Fisher Investments Editorial Staff
Media Hype/Myths, Interest Rates

Words, Words, Words

By, 09/16/2014
Ratings73.928571

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

MarketMinder Minute | Can Geopolitical Conflict Knock Stocks?

By, 09/15/2014

This week’s 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!

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
Deficits

A Surplus of Fun Factoids About the Federal Deficit!

By, 09/12/2014
Ratings953.936842

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
Ratings394.166667

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
Ratings434.383721

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
Ratings993.964647

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
Ratings323.953125

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
Ratings584.439655

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:

Fisher Investments Editorial Staff
Into Perspective, Trade

Gauging the Global Economy in August

By, 09/05/2014
Ratings544.333333

The recipe for a big, eyeball-grabbing market-related news story typically goes a little like this:

  1. Take a smidge of geopolitical conflict, mysterious central bank policies few really grasp, legislation and single stock news like a merger or earnings.
  2. Do not attempt to scale, explain the actual application or put in any sort of context, historical or other.
  3. Draw grandiose stock market conclusion.

It usually does not go a little like this:

  1. Take a smidge of manufacturing data, add a dash of service sector results, sprinkle in some trade numbers and beat on medium speed until you have some charts.
  2. Season with international data to taste.
  3. Put numbers in context with recent trends.
  4. Add a joke.
  5. Draw rational stock market conclusion.

So this article—which will indeed present a slew of data arguing the global economy is on overall solid footing—is not like anything you will have read this week, when central banks and so-called ceasefires garnered most attention. Yet it was particularly hectic for economic data crunchers, statisticians, press release writers and heavy consumers of economic data—and finance nerds like us. And that’s even before Friday’s US jobs data, which typically trigger a festival of statistical analysis, deep data diving and more.[i] Through Thursday, the week’s data show that what folks aren’t focusing as much on is a global economy that’s growing just fine, thank you very much. Investors would be well served to take note.

Fisher Investments Editorial Staff

The Fed Votes Y-E-S on the LCR

By, 09/04/2014
Ratings174.176471

The US took another step toward adopting 2010’s international banking standards (aka Basel III) Wednesday, when the Fed released and approved the final Liquidity Coverage Ratio (LCR)—a new capital requirement designed to keep big banks afloat during a run. Like most of Basel III (and Dodd-Frank), it probably isn’t the prophylactic regulators presume, but on the bright side, it shouldn’t create headwinds for Financials or bank lending—and its finalization offers banks a bit of relief from lingering regulatory uncertainty.

Like all of Basel III, while regulators globally agreed to the LCR’s basic framework, each country has some latitude in how they design their own rule. The Fed’s initial proposal, released last October, was tougher than the Basel standards—like Basel, it required big banks to keep enough “high quality liquid assets” (HQLA) to cover 30 days of expected withdrawals and operating costs during a bank run (another too-big-to-fail “fix”), but the HQLA pool was smaller, and the phase-in window was cut from four years to two. The Fed also proposed a separate LCR for midsized banks, requiring them to hold enough HQLA to cover 21 days of panic.[i]

The final rule—approved by the Fed and pending with the FDIC and OCC—is largely in line with the original. The biggies—banks with $250 billion or more in assets or $10 billion-plus in on-balance sheet exposure to foreign markets (or foreign subsidiaries with at least $10 billion on the books)[ii]—must have a 30-day buffer. The phase-in schedule for the biggest is also largely the same—the ratio must be 80% by January 1, 2015; 90% by January 1, 2016 and 100% from January 1, 2017 on. But the Fed wasn’t entirely deaf to banks’ requests for leniency, as there are some key differences:

Elisabeth Dellinger

One Fuzzy, Backward-Looking Series to Rule Them All

By, 09/04/2014
Ratings234.130435

Will a new index help you tell if the unemployment lines are about to get shorter? Photo by PhotoQuest/Getty Images.

2008’s financial crisis broke a lot of things. Like bank funding markets. Investor sentiment. Fed forecasting models. Wall Street. Maybe Ben Bernanke for like half a day. A lot of folks are sure it broke something else: labor markets. Particularly the unemployment rate’s ability to measure them—from pundits to Fed head Janet Yellen, the consensus seems to be, “It doesn’t work anymore![i] So thankfully for the world, the Kansas City Fed came to the rescue last week, unveiling its shiny new “Labor Market Conditions Indicators” (LMCI)—24 labor market stats mashed into one. It already has a gold star from Yellen, and its developers claim it has magical labor market forecasting powers.[ii] Please do yourself a favor and do not believe this claim or allow it to impact your views on stocks. Markets look forward, and you can’t get much more backward-looking than a composite of 24 backward-looking, late-lagging variables.

Fisher Investments Editorial Staff
Media Hype/Myths

The Myth of September's Siren

By, 09/03/2014
Ratings693.963768

Summer’s unofficial end brings students back to school and, according to the punditry, money managers back to markets. Upon their return, we’re told, they don’t like what they see, frown and sell—repositioning assets to coincide, we guess, with expectations the leaves will change.[i] Hence, claim some, September is bad for stocks, and you should prepare accordingly! But in our view, investors shouldn’t fret September’s historically weak average—this is coincidence without causality, and either way, past performance is not indicative of future returns.  

It’s true, since 1928, September has the highest frequency of negative months—46, above the average of 34 for the other 11 months.[ii] September also has the worst historic average return of any month (Exhibit 1).

Exhibit 1: S&P 500 Price Index Monthly Averages

Subscribe

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

Recent Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

Words, Words, Words

By, 09/16/2014
Ratings73.928571

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

read more
Fisher Investments Editorial Staff

MarketMinder Minute | Can Geopolitical Conflict Knock Stocks?

By, 09/15/2014

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

read more
Elisabeth Dellinger
Into Perspective

Shinzo Abe Walks Into a Bar

By, 09/15/2014

Some investing lessons from a pub master and a Prime Minister.

read more
Fisher Investments Editorial Staff
Deficits

A Surplus of Fun Factoids About the Federal Deficit!

By, 09/12/2014
Ratings953.936842

The deficit is way down, to a chorus of silence.

read more
Fisher Investments Editorial Staff
Capitalism

There Is Nothing About Terror to Fear But Fear Itself

By, 09/11/2014
Ratings394.166667

As we remember the events of September 11, 2001, we take a look back at how terrorism has historically impacted stocks.

read more

Global Market Update

Market Wrap-Up, Fri Sept 12 2014

Below is a market summary (as of market close Friday, 09/12/2014):

  • Global Equities: MSCI World (-0.4%)
  • US Equities: S&P 500 (-0.6%)
  • UK Equities: MSCI UK (+0.1%)
  • Best Country: Denmark (+1.2%)
  • Worst Country: New Zealand (-1.6%)
  • Best Sector: Consumer Discretionary (-0.2%)
  • Worst Sector: Energy (-1.2%)
  • Bond Yields: 10-year US Treasurys rose .06 to 2.61%

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.