FASB), has proposed a stricter standard, forcing banks to book all losses expected over the lifetime of the loan up front. Problem is, you can’t forecast into perpetuity—how can a bank know today whether a new 30-year mortgage will ever default?—so pricing a loan for some far-future possibility may yield bizarre results. However, we don’t think this is a huge negative for Financials. The rule operates on banks’ own expectations of loan losses, not market prices a la FAS 157. Mark-to-forecast seems a far better standard since it’s tied directly to banks’ primary business, lending, and not the market’s occasionally irrational pricing of some illiquid assets they might hold on their balance sheet.
|By Ian Wishart and James G. Neuger, Bloomberg, 07/24/2014|
MarketMinder's View: Color us skeptical on the likelihood these proposals become actual sanctions: "The options in the document for responding to Russia’s intimidation of Ukraine included something for virtually every EU government to dislike. France has held out against an arms embargo, German industry fears for its exports to Russia, Britain and Cyprus have been reluctant to scare away wealthy Russian investors, and Hungary has opposed wider sanctions altogether.” And all these countries (and 23 more) must agree on any measures enacted. That’s, like, hard. For reference: So far, the sanctions the US and EU have imposed on Russia—largely targeting individuals and specific companies—have been fairly muted.
|By Megan McArdle, Bloomberg, 07/24/2014|
MarketMinder's View: “Food and energy loom disproportionately large in the budgets of retirees. They’ve already acquired a lot of stuff, so they’re less apt to get excited about fantastic deals on television sets and furniture manufactured in China. On the other hand, they buy food and gas and medicine every month. When they see how much those expenses carve out of their income, they think, ‘My income is not keeping up,’ and the idea that the government is using the wrong inflation index seems like a reasonable explanation for why it’s so hard to make their money stretch. But however compelling this explanation may seem, it’s wrong. The government knows about food and oil prices. And it’s taking them into account when it calculates your Social Security check.” For more, see our 06/30/2014 commentary, “Should the Fed Hike Rates to Make It Rain?”
|By David Gelles, The New York Times, 07/24/2014|
MarketMinder's View: Here be the latest on this protectionist solution in search of a problem, which we covered in detail last week. Treasury officials are pressing Congress to pass a law effectively banning “inversion” M&A deals that would apply retroactively, likely stripping at least some recently agreed-to deals of their tax benefits. Democratic Senators support the notion, but Republican Senators don’t want to backdate a crackdown. Perhaps they find a middle ground, but even if this clears the Senate, passing the House is a tall order. In our view, that’s a plus. Protectionism is a negative, and an inversion smackdown is simply protectionism dressed as patriotism. Retroactive tax grabs are also no bueno—they undermine confidence in America as a good place to do business (for an extreme example, see businesses’ reaction to India’s recent move to backdate a foreign merger supertax to the 1960s). Just because we’ve done it before, as this piece documents, doesn’t mean it’s wise to do it again.
|By Brian Lund, Daily Finance, 07/24/2014|
MarketMinder's View: No. “Robo-advisers” are, after all, designed by humans, and their algorithms could be based on the same investing biases and industry mythology many less-savvy human advisers use. As this highlights, they also use the same risk-based approach to determine an investor’s strategy that the rest of the brokerage world uses—wrongly, in our view. Risk tolerance is important, but your long-term goals and time horizon should come first, and robo-advisers can’t help here. They can’t truly get to know you no matter how many survey questions you answer. They can’t have a back-and-forth dialogue to help you identify your long-term goals, objectives and time horizon. Nor can they counsel you through the many emotions and temptations the market’s ups and downs bring. For more, see Elisabeth Dellinger’s column, “Robots, Marie Antoinette and You.”
|By Scott Grannis, Calafia Beach Pundit, 07/24/2014|
MarketMinder's View: While we would go a bit further in our critique of quantitative easing (QE)—in our view, QE has hurt growth by discouraging bank lending—this nicely shows how the bull market hasn’t relied on the Fed’s “easy money” at all. “This is a genuine economic expansion and the rise in equity prices is a reflection of that growth. It’s not a liquidity-driven mirage, it’s real.” And there are 11 charts to prove it!
|By Staff, Xinhua, 07/24/2014|
MarketMinder's View: By “real economy,” they mean businesses other than those state-run behemoths that enjoy cheap, plentiful credit. The big guys have long hogged bank lending, forcing small and private firms into the evil clutches of loan sharks or the treacherous waters of peer-to-peer financing, which can make them vulnerable to the death penalty if they do it wrong. Needless to say, this is a key problem to address. To help these firms gain better access to financing, officials pledged to create new banks dedicated to small/medium businesses, expand capital markets financing to smaller firms, broaden credit derivatives markets and cut a bunch of red tape. Only time will tell whether they see this through successfully—prior attempts haven’t borne fruit—but the whole shebang would be quite beneficial.
|By Carl Richards, The New York Times, 07/23/2014|
MarketMinder's View: There is some wonderfully sensible commentary here, though the article has a couple of warts too. Differentiating between knowledge and behavior is crucial for individual investors. All too often, investors know what the right answer is (need growth, buy stocks; don’t sell deep in a bear market; don’t concentrate in employer stock/high performing stocks/any stock) but they do it anyway based on a rationalization (“it’s different this time,” etc.). The knowledge doesn’t influence the actions, and the actions matter most. That said, there is a balance problem here. The article touts the merits of attaining knowledge—the past—and discounts a forward-looking view as risky. Yet the entire purpose of knowing the past is to help you put the present and the future in context. Finally, financial literacy is important (we are passionate about this at MarketMinder)—but there is a stark difference between being literate and being an expert, just as the fact someone can write a grammatically correct sentence doesn’t make him or her Hemingway.
|By Naftali Bendavid and Matthew Dalton, The Wall Street Journal, 07/23/2014|
MarketMinder's View: To be fair, the details won’t be released until Thursday. But to be judgy, it appears based on existing reports the EU is again going to avoid imposing material sanctions on Russia, targeting mostly individuals and very specific organizations, rather than sector-wide sanctions. What’s more, it appears the notion of ceasing arms trade with Russia is also failing. If they can’t agree to stop selling weaponry to Russia after last week’s downing of a civilian aircraft using Russian technology, we kind of think it might be a wee bit of a stretch to expect harsh sanctions overall.
|By Jeremy Warner, The Telegraph, 07/23/2014|
MarketMinder's View: So another big organization is out with their market take, and it’s another one of those investors-are-too-complacent, low-volatility-will-end-badly, too-long-since-a-correction, markets-are-frothy-blame-central-bankers(!) rants. But is it really bubbly that global stocks are up ~40% in the last two years? Prior to this cycle, based on S&P 500 data since 1926, bull market average annualized returns are roughly 21%, so it wouldn’t seem like it. Why are markets up so much? Earnings and revenues are up! A healthy private sector still isn’t fully appreciated by the skeptical public, as illustrated by this piece. Also, two of the three risks are dubious: a rate hike (no history of regularly causing downturns) and the wiggling of other central bank rates. The third risk, the success of macroprudential regulation in deflating bubbles is real, but it is misperceived here: The issue, in our view, is not whether the Fed can successfully deflate a bubble. It’s whether they cause collateral damage trying—or deflate a nonexistent bubble. Finally, a simple correction: The 2007-2009 crisis began following corrections in 2006 and 2007. It wasn’t placid right before the storm, nor were investors complacent.
|By Todd Buell, The Wall Street Journal, 07/23/2014|
MarketMinder's View: This January, Lithuania will become the 19th nation to use the common currency. For those of you scoring at home, the current 18 are: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Also interesting is the new voting rotation for the 19 national central bank chiefs that will take effect in 2015: The larger nations (Germany, France, Italy, Spain and the Netherlands) will share four votes, with the smaller 14 countries splitting 11. That means one major nation will sit out every five months, a factor potentially ruffling some feathers occasionally.
|By Matthew Lynn, MarketWatch, 07/23/2014|
MarketMinder's View: This article operates on a completely false either/or selection: That the reason stocks haven’t cratered over the crises in Ukraine, Gaza and Iraq is either that wars aren’t bad for stocks anymore or Fed bond buying. Ultimately, the thesis becomes clear: “Either way, investors can safely ignore war and politics from now on when they are structuring their portfolio.” This. Is. False. Politics are a key driver for markets—always have been, always will be. But war and geopolitics have pretty much always mattered only when they have huge global scope. Consider the “examples” of market impact listed here: “After the 9/11 attacks on Washington, DC and New York, the stock market fell dramatically. The Iraqi invasion of Kuwait sparked a wave of selling, and the Middle Eastern conflicts of the 1970s sent the oil price soaring and the stock market crashing.” 9/11, a tragedy of epic proportions, occurred 18 months into the bear market that began on March 24, 2000, and the September 10 level was regained 19 trading days later. The Iraqi invasion of Kuwait occurred after the 1990 S&L-crisis driven bear began, and it ended months before the US ever became militarily involved in early 1991. The Middle East conflicts—we presume this is the Yom Kippur War in 1973—began in October, but the 1973-1974 bear began January 11, 1973. (The OPEC embargo began two weeks after the Yom Kippur War and ended in March 1974, but the bear didn’t bottom for seven more months.) If conflicts are the proximate cause of all these downturns, why don’t any of the dates match? Finally, why wouldn’t larger conflicts (Korean War) cause one? Or similar conflicts (Iraq War in 2003, Arab Spring, etc.)? Perhaps the reality is the crises of the day now just aren’t big enough because it takes something really huge, a la WWII.
|By Sridhar Natarajan and Katie Linsell, Bloomberg, 07/23/2014|
MarketMinder's View: "Indigestion Burns Buyers " is one heck of a statement to describe a 0.38 percentage point dip in one month to date (15 trading days!). This largely seems to us like markets being markets and analysts practicing one of their favorite 2014 pastimes: Searching for meaning in the most myopic and microscopic of market movements.
|By David Gelles, The New York Times, 07/23/2014|
MarketMinder's View: Corporate inversions don’t mean outsourcing, relocation of investment or other facilities. Nor do they permit US firms to evade all US taxes, so it’s hard to see how they are a “virus” or “plague” afflicting the US economy. That said, politicians impeding the free flow of capital to avoid sensibly amending the US tax code risk a potential protectionist response, which is a negative. This is a long way from being done, and protectionism requires more than one player, but this is a matter to watch, in our view. For more, see our 07/17/2014 cover, “Economic Patriotism or Protectionism?”
|By Russell Gold, The Wall Street Journal, 07/23/2014|
MarketMinder's View: This proposed rule would require rail transport firms to upgrade thousands of tank cars employed in moving oil by rail over the two years after it becomes final. This is an increasingly common practice, considering the lack of other oil transport infrastructure in booming regions to get oil from, say, the Bakken shale in North Dakota to storage in Oklahoma or refineries along the Gulf Coast. Assuming this isn’t amended or killed, this is likely a plus and minus—an added cost for rail firms they might be able to pass on to oil producers (and, many steps removed, you). But one person’s cost is frequently another’s revenue, and that’s likely the case here.
|By Noah Smith, Bloomberg, 07/23/2014|
MarketMinder's View: No model will ever perfectly predict economic direction and, even if we live in academic economists' fantasyland (Ivorytowerland, where potential GDP matches real output, long-term forecasts come true and the wage-price spiral comes alive!), it still wouldn't be perfectly predictive of stocks' direction. Stocks are not only influenced by economic reality, but how folks feel about that reality. Models frequently fail to forecast the former, much less the latter.
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Market Wrap-Up, Tues July 29 2014
Below is a market summary (as of market close Tuesday, 07/29/2014):
Global Equities: MSCI World (-0.2%)
US Equities: S&P 500 (-0.5%)
UK Equities: MSCI UK (0.0%)
Best Country: Ireland (+1.2%)
Worst Country: New Zealand (-1.7%)
Best Sector: Telecommunication Services (+1.0%)
Worst Sector: Industrials (-0.7%)
Bond Yields: 10-year US Treasurys fell by .03 to 2.46%
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.