Fisher Investments Editorial Staff
Interest Rates, Media Hype/Myths

The FOMC’s Rorschach Test

By, 09/19/2014
Ratings303.35

Wednesday was one of those days the financial press just goes nuts for. They live blog. Feature exclusive video. Previews lead up to it. Prognostications and analyses, factboxes[i] and listicles detail what you should take away. It, we are told, is a really big deal. However, in our view, “It” is really just noise, and something investors would be well served to tune out.

In this case, “It” is the Federal Reserve’s policy statement and the presser that takes place at the end of the biquarterly meeting of the Federal Open Market Committee, the (usually) 12-member committee that sets US monetary policy.[ii] The meeting has taken on a new aura in recent years, not because (as we are often reminded) the Fed did a lot of stuff in the years after 2008. But rather, because one of the specific things it did was release individual Fed member forecasts of expected economic conditions, unemployment and interest rates. The media loves forecasts, especially coming from a mysterious body so widely claimed to sit at the helm of the US economy, steering output and markets along the way. But this was a media dustup, pure and simple, and when the release of September’s statement came, markets basically yawned. And moved on.

The run up to the meeting was rife with talk of “risky” semantics—a will-they-or-won’t-they debate over whether the words “considerable time” would be in the statement. As in, would the statement keep this Hemingway-esque phraseology:

Fisher Investments Editorial Staff
Emerging Markets, Into Perspective

The Li Keqiang Put

By, 09/18/2014

Beijing (and China broadly) likely continues to benefit from the government’s growth-and-reform balancing act. Source: Feng Li/Getty Images.

“New normal China is less interested in growth rates and more interested in quality and efficiency of growth: pushing forward reform, adjusting structure and trying to benefit the people.” So said China’s state-run media in a piece called “No Need to Hype China’s Weak Figures,” published Wednesday after a string of dismal (by Chinese standards) data and quite in keeping with what Premier Li Keqiang said at last week’s World Economic Forum: “We are restructuring instead of expanding the monetary supply.” He also said growth was still in a satisfactory range despite some noticeably weaker figures in August. And yet, on Wednesday, the top headline on state-run China Daily’s English language website was this: “PBOC Injects $81b into banks.” Then, on Thursday, the PBOC cut banks’ short-term borrowing costs. All of which smells a lot like monetary stimulus. Yes, it seems China is sticking with its standard approach: Talking up reform efforts and trying to manage folks’ expectations while quietly ensuring the economy has just enough oomph to meet their target.

Fisher Investments Editorial Staff

A Buyback Boost?

By, 09/17/2014
Ratings443.920455

Who’s buying equities these days? If trade volumes are any indication, not many folks—at least according to headlines.[i] Which means, by Fleet Street logic, if stock buybacks are surging, corporations must be the only buyers—and without them, the bull would be in trouble, lacking buying power to drive stocks forward. But this theory ignores some key things, like how markets work—and how buybacks really influence them. Stock buybacks are groovy, but they aren’t the only thing driving this bull market.

Buybacks have been hot for this entire bull market, but 2014 has been especially gangbusters. US corporations bought back $338.3 billion of stock in the first half of 2014, the most of any six-month period since 2007. The number of companies with a repurchase program is the highest since 2008. At the same time, trading volumes are low, so headlines put two and two together (they think) and say if buybacks stop, the bull’s out of gas because regular folks just aren’t buying. 

This is sheer fallacy. Corporations aren’t the only buyers. They may get the most headlines, but with 329 and 164 billion shares changing hands on the NASDAQ and NYSE, respectively, year to date,[ii] it’s clear many, many others are trading too. The $338 billion in buybacks is a teensy share of the $6.5 trillion[iii] worth of shares that have traded hands in the NYSE this year alone—to say nothing of the many, many more that traded in the dozens of other trading venues in the US. Yes, volume has decreased in recent months—August had the smallest share volume in both the NASDAQ and NYSE for the year[iv]—but markets don’t need lots of activity to generate big moves.

Fisher Investments Editorial Staff
Media Hype/Myths, Interest Rates

Words, Words, Words

By, 09/16/2014
Ratings244.229167

Janet Yellen shares a moment with ECB chief Mario Draghi at last month’s banker powwow in Jackson Hole. (Not pictured: The red pen Yellen might use to make some edits to the Fed’s policy statement.) Photo by Bradly Boner/Bloomberg via Getty Images.

So said Hamlet to Polonius in Act II, Scene 2, when asked what he was reading as he wandered the castle halls with his nose buried in parchment. We’ve always felt the same way about the forward guidance in the Fed’s meeting statements—the Fed’s supposed attempt at previewing future moves. They aren’t policy promises or prophesies. They’re just a bunch of words written in a language called Fedspeak, deliberately fuzzy so they don’t back the Fed into a corner. So we’re a wee bit puzzled by the punditry’s handwringing over the mere possibility of the Fed removing the words “considerable time” from its meeting statement this week. As in, changing the sentence saying, “The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends …” Whether or not those two words go bye-bye, it says nothing about when rates actually will rise.

Fisher Investments Editorial Staff

Does the US Stand Taller With a Strong Dollar?

By, 09/15/2014
Ratings84.875

Cue the John Phillip Souza! The dollar is on the march higher lately, strengthening against most major currencies worldwide. And according to some, that’s proof the US economy has a leg up over the rest of the world! But currency strength or weakness doesn’t tell you much about economic vibrancy—and it tells you nothing about stock market direction. Our bullish outlook has nothing to do with the expected rise or fall of the greenback.

Currencies only move relative to one another, so arguably the best gauge of what “the dollar is doing” is the Broad Trade-Weighted US Dollar Index, which tallies the moves of the dollar versus 26 other major currencies, weighted by our total trade in each. Since reaching its low for the year on July 9, the dollar has risen fairly consistently versus most currencies. The Broad US Dollar Trade Weighted Index is up in seven of the last nine weekly reads, with the currency up over 2% during the span.[i] A narrower gauge measuring the USD against six currencies is up more, over 5% in the same period.[ii] (Unsurprisingly, most media accounts cite this second, bigger figure. More eye catching, we guess.)

The punditry’s explanations for these moves are many and varied. Some cite “political shocks” elsewhere—Iraq, Ukraine, the Scottish referendum—and claim these events made the dollar look that much greener. Others cite the eurozone’s uneven recovery. The US is their “safe haven,”[iii] if you will, from these global trouble spots. To many, a strong dollar also makes the US economy far more attractive than its peers.  

Elisabeth Dellinger
Into Perspective, Personal Finance

Shinzo Abe Walks Into a Bar

By, 09/15/2014

This is not a picture of Shinzo Abe walking into a bar, but we like how jolly he looks. Photo by Matt Cardy/Getty Images.

Here is a wacky idea for Shinzo Abe, the Prime Minister on a quest to revitalize Japan’s economy: Fly to the UK and have a beer or two with a fellow named Tim Martin.

Fisher Investments Editorial Staff
MarketMinder Minute

MarketMinder Minute | Can Geopolitical Conflict Knock Stocks?

By, 09/15/2014
Ratings44.625

This MarketMinder Minute looks at the effects of geopolitical conflicts on the stock market.

Interested in market analysis for your portfolio? Why not download our in-depth analysis of current investing conditions and our forecast for the period ahead. Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

Fisher Investments Editorial Staff
Deficits

A Surplus of Fun Factoids About the Federal Deficit!

By, 09/12/2014
Ratings983.923469

When your next dinner party conversation turns, inevitably, to public finance, here are a few fun factoids you can “Wow!” all your guests with.

Thursday, the US Treasury reported that with 11 months of fiscal year 2014 in the books, the US deficit fell again on a year-over-year basis, to $589.5 billion—a 58% reduction from the peak, fiscal 2009’s $1.42 trillion. August 2014’s deficit was $128 billion, and the news media picked up the story, reporting it for what it is—a 13% year-over-year reduction in the deficit and just moved on. Of the last 30 Septembers, 24 posted a monthly surplus—so it seems likely even that $589.5 billion figure could drop. Perhaps to match the Congressional Budget Office’s (CBO’s) $506 billion forecast made last month! Absent were fears the US would morph into the next Greece, without the fun ruins.[i] Absent also were claims American austerity would crush demand. So what gives? Simple—sentiment is slowly catching up with reality, and the deficit is one way to see it.

In fiscal year 2007, the US federal government spent $162 billion more than it took in. But when recession arrived the following fiscal year, deficits rose to $455 billion, based on a slight dip in revenue and increased spending. The following year, fiscal 2009, crisis response boosted spending sharply, in the form of the American Recovery and Reinvestment Act (fiscal stimulus) and spending associated with other crisis response programs. Meanwhile, the feds’ tax receipts fell by $419 billion. The combination resulted in surging deficits, which peaked at more than $1.4 trillion. Exhibit 1 shows the progression from Fiscal 2007’s pre-recession low through the present.

Fisher Investments Editorial Staff
Capitalism, Geopolitics, Media Hype/Myths

There Is Nothing About Terror to Fear But Fear Itself

By, 09/11/2014
Ratings434.232558

Thirteen years ago Thursday, Americans were tragically reminded terrorist attacks can happen at any time, without warning, and bring devastating loss of life. This is always true, but perhaps more on folks’ minds now with several Western leaders warning of the threat from US and EU passport holders fighting with ISIS in Iraq and Syria. For investors, being mentally prepared is important. We aren’t predicting an event (there isn’t any way to) and we pray the day never comes—but being aware of the possibility and potential market impact is key to maintaining discipline. Especially because your instinct might very well be to sell—yet history shows any market impact is typically fleeting.

Many folks take it as given that terrorist strikes on western soil are deeply negative for stocks—after all, the S&P 500 Price Index lost -11.6% during the first five trading days when markets reopened after 9/11, and full-year returns were -13%. Yet that -13% has far less to do with 9/11 than with the bear market that began nearly 18 months prior, on March 24, 2000, as the Tech Bubble burst. Stocks were down -17.3% in the year through September 10, 2001—before the planes hit. They actually rallied between 9/21 and the end of the year, as shown in Exhibit 1.

Exhibit 1: September 11th Attacks

Fisher Investments Editorial Staff

Running of the Bears?

By, 09/10/2014
Ratings454.366667

Evidently, bears just became an endangered species—Wall Street bears, that is. Some notable long-time pessimists are changing their tune, leading some to wonder if the “capitulation of the bears”[i] typical of euphoric peaks is starting. It’s a fair question, though the fact folks are thinking about this is itself a sign sentiment is in check. Moreover, all it takes is some simple math to see these newly minted bulls aren’t exactly running wild with optimism.

In a full-fledged capitulation, you usually see some long-time permabears throw in the towel and jump on the super-bull bandwagon. They’re tired of being wrong year after year as stocks continually defy their “look out below!” warnings of doom and gloom. They’re tired of being made fun of by an increasingly optimistic punditry. So they give up and start forecasting 30% up years with the rest of them—a pretty fair sign sentiment is out of whack.

This isn’t what’s happening today. Though some experts are sunnier, plenty of doom and gloomers remain, and they aren’t yet the laughing stock of Wall Street. They’re journalists’ go-to sources for quotes to fill articles highlighting potential risks or threats, and they command reverence.  

Emily Dunbar

Three Investing Don’ts for a Maturing Bull Market

By, 09/10/2014
Ratings1453.858621

While euphoria is far off today, it’s not too early to consider three key mistakes investors all-too-often make when it arrives. Source: Bloomberg/Getty Images.

If history is any guide, this bull market likely ends with investors becoming too euphoric about stocks’ prospects—not seeing that expectations of a shimmering financial future outpace a dimming economic reality. This doesn’t appear to be all that close today, but the time to prepare yourself to shun over-optimism isn’t when it actually arrives, it’s beforehand. Now, this doesn’t mean you should squirrel away investible cash waiting for the drop. It just means you shouldn’t chuck your disciplined investing strategy due to emotion—on the upside or down. Here are a few principles to help guide you as this bull market matures.

Fisher Investments Editorial Staff
Media Hype/Myths

And Now for Something Completely Different

By, 09/09/2014
Ratings333.954545

Or not. Because, let’s face it, Monday’s financial news was dominated by a bunch of things that have dominated it for months. Like Scotland’s upcoming independence vote, China’s wobbly economic data, politicians pledging to do something about US corporate inversions, Japan’s struggling economy and yet more EU/Russia sanction talk. Headlines might promise some of these developments are game-changing, because that’s how you get eyeballs, but in our view, none should cause long-term investors to radically shift course.

We start in Scotland, where a weekend poll showed the “yes” vote pulling ahead for the first time, 51 to 49—and all manner of speculating and hand-wringing followed. Never mind that the pollsters simply tossed out the still-sizeable chunk of undecided voters, making its findings a wee bit dubious. And never mind that the other five major polling sources still show a sizeable (though narrowing) lead for the unionists. One poll was good enough to kick another round of “what if?!” speculation into overdrive—with much of it speculating on the political future of Prime Minister David Cameron and the opposition Labour Party (much of whose traditional support base is in Scotland) should independence win.

Last week, we wrote:

Fisher Investments Editorial Staff

ECB’s Latest Move Spurs Currency War Chatter

By, 09/08/2014

In a much-anticipated move last Thursday, ECB President Mario Draghi announced another set of monetary measures designed to reinvigorate the eurozone’s economic recovery—including a bond-buying program many call quantitative easing (QE). The euro responded by hitting a 14-month low, leading some to think a weaker currency is Draghi’s ulterior motive—and bond buying is his shot in an often-feared, rarely seen “currency war.” But a currency war requires two participants, something that hasn’t happened over this expansion despite frequent worries—and considering a weak currency isn’t an economic panacea, it’s tough to imagine this time going any different.

Ostensibly, the ECB’s goal is to get money moving again. The bank cut its three main interest rates by 10 basis points, bringing the central bank deposit rate to -0.20%. Theoretically, charging banks to hold excess reserves at the ECB is supposed to stimulate lending, consumption and business expansion. But the rate has been negative for three months, and banks have simply shifted reserves to higher-yielding assets while continuing deleveraging.[i] Tiny rate tweaks likely won’t move the needle—which Draghi admitted, explaining the move was a technicality to bring all rates to their lower bound—ergo, bond buying, amount TBD, beginning in October and focusing on asset-backed securities (ABS) and euro-denominated covered bonds (debt backed by cash flows from loans held by the issuing bank).[ii] Draghi hasn’t called it QE, and unlike traditional QE, the ECB won’t buy government bonds, but the resemblance is striking, and the theoretical goal—boosting banks’ liquidity and lowering businesses’ and consumers’ borrowing costs—is the same.

However, others argue Draghi’s stated objective is a smoke screen, claiming this is actually a competitive devaluation, or more colloquially, a “currency war.” They claim Draghi wants to race other nations to get the (perceived!) weak currency edge in exports.

Talia Hosenpud

Five Reasons to Be Bullish

By, 09/08/2014
Ratings644.359375

Source: Getty Images/David Hogan.

Five and a half years in, the bull market is booming! Yet many believe stocks can’t zoom and a meltdown must loom. Headlines seem to be on permanent peak-watch—pointing to the end of quantitative easing (QE), "sky-high” valuations, charty mumbo-jumbo, complacency, old age (of the bull and investors), all-time highs and many more as the bull’s death knell. But, in my view, these are false fears—misinterpreted and too widely discussed to pack a nasty wallop. Especially when so much is propelling stocks upward. There are like 823,409,298,549,432,498[i] reasons to be bullish, but I’ll highlight five of them:

Subscribe

Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.

Recent Commentary

Fisher Investments Editorial Staff
Interest Rates

The FOMC’s Rorschach Test

By, 09/19/2014
Ratings303.35

It was a Fed-filled week, here’s a look back.

read more
Fisher Investments Editorial Staff
Emerging Markets

The Li Keqiang Put

By, 09/18/2014

What does China’s latest monetary policy move mean for investors?

read more
Fisher Investments Editorial Staff

A Buyback Boost?

By, 09/17/2014
Ratings443.920455

Are stock buybacks the only thing keeping this bull market afloat?  

read more
Fisher Investments Editorial Staff
Media Hype/Myths

Words, Words, Words

By, 09/16/2014
Ratings244.229167

Don’t waste your time overthinking Fed forward guidance—it is merely marketing spin. 

read more
Fisher Investments Editorial Staff

Does the US Stand Taller With a Strong Dollar?

By, 09/15/2014
Ratings84.875

Does a stronger dollar mean anything for the economy or stocks?

read more

Global Market Update

Market Wrap-Up, Thurs Sept 18 2014

Below is a market summary (as of market close Thursday, 09/18/2014):

  • Global Equities: MSCI World (+0.4%)
  • US Equities: S&P 500 (+0.5%)
  • UK Equities: MSCI UK (+1.0%)
  • Best Country: Norway (+1.5%)
  • Worst Country: Hong Kong (-0.5%)
  • Best Sector: Health Care (+0.8%)
  • Worst Sector: Utilities (-0.3%)
  • Bond Yields: 10-year US Treasurys rose .06 to 2.63%

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.