Today's Headlines

By , The New York Times, 11/27/2015

MarketMinder's View: This is an interesting look at the progress—and limitations—of online polling, which seems to be rising as telephone polling is fading. With 87% of Americans connected to the Internet, it does seem polling is likely to end up being conducted online too—and companies big and small have been utilizing innovative methods to improve accuracy. However, substantial challenges remain: potentially biased, unrepresentative sampling and extensive modeling adjusting for a lack of randomness are two. For investors, this is just a small reminder that polls are likely to prove noisy as we approach 2016’s US presidential election. We’d suggest not getting caught up in headlines screaming about candidates’ poll numbers. They may not be indicative of reality, especially this early in the process. For more, see our 9/21/2015 commentary, “POLL-ution.”  

By , The New York Times , 11/27/2015

MarketMinder's View: This article does a fair job documenting gas price fluctuations around the US this holiday season, but it seems a bit bizarrely surprised ongoing tensions in the Middle East haven’t caused prices to rise. That they haven’t shot up, though, is hugely unsurprising: ISIS, Syria and the shooting down of a Russian warplane by Turkish forces don’t materially threaten global oil supply. The world is presently awash in crude oil, and if Iran boosts output by 500,000 barrels per day as expected, supply will only increase. Besides, tensions in the Middle East are a regularity. It takes something much more extreme than the present to materially impact oil prices, particularly given most of the increased supply in recent years comes from non-Middle Eastern producers.  

By , Bloomberg, 11/27/2015

MarketMinder's View: Early estimates suggest many folks pulled their Black Friday shopping forward to Thanksgiving Thursday, preferring to make their purchases in the comfort of their own home rather than waiting in line and battling crowds. So is “Black Friday” doomed as we know it? Perhaps, though concerns about its demise are greatly exaggerated. For one, Black Friday “deals” have gone from one day, to a weekend, to now a much longer period—retailers are no longer saving perks for the day after Thanksgiving. But more importantly, what consumers do on Black Friday itself is way too myopic. A single day matters less than the greater holiday season, which matters less than the entire year. For more, see our 11/24/2015 commentary, “Black Friday Is No Barometer.”

By , The Guardian, 11/27/2015

MarketMinder's View: The second estimate of UK GDP remained unchanged at 0.5% q/q seasonally adjusted growth, its eleventh straight quarterly rise. Growth was driven by domestic demand, as consumer spending rose 0.8% q/q. However, many—including this piece—focused on the negatives, like trade or weak manufacturing. Yet this overlooks some important context. For one, services have been the UK’s primary growth engine during the current expansion. And trade wasn’t weak: Exports and imports grew, it’s just that imports boomed, which suggests overall growth is even stronger than appreciated. On an annualized basis, import growth detracted an astounding 7.1 percentage points from the Q3’s 2.0% annualized headline growth. Booming imports are a good sign for the UK since they highlight healthy demand. That imports detract from headline GDP growth is merely a quirk of GDP’s calculation, likely rooted in its 1930s-era invention.

By , The Economist, 11/27/2015

MarketMinder's View: All right folks, what time is it? That’s right, it’s a special, Black Friday edition of political drama  highlighting the importance of putting aside any political biases you may have when it comes to investing. When the UK’s Labour Party elected long-time far left Parliamentarian Jeremy Corbyn its leader in September, many pundits feared it heralded Labour taking a much more radical tack and started attempting to gauge his impact on future UK politics—even making projections as far off as the next General Election, currently scheduled in 2020. Yet as this piece highlights, Corbyn’s short tenure already faces stiff resistance from MPs in his own party. While politics are indeed an important driver, we caution investors from assuming the ascension of a single politician is either wonderful or perilous for stocks—no party or ideology is inherently good or bad for markets.     


By , Bloomberg, 11/25/2015

MarketMinder's View: “Bookings for non-military capital goods excluding aircraft rose 1.3 percent, the most in three months, after an upwardly revised 0.4 percent increase in September, data from the Commerce Department showed Wednesday. Orders for all durable goods -- items meant to last at least three years -- climbed 3 percent, almost twice the median estimate in a Bloomberg survey.” The US economy is doing just fine, thank you very much.

By , Barron's, 11/25/2015

MarketMinder's View: While this article most specifically pinpoints one politician’s words, we feel compelled to note the theory the Chinese yuan is artificially “undervalued” relative to the US dollar is a fully bipartisan misperception. So, chuck the partisan or politician-specific stuff out the window here. The notion China manipulates its currency lower to make its exports more competitive and gain an economic edge over the US is greatly outdated. Since 2010, the yuan has appreciated against the dollar—somewhat significantly. And, as this article correctly notes, China’s government has been intervening to artificially prop it up against the dollar in the last year. We are of the view these currency market gyrations get too many pixels relative to the actual economic impact, but either way, this is a good discussion to read given next year’s election likely means much more political rhetoric over exchange rates to come.

By , The Wall Street Journal, 11/25/2015

MarketMinder's View: Here is an interesting, if somewhat overstated, take on the recent House bill that would make some operational changes to the Fed. This focuses mostly on the bill’s requirement the Fed adopt a monetary policy rule to guide its decision making and, if they deviate from it, explain why. Now, strict rule-based policy could be problematic, as this article goes to great lengths to point out. However, the proponents of the bill are accurate in saying this doesn’t do that—it allows the Fed to select which rule, change it and even operate outside of it. It is theoretically possible that this approach could bring the beneficial transparency the Fed has claimed it seeks in recent years, but that isn’t assured. Overall, despite this article’s singular focus, we believe this bill has some positives and negatives outside the rule-based policy requirement. On the plus side, it would require the Fed to perform cost/benefit analyses on new regulations. Sensible! On the minus side—and this is the biggest problem with this bill, in our view—it would slap restrictions on the Fed lending to troubled banks. Central banks exist primarily to quell panics by acting as the lender of last resort, and we are quite wary of politicized efforts to constrain that.

By , The Wall Street Journal, 11/25/2015

MarketMinder's View: The debate here boils down to whether 2011 (deep correction/sharp rebound/flat year) or 1937 (beginning of a massive bear) is the more appropriate comparison to 2015. Look, 2011 is a loosely fair comparison in the sense 2015’s negativity appears to be a correction—a brief blip in a broader bull market. But this article argues 1937 is more apt, which to us seems very wide of the mark. The whole comparison is based on false Fed tightening fears. It’s true 1937’s crash was caused by the Fed. However, it isn’t like the Fed hiked rates by 0.25 percentage points or something back then. They massively increased reserve requirements, erroneously presuming banks wouldn’t slash lending and raise capital because they had excess reserves already. But they didn’t see that banks were intentionally holding excess reserves because they desired to be more conservative than required in the wake of the 1929 – 1933 downturn. So, when required reserves rose, they raised more. The result was a catastrophic downturn. Today, a single rate hike would come against the backdrop of a still-steep yield curve. There is no history of a single hike derailing stocks and no evidence suggesting the US economy can’t take a hike (or multiple hikes) now. In our view, today bears a much more striking resemblance to 1997: Falling commodities prices, Emerging Markets currency fears, US-led markets, a gridlocked US government, and a growing global economy. We could go on, but we figure you get the picture.

By , Bloomberg, 11/25/2015

MarketMinder's View: That new-ish* OPEC member is Indonesia, which consumes more than twice the oil it produces, making this member of the Organization of Petroleum Exporting Countries a net importer, ironically enough. Anyway, this article does a good job summing up just how the incentives within the oil cartel’s ranks are increasingly at odds. OPEC is becoming marginalized within the oil market, based on advancing technologies in the non-OPEC world and these internal dissentions. *We say “new-ish” because Indonesia was a member of OPEC just seven years ago.

By , CNNMoney, 11/25/2015

MarketMinder's View: So we were a bit confused by the conflicting messages in this slideshow. The first point says that “Geopolitical shocks matter,” arguing that several hot spots could trip up the current bull market. Those hot spots include the usual suspects: terrorism, Russia, China, Middle East conflict, cyber hackers or an unexpected wild card like North Korea. But then the final argument says that markets are resilient, so as an investor, perhaps you shouldn’t be worried about any long-term fallout. While we agree that geopolitical conflicts tend to have a fleeting impact on markets, we find it misleading to then hype up several scenarios that could possibly derail a bull. Folks, we aren’t saying geopolitical events don’t matter—they can and do have a real (and too often, tragic) human cost. However, investors shouldn’t bank on possibilities. Probabilities matter more, and history shows geopolitical tensions rarely pack the wallop necessary to end bull markets.

By , The Street, 11/25/2015

MarketMinder's View: Here is this article’s thesis: “One thing is for sure: this year’s four-day shopping period will go a long way toward settling the debate on whether Black Friday is, once and for all, dead or alive.” Which seems unnecessarily dramatic. While Black Friday—and all the spending associated with it—has long had a reputation for being a barometer for US retailers and consumers, this is more hype than reality. For one, Black Friday deals are no longer reserved for the Thanksgiving weekend. Retailers are offering deals earlier in the month and extending them into December. And two, non-seasonally adjusted data show December is the strongest month for US retail sales—the early bird may get a Black Friday deal but procrastination seems to be most shoppers’ preferred approach. So regardless of how Black Friday 2015 turns out, one day doesn’t define a seasonal spending period.    

By , Bloomberg, 11/24/2015

MarketMinder's View: Inventory gains are always open to interpretation. On the positive side, they could mean businesses stocked up in anticipation of higher demand. Or, not so good, they could indicate a supply overhang. What do they mean this time? Considering consumer spending is strong and disposable incomes are up, a supply overhang would be very odd indeed. Seems more likely firms built stockpiles for the holiday shopping frenzy. That could mean inventory drawdowns detract from growth later on, but that is a statistical quirk more than anything.

By , CNBC, 11/24/2015

MarketMinder's View: Nah, they really aren’t. Corporate insiders’ trades aren’t a leading indicator for stocks. Execs trade for a host of reasons, not at all limited to their outlook for their own company. Diversification is a biggie—a lot of these guys and gals get paid in company stock, and if left unchecked, it can build up over-concentrations. Diversifying is always wise, whether or not a big position happens to be in the company you work for. Execs will also cash in to buy real estate, send the kids to college, pay for weddings, and any other big life-event expense. They’re people too, you know. This is a big reason why there is no set relationship between execs’ trading habits and future stock prices. As for the rest of this, which discusses the alleged evils and risks of stock buybacks, a couple counterarguments. One, business investment is rising, not falling, and presently sits at all-time highs. There is no conflict between buybacks and investment. It is a media construct, pure and simple. Two, many of those buybacks serve to offset the stock-based compensation mentioned above. When companies issue new shares or options to employees, they often buy the equivalent amount on the open market to prevent the dilution of existing shares. That is overall positive financial management and basically how you want the system to work.

By , EUbusiness, 11/24/2015

MarketMinder's View: Take this poll, which showed 52% of respondents favored leaving the EU, with many grains of salt. One, it had no “undecided” option—a competing poll, which did, had results of 43% for leave, 40% for stay, and 17% undecided. Two, it’s early. The referendum might not happen for two years, and with the government’s negotiations with Brussels on reform just beginning, voters have no idea what their eventual choice will look like. Three, as early polling in Scotland’s and Quebec’s independence campaigns showed, folks usually overstate their tendency to vote for change this far ahead of a vote, when it’s a hypothetical idea and they aren’t confronted with real-world implications. On voting day, when forced to weigh the consequences of a change, the status quo often seems much more enticing. So we wouldn’t read much of anything into any polls on the “Brexit” referendum until the vote is much, much closer. (And even then, pre-election polls have a dismal recent history.)

By , CNNMoney, 11/24/2015

MarketMinder's View: And then they rose a bit, underscoring localized conflicts’ long-running inability to sink stocks for long. Of course, this is all making way too much of intra-day volatility, so consider these charts instead.

By , The Washington Post, 11/24/2015

MarketMinder's View: This fun piece, which solicits names for the circa-Thanksgiving shopping extravaganza that no longer includes just Friday (our favorite: “The day I get to trample someone online to save 8 bucks on a Nespresso”), makes a pretty good point—and one all investors should keep in mind this holiday season. Black Friday gets all the hype, but it is increasingly less important in the grand scheme of things. Full-season sales matter more, and full-year sales matter even more than that. We’d advise against drawing big conclusions, good or bad, from one weekend’s totals.

By , The Telegraph, 11/24/2015

MarketMinder's View: So take BoE chief Mark Carney’s latest guidance on interest rates with a grain of salt, as his ever-changing jawboning has long since earned him the nickname of Britain’s “unreliable boyfriend.” We don’t like ad hominem arguments, mind you, but the recent history here speaks for itself. Anyway, what really caught our eye here was the recent spike in unsecured personal loans, which fall under that eyebrow-raising household debt. We have to wonder whether these loans are really, truly personal. After all, small business lending is still in the doldrums, and with yield curves flatter this year, banks don’t have much incentive to take the added risk. But what’s to keep a small business owner from getting a loan in their own good name, mentally accounting for it against their business’s future revenue, and plowing the proceeds of that loan into their business? We can’t help but wonder if at least some of these personal loans are really small business loans in disguise. Where there is a will, there is a way.

By , Financial Times, 11/24/2015

MarketMinder's View: Capping a seven-week saga of electoral uncertainty, Portugal’s President tapped center-left Socialist Party leader António Costa as Prime Minister. The Socialists will head up a minority government that relies on the far-left for Parliamentary support. Some fear this will make Portugal U-Turn and lose its status as bailout success poster-child, but that seems unlikely. Costa has vowed to abide by EU budget treaties and Portugal’s existing commitments, and his party’s spending goals aren’t radically different from the status quo—this isn’t Syriza 2.0. Also, minority governments are inherently unstable, and gridlock will likely forestall radical change. There probably isn’t much politicians can do to disrupt Portugal’s nascent, private-sector-led recovery.

By , Bloomberg, 11/24/2015

MarketMinder's View: Consumer spending rose 0.6% q/q and imports rose 1.1%, while export growth slowed to 0.2%. But GDP math (wrongly) counts imports as negative, even though they signify domestic demand, so net trade detracted from growth. Overall, Germany’s economy is in better shape than that headline figure of 0.3% q/q GDP growth would imply.

By , Financial Times, 11/24/2015

MarketMinder's View: Yes, world trade has slowed, but for investors, there are a few mitigating factors. One, this report measures trade in goods only, not trade in services—and the services trade is increasingly important for the US, UK and other developed economies. Two, this is a coincident economic indicator, not a leading one, and it doesn’t necessarily mean trade will stay weak or growth will weaken from here. The future determines the future, not the past. Three, stocks have long been aware of this slowdown and are already busy looking to the future, which actual leading indicators suggest should feature continued growth.

By , The New York Times, 11/24/2015

MarketMinder's View: The Fed official in question is Governor Daniel Tarullo, the central bank’s regulatory tsar and an overall big proponent of higher capital requirements. He didn’t give many details on what “stricter” means, but candidates include altering capital rules, raising the minimum capital buffer to pass the test, and giving the biggest banks an extra capital surcharge. Ostensibly, the goals are twofold: Preventing big bank failures and encouraging big banks to shrink. The first is frankly impossible—you can’t derisk the financial system, as banks are in the business of taking risk. Every new loan is risk. And there is no evidence marginally higher capital requirements will prevent a big bank from failing in a panic. It would only delay the inevitable once capital begins to flee. The second goal is a solution in search of a problem, as “too big to fail” wasn’t the problem in 2008. Smaller, focused institutions failed, and creating more megabanks through mergers was regulators’ chosen fix. As for the impact of stricter tests on banks, they are an incentive to hoard capital, which could mean fewer dividends and less lending, but it’s too early to quantify and handicap.

By , CNN Money, 11/23/2015

MarketMinder's View: Sorry Virginia, there is no Santa Claus (rally). But before accusing your friendly MarketMinder writers of being a bunch of Grinches, we remind investors that we are indeed bullish for the foreseeable future—the global economy’s strength remains underappreciated, the governments of many strong, developed economies are gridlocked and investor sentiment is becoming increasingly optimistic. Note, that rationale does not include “past data say stocks have gone up around a certain time of the year.” Seasonal patterns aren’t real, and in the short term, sentiment could make stocks swing hard in either direction for any or no reason. Basing investment decisions on a very short-term outlook won’t get you far at all. Also, this is only about half right on monetary policy. We agree markets will be best off if the Fed just gets on with hiking, but it’s erroneous to call quantitative easing an automatic positive in Europe (or the US). See this for more.

By , The Wall Street Journal, 11/23/2015

MarketMinder's View: So we award a point for the several nifty graphics in this piece (make sure your Internet browser is up-to-date). Unfortunately, we have to dock that point and administer several negative points for the many misperceptions shared here. Look folks, “experts” have been harping on about scary demographic trends for a long while now—the (false) theory of secular stagnation, which has been around since the 1930s, is rooted in those fears. However, demographics aren’t a cyclical economic driver—they move far too slowly to materially impact markets or derail (or boost) economies. Many point to Japan as an example of the damage demographics could cause to growth, but Japan’s struggles are due more to its byzantine labor code and restrictive immigration policies, which prevent the country from tapping the resources it needs to restore sustainable growth. Forecasting how the world will look in a year is tough. Projecting it a decade or beyond? Near-impossible, and a bit pointless, in our view, since so much will change in ways mankind can’t fathom today. We trust human ingenuity—fostered by capitalistic-driven societies—to create solutions to our future problems, much as they always have.          

By , Bloomberg, 11/23/2015

MarketMinder's View: On Sunday, Buenos Aires mayor Mauricio Macri won the runoff election against Daniel Scioli, the ruling party’s candidate of choice. Investors have reacted elatedly at the news, as Macri has pledged to reverse the former administration’s restrictive and damaging economic policies, ranging from seizing private property and adopting price controls to intentionally defaulting in order to avoid paying foreign debt holders who didn’t participate in a 2005 debt restructuring. Now, as promising and exciting as the new administration’s plans may sound, it is important to weigh reality against expectations. As this piece highlights, its challenges are substantial, from low foreign reserves to high double-digit inflation—private economists estimate it to be more than 20%. One man can’t change a country’s economic reality overnight, and Macri must also deal with a divided legislature, which has plenty of members still loyal to the former administration. It remains to be seen how successful Argentina’s new president will be, so we suggest managing your expectations.    

By , CNN Money, 11/23/2015

MarketMinder's View: The anecdotes here—that oil tankers are piling up at ports around the world because of excess oil supply—are further evidence of the current supply and demand reality facing oil (and commodities overall). With the Organization of Petroleum Exporting Countries (OPEC) determined to maintain its market share and other oil-producing countries like the US and Russia adding to the glut, the world is awash with black gold, keeping prices low. While these are headwinds toward Energy companies, other sectors benefit from low energy costs. Cheap oil can be a nice boost, especially for consumption- and service-driven economies.   

By , Bloomberg, 11/23/2015

MarketMinder's View: Here is the alleged mistake: By waiting too long to raise rates, the Fed may have put the US on the road to recession. Here is the (flawed) rationale: Monetary conditions right now are too easy, which will overheat the economy, and since investors will expect weak inflation because of the strong dollar, the Fed will have to tighten drastically to stabilize inflation—and that will boost joblessness to a level large enough to cause a recession. Whereas if they’d hiked earlier, they could take a smoother, more gradual path. If you’re confused with that line of logic, we are right there with you. As Milton Friedman said, inflation is “always and everywhere” a monetary phenomenon. It isn't driven by folks’ expectations of the future. Plus, today’s primary deflationary pressure isn’t contracting money supply or falling bank lending, but rather, low energy prices. Core inflation, which excludes volatile food and energy prices, suggests inflation remains benign.

By , Calafia Beach Pundit, 11/23/2015

MarketMinder's View: And if you want proof that the aforementioned bank lending isn’t contracting, here is some evidence.

By , EUbusiness, 11/23/2015

MarketMinder's View: The eurozone’s flash composite Purchasing Managers’ Index (PMI) hit 54.4 in November—the highest in four-and-a-half years—as both manufacturing and services beat expectations. While PMIs aren’t perfect, they are another data point indicating the eurozone’s choppy, uneven streak of growth continues. As an aside, France’s flash services PMI missed expectations, which many attributed to the Paris terrorist attacks on November 13. While some fret weaker consumer spending in the future for the eurozone’s second-largest economy, history suggests that declines in spending are usually temporary.    

By , The New York Times, 11/20/2015

MarketMinder's View: Yes, some banks are saddled with high-yield corporate bonds that they’ve been unable to sell, and they’ve had to take some writedowns. But this is far, far, far from a 2008 repeat. One, these are relatively liquid assets, designated as for-sale on their balance sheets rather than held-to-maturity—banks and investors are all well aware of the risk of volatility and loss, and banks have provisioned accordingly. Two, the estimates of potential losses across the industry are about $600 million, which sounds big, but is peanuts compared to the $2 trillion in unnecessary writedowns banks took in 2008. It is also peanuts compared to the amount of capital these banks have. Also, revenue in these banks’ other business units could easily offset these paper losses. (And, as the article notes, the securities in question could rebound. Volatility cuts both ways.)

By , The Wall Street Journal, 11/20/2015

MarketMinder's View: H.R. 3189, the Fed Oversight Reform and Modernization Act of 2015, would do four things. One, it would oblige the Fed to establish a “rule” of its own choosing to set interest rates, share that rule with the public, and let people know whenever they deviate from the rule and why. Two, it would make the Fed conduct a cost/benefit analysis for all regulations. Three, it would rein in extraordinary measures the Fed could use to lend to liquidity-starved banks during a crisis. Four, it would make the Fed add some information to the Industrial Production and Capital Utilization Report: an estimate of how much industrial production was directly enabled by the Export-Import Bank, and an equivalent for all foreign nations with similar development or trade-financing banks. Overall, this is a mixed bag. The first provision, on rule-based monetary policy, would increase transparency and perhaps consistency, which could ultimately shore up the Fed’s credibility if executed correctly. That’s a big if, but we could see it working out ok, and it is far preferable to other iterations of this provision, which would have written the rule for the Fed. Comparatively, this preserves much more of the Fed’s independence. Cost/benefit analyses for regulations are also a fine idea. The third part gives us the heebie jeebies, as the Fed was created in 1913 to serve as lender of last resort, and that is a big reason why financial panics became a rare breed. They have been far from perfect (and largely abdicated in the 1930s and 2008, escalating those panics unnecessarily), but this seems like a solution seeking a problem. And the fourth part, about the Export-Import Bank, is just bizarre and could ultimately heighten calls for protectionism. Anyway, there might not even be a point to spilling all these pixels, because the House often passes legislation that subsequently goes nowhere fast, and the Senate has yet to take this up. It’s also worth mentioning the bill received zero Democratic votes, and if the Senate is similarly divided on the issue, it will probably die. If its likelihood of becoming law improves, it will be worth considering its potential market impact, but for now, it’s more an academic question.

By , The Telegraph, 11/20/2015

MarketMinder's View: No knock on the ECB chief, whose legend is based on a Merlin-like ability to placate investors with grand phrases like “do whatever it takes,” but there is actually not a lot the ECB can do to bump up prices right now. More quantitative easing probably won’t do it, as bond buying flattens the yield curve, which is disinflationary. Stopping quantitative easing would help, because it would probably steepen the yield curve and speed money creation. But even then, the biggest drag on inflation is ultra-low oil and commodities prices. Prices are low because of an astronomical supply glut, and short of sabotaging oil wells and supply lines, there is really nothing a central bank can do about that. Unless Draghi and friends can pull a Jedi mind trick on OPEC oil ministers, Vladimir Putin and the entire US shale industry, then this is really a nonstarter. Which is fine, because developed-world consumers and non-Energy firms largely benefit from cheap energy.

By , Reuters, 11/20/2015

MarketMinder's View: Indeed, it isn’t—it’s just the result of supply trends in oil, natural gas and mining. “Very high capacity was built in anticipation of a commodity super-cycle, and the free-fall does not indicate pending doom, said [Ed] Yardeni, founder and president of Yardeni Research Inc, at the Reuters Global Investment Outlook Summit in New York. ‘I don't think it's demand that's falling off a cliff,’ he said. ‘Because so much capacity was built into the commodity space anticipating a super-cycle, that now that all those assumptions have fallen apart, guess what? They can't get out of their own way.’” In other words, they’re all still producing like crazy—some revenue beats no revenue when you’ve spent years building projects with high up-front costs—and it will likely be some time before supply responds to low prices.

By , A Wealth of Common Sense, 11/20/2015

MarketMinder's View: Unrealistic expectations and flawed assumptions about how markets work can severely impact investors’ ability to reach their long-term goals. Here is an overall great list of some of the biggies. The more you know!

By , Reuters, 11/20/2015

MarketMinder's View: The “cost” is too much demand, which strikes us as a fantastic problem to have and a good sign for the UK economy. We get that some worry about the impact of deep discounts on retailers’ margins, but we see that same fear annually in the US—and it typically ends up far better than expected.

By , The Telegraph, 11/20/2015

MarketMinder's View: We highlight this bit of Friday fun as an example of how inflation statistics can have trouble measuring actual price changes over time. Take the videogame example. Today, a snazzy system with wireless controllers, spiffy graphics and incredible computing power costs about £300. 30 years ago, a first-generation console with 8-bit graphics, a tinny four-note midi soundtrack and simplistic gameplay cost £130, which is £400 in today’s pounds sterling. Sooooo…is that inflation or deflation? Beyond that, this is just a testament to the miraculous powers of technology and capitalism to make products like calculators and mobile phones cheaper and far more powerful over time. Want to own that? Then own stocks!

By , The Wall Street Journal, 11/20/2015

MarketMinder's View: Nope, the Treasury’s latest tax code reinterpretation probably won’t stop US firms from buying smaller foreign competitors and adopting that foreign address to avoid double taxation on non-US earnings. It is largely window dressing, and this piece does a nice job of explaining why. (SPOILER: It merely winnows down the number of targets for US firms seeking to invert and doesn’t monkey with tactics firms use to bring capital back to the US to invest here.) So overall, this isn’t really a setback for Corporate America. But, the more government agencies try to tinker with written rules at the margin, the more risk aversion it could cause, and left unchecked it could weigh on investment. We aren’t anywhere near that, but it is a potential risk few notice.

By , Bloomberg, 11/20/2015

MarketMinder's View: Pre-election polls have become increasingly inaccurate in the past few years as the polling industry has struggled to keep up with changing technology and consumer preferences. For example, pollsters rely on landlines (due to FCC guidelines restricting the autodialing of cellphones and folks’ ability to screen using caller ID), but fewer folks have them. A “herding” mentality has also kept some outfits from publishing outlying results that ended up being accurate. And online polling hasn’t hit its stride yet, as pollsters have struggled to get demographically representative random samples of likely voters. Most online poll respondents volunteer, which messes with the integrity of the endeavor. But one privately held tech firm is trying to change all that and has made strong inroads into online polling, with striking results. Only time will tell whether their methods are consistently accurate and can help the entire polling industry transform, but it’s certainly worth keeping an eye on, particularly as we get closer to the 2016 election and markets begin trying to handicap the outcome.  

By , Financial Times, 11/20/2015

MarketMinder's View: This obituary for the UK’s coal industry—whose fate was sealed yesterday, when the Energy Secretary announced plans to shut all coal-fired power plants by 2025—doesn’t have much market takeaway. But it is an interesting tour through the industry’s history in Britain and an object lesson in how economies evolve over time, with old industries dying and new ones taking their place. Coal has been fading for decades, with its demise assisted by both state intervention on behalf of the industry and, later, privatization. The fallout made life hard for coal mining communities throughout Wales, Yorkshire and the north, as the interference with the natural evolution of such things left a sudden void. In Wales especially, it took a whole generation for new industries to begin taking coal’s place. But free-market economies are resilient, as are the people that power them, and Wales now has some of the fastest-growing tech hotspots in the UK. Y Ddraig Goch ddyry cychwyn!

By , Reuters, 11/20/2015

MarketMinder's View: Here is an example of how protectionism ultimately hurts consumers, as well as an example of why we’d encourage investors not to get overly excited about the Trans-Pacific Partnership (TPP) free trade agreement. Japan has a chronic butter shortage. Its dairy farming industry is shrinking as farmers age out and young folks decline to pick up the family business. Ordinarily, countries would import dairy products to fill the void, but Japan has strict dairy import caps and high tariffs to protect these increasingly nonexistent dairy farmers. Japanese folks had hoped TPP would fix this, and it did indeed ease the import cap—but the new one is still only 5% of annual Japanese butter consumption, and tariffs for imports beyond that amount remain sky high. This is one of many instances of protectionist loopholes in TPP, which—for all its benefits—doesn’t totally free trade among these 12 nations. It’s still a positive, but a very long-term one (should it ever take effect—a big question mark given political opposition in the US and elsewhere), and not a material near-term economic or market driver.


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Global Market Update

Market Wrap-Up, Thursday, November 26, 2015

Below is a market summary as of market close Thursday, 11/26/2015:

  • Global Equities: MSCI World (+0.4%)
  • US Equities: S&P 500, as of 11/25 (-0.0%)
  • UK Equities: MSCI UK (+1.3%)
  • Best Country: Ireland (+2.0%)
  • Worst Country: Singapore (-0.2%)
  • Best Sector: Telecommunication Services (+0.7%)
  • Worst Sector: Information Technology (+0.1%)

Bond Yields: 10-year US Treasury yields were unchanged at 2.24%. (Data are as of 11/25.)

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.