Fisher Investments Editorial Staff
Commodities, Media Hype/Myths

About Those Falling Commodity Prices

By, 10/21/2014
Ratings134.692307

Here is a scary story you may have heard this month: Commodity prices are tanking as Asia’s demand for crude oil and industrial metals dives, signaling a global economic slowdown. It has appeared, with varying degrees of detail and hyperbole, here, here, here, here, here, here and here. Some infer bad things from charts like Exhibit 1. Others use anecdotal evidence and rhetoric. We don’t think either approach—or the thesis—matches reality, however. Take a deep data dive, and you’ll see a far more boring, benign reason for falling prices: Supply is up way more than demand, which isn’t plummeting (contrary to widespread belief).

Exhibit 1: Select Commodity Prices Year-to-Date

Fisher Investments Editorial Staff
Behavioral Finance

Amid Volatility, Beware Your Inner Investing Demons

By, 10/20/2014
Ratings194.657895

Ebola, deflation, the Fed (!), bond market liquidity, technical indicators and more. The media seems obsessed with hunting down larger explanation for recent volatility. The more obsessive they get, the more likely investors get caught up in all the noise, increasing the risk their brains get the best of them. Take note: Now is a time to be conscious of your inner investing demons—the kind that can cause you to act counter to your long-term goals. Recognizing these pitfalls is a key step to keeping them in check.

Year to date, the MSCI World Total Return Index has closed more than 1% up or down 18 days.[i] Of those 18, five came in October’s 13 trading sessions, and two had intraday swings of greater than 1% (one was greater than 2%) this tally doesn’t capture.[ii] Friday continued October’s choppy start, with the MSCI World jumping +1.3% (yes, big up is still volatility). At one point, the global gauge had fallen -9.3% from its peak.[iii] After Friday’s big bounce, global stocks were -8.1% below the peak.[iv] Will they fall further? No one can know, in our view. There is no way to tell if Friday’s bounce marked the end of the short-term dip. We’ll know if markets avoided the first technical correction since 2012 only in hindsight.[v] But we do know when volatility runs higher, it often triggers humans’ innate fight-or-flight instinct. This is a useful evolutionary reaction when you are trying to avoid being a wild animal’s lunch, but it isn’t helpful in markets, which require rationality. Maybe you’re above making such errors. That’s possible. But at the same time, it doesn’t hurt to review some typical mental errors so you can learn from others’ mistakes and hopefully avoid making them.

Recency bias is one pitfall many investors succumb to when markets get rocky. Recency bias is the tendency to take very recent market behavior and extrapolate it forward, sometimes to degrees most people would think irrational when coolheaded. It’s easy to see how you might get engulfed by this today, as headlines proclaim, “October’s Wild Ride Isn’t Over Yet” and attempt to explain “Why All This Market Volatility Is Here to Stay.”

Fisher Investments Editorial Staff
Media Hype/Myths

Did a Fed Waffle Cause Thursday’s Rebound?

By, 10/17/2014

This investor is putting Thursday’s market action under a magnifying glass. Photo by Comstock.

We have to make sure that inflation and inflation expectations remain near our target. And for that reason I think a reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data dependent. And we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December.…

Christopher Wong

Four Tips for Retirement Investing

By, 10/16/2014
Ratings1134.190266

Retirement should mean more time to relax, not worry. Photo credit: Guillermo Murcia/Getty Images.

Retirement: the word strikes both joy and fear in the hearts of many long-term investors. Joy over the possibilities of post-working life: traveling, pursuing new hobbies and/or spending more time with family and friends. Fear due to all the unknowns: How much should I be saving?; Will I have enough to retire when I want?; What if I run out of money during retirement? The media exacerbates the fear with headlines screaming how unprepared Americans are for their golden years. But retirement investment needn’t intimidate. Now, ask most financial professionals how to prepare, and you’ll probably get a cliché answer—Save More! But here are four less-often-shared tips to get you started—tips equally applicable if you’re far from retirement or already in it.

Fisher Investments Editorial Staff
Inflation, Media Hype/Myths

Why We Don’t Fear Deflationary Doom Is Here

By, 10/16/2014
Ratings444.397727

Stocks had a wild ride Wednesday, with the S&P 500 Price Index down as much as -3% before climbing back to finish the day down just -0.8%.  Perhaps the correction many have long awaited is here—at one point, the S&P 500 Price Index was about one percentage point removed from correction territory (10% lower than a prior high point)—but it’s only clear in hindsight. Such moves are sentiment-driven and tend to come and go fast. There is usually a host of negative headlines, surrounding a spooky story or stories. But corrections can be caused by virtually anything. Or nothing. Such headlines abound today.

Let’s consider one of the day’s big fears: global deflation. To many observers, the evidence prices are about to spiral downward is stacking up. Chinese consumer inflation slowed to just 1.6% y/y in September—the lowest since 2009—and Chinese producer prices slid faster, hitting -1.8% y/y. September US producer prices fell -0.1% m/m. UK CPI slowed to 1.2% y/y, also the slowest since 2009. 10-year US Treasury yields briefly dipped below 2%. Oil prices continued tanking.[i] Market-driven future inflation gauges, including five-year US TIPS spreads and the eurozone’s five-year/five-year inflation swap, are falling. German inflation is stuck at 0.8% y/y. The eurozone’s final September inflation estimate hits Thursday, and no one expects improvement from the 0.3% y/y first read. 

Two primary interpretations emerged from this data bonanza. One, the slow ebb in prices will be a self-fulfilling prophecy, and deflation will choke off the global expansion. Two, low inflation/deflation will make debt more burdensome—another growth headwind. These are big, popular, scary stories, but we don’t think either carries much weight—problematic deflation doesn’t appear to be in the cards.

Fisher Investments Editorial Staff
Across the Atlantic, Media Hype/Myths

Return of the Euro Crisis’ Ghosts

By, 10/15/2014

With volatility back, many seek to explain what has amounted to quite a back-and-forth October. And it seems many settled on recent developments in Europe as the culprit. While possible, a quick glance at Europe’s recent headlines might have you thinking it’s 2011 or 2012. In our view, fears around the eurozone likely lack the teeth to materially bite this bull. The questions may be slightly different now: It’s more, “How does the eurozone avoid a ’lost decade of growth?” than warnings of the imminent collapse of the common currency. But most of the fears—and many of the specifics—are the same. These recycled false fears likely lack the surprise power to knock a global bull off track.

Interested in market analysis for your portfolio? Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

Better Together, Spanish Edition

Fisher Investments Editorial Staff

The US Federal Deficit: Choose Your Own Fiscal Adventure

By, 10/13/2014
Ratings504.36

Last week, the Congressional Budget Office (CBO) released its final projection for fiscal year 2014’s US federal budget deficit. And it is down again! They estimate the feds ran a $486 billion deficit in 2014.[i] The direction, even the magnitude of the dip, isn’t all that surprising—the deficit has fallen for some time. However, it still managed to attract plenty of debate. Why? The deficit is a frequently kicked around political football, and this time there is something in it for everyone. But we’d suggest ignoring all the noise and taking the figure for what it is—a result of a growing economy!

Interested in market analysis for your portfolio? Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

This year’s reduction isn’t a new trend—aside from a teensy uptick in 2011, the deficit has been drifting since 2009’s peak—falling steeply in 2012 and 2013. Since 2009, the deficit is down 65.6%. Exhibit 1 shows the deficit’s progression over the past decade in dollars. Exhibit 2 shows it as a percent of GDP, down from 9.8% to 2.8%.[ii] (Exhibit 2)

Fisher Investments Editorial Staff
Reality Check, Media Hype/Myths, Behavioral Finance

Putting Stocks’ Zigzags in Broader Perspective

By, 10/10/2014
Ratings1934.062176

After a big, volatile bounce back Wednesday, in which the S&P 500 surged 1.8%, negativity struck US markets on Thursday, with the S&P 500 down 2.1% on the day.[i] Since October began, the S&P has swung more than 1% up or down five times (two up, three down). The back-and-forth is rather predictably spurring some eye-catching headlines. Here is a small sample so you get the flavor:

Interested in market analysis for your portfolio? Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

However, all these headlines look at either one day or this month’s seven trading sessions under a microscope. A broader view can add some very valuable perspective.

Fisher Investments Editorial Staff
Politics

Voting For Gridlock

By, 10/09/2014
Ratings374.162162

Editors’ Note: Our discussion of politics and elections is purely focused on potential market impact. Stocks favor neither party. Believing in the market/economic superiority of one group of politicians over another can invite bias—a source of significant investment errors.

Midterm elections are less than a month away, and you know what that means: Cable pundits are earning some massive overtime. This is the home stretch! A time for grandstanding, blathering, mudslinging and other good old-fashioned family fun! Now if you’re into this sort of thing, it can be entertaining political theater. If you aren’t, you are quite possibly sick to death of the rancor and just want to know whether stocks will be happy with the results. If you are in the latter camp, we have good news: You can tune out the noise, because nothing in these final weeks means very much for stocks—whether campaign hijinks tip Congress one way or preserve the status quo, it is overwhelmingly likely we get more gridlock, which stocks love.

Over the next four weeks, you’ll see no shortage of articles or TV reports claiming the contest is certain to go one way. These are a guesses, and useless ones. Campaigns’ last legs have too many unknowns, and these races are too close to call. Take the House. On the one hand, Republicans would seem to have an edge since incumbents are hard to beat (Eric Cantor notwithstanding). The majority of the 47 total open House seats belong to the Republicans in the present House. However, of these 47, only about 18 Republican seats and 7 Democratic seats were really in play at the beginning of the year. Cantor makes 19. To seize the House, Democrats need to win all these open seats (or the lion’s share and knock off a few incumbents) and about half are in traditional Republican strongholds—the sweep is unlikely. Possible! But not probable. The Senate is sort of the reverse of this. Democrats (including Senators Sanders and King, independents who typically poll with the Democrats) have a 55-45 majority. The Republicans need six to win and have the structural advantage, with fewer seats to defend in traditional Democratic territory. But they’d need a near-sweep of vulnerable Democratic seats—two in states where they’re trying to defend a governorship (South Dakota and Alaska). They also have more state houses to defend in blue states—including three where they’re also trying to nab Senate seats (Iowa, Michigan and New Mexico). Those governors’ races could divert GOP funding away from the Senate races, perhaps counterbalancing their structural advantage. In short: The Senate could change hands, but it’s anyone’s guess whether it actually does.

Fisher Investments Editorial Staff

IMF Sees 99% Chance Growth Continues, Projects Acceleration

By, 10/08/2014
Ratings384.552631

Why the long face? The global economy is growing! Photo credit: Bloomberg/Contributor.

“Big Supranational Sees Global Growth Pickup, Recession Risk Less Than 1%: Go World!” That would be the headline we’d plop on a report of the IMF’s updated global economic outlook, which forecasts a repeat of 2013’s 3.3% global growth this year and acceleration to 3.8% next year. However, this forecast happens to be a bit lower than the IMF’s last missive. And it’s titled “World Economic Outlook: Legacies, Clouds, Uncertainties.” And it’s published by an outfit whose leader says the world economy is entering the “new mediocre.” So the common interpretation runs the gamut from pretty blah to dire. But the IMF’s downward-revised forecast shouldn’t dampen investors’ view of a growing global economy—dour spin doesn’t equal dour reality.

Fisher Investments Editorial Staff
Currencies, Media Hype/Myths

Eight Charts to Show Why the Strong Dollar Won’t Knock Earnings

By, 10/07/2014
Ratings434.186047


King Kong wreaks havoc. “King Dollar” doesn’t. Photo by Hulton Archive/Getty Images.

Well that didn’t take long. Just three weeks ago, headlines were all “Rah Rah Strong Dollar U-S-A! U-S-A!” Now they’re like this: Surging dollar may be triple whammy for US earnings. King dollar question mark for earnings and stocks. The strong dollar’s risk to 4Q earnings and beyond. Surging dollar may destroy US company earnings. Latest threat to corporate earnings: the almighty dollar. Their logic: A stronger dollar makes exports more expensive, making overseas business less profitable for globalized firms.[i] However, historically, there isn’t much (if any) evidence backing this case: A strong dollar isn’t inherently bad for US earnings, trade or stocks.

Interested in market analysis for your portfolio? Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

Fisher Investments Editorial Staff

Taiwan Is Not Greece, and Other Reasons to View Emerging Markets Individually

By, 10/06/2014
Ratings174.235294

China. India. Brazil. Insert Emerging Market country here. It didn’t matter which one! Everyone wanted a piece of these fast-growing darlings during the 2000s. But after the last few years of underperformance, sentiment has flipped and people have become quite dour toward Emerging Markets (EM) as a whole—save for some who are starting to consider EM countries individually—pointing out strengths and weaknesses of the 23 EM countries.[i] A rational mindset, in our view, and one that can help investors better understand where future opportunities exist.

In the 1990s and early 2000s, EM nations acted as more of a bloc. They were at similar stages of economic evolution, with many bearing the fruits of catch-up growth and emerging middle classes. Country-specific returns varied, but correlations were pretty high. That’s how we got snappy acronyms like BRIC—Brazil, Russia, India and China (and now with an S for South Africa). To many observers back in 2001 (when the term was coined) they appeared poised to take the world by storm. In the 2002-2007 bull market, most Emerging Markets went on a tear, beating developed markets widely. This reinforced the notion EM’s superior economic growth would generate big relative returns.

But the last three years have pretty much debunked this. EM overall underperformed, with the MSCI Emerging Markets index falling -18% in 2011 and -2.6% in 2013, and countries diverged quite a bit.[ii] (Exhibit 1) Fast growth didn’t necessarily mean high returns, and sentiment turned on the category overall. They were largely seen as one big lump of countries subject to the Fed’s whims, rather than 20 or so diverse countries with diverse economic drivers and political situations. Most still see them this way—despite 10 months of shifting Fed policy that hasn’t wrought havoc on EM economies.

Elisabeth Dellinger
Monetary Policy, Into Perspective, Interest Rates

Fun With Mark and Janet

By, 10/03/2014
Ratings314.145161

These three front-row people are central bankers. They are apparently saying funny things. We wish we could hear. And hang out with Haruhiko Kuroda. Photo by Andrew Harrer/Bloomberg via Getty Images.

So unemployment is now under 6%, finally falling into the Fed’s “longer run” forecast range. But labor force participation, involuntary part-time workers and other less mainstream stats are still in the doldrums, which some say means there is a lot of slack in the labor market, which is jargon for “people aren’t working or earning as much as they could/should be.” Apparently this—and a similar situation in the UK—puts Fed head Janet Yellen and BoE chief Mark Carney in a pickle, because their rate hike decisions are apparently not cut and dry. And apparently this means we all need to parse every single one of their statements for clues into what they’ll do, because if they get it wrong the expansion could go poof and we will all need to brace for impact. I’m going to ignore that second part because my wonderful colleagues covered it earlier today here, and concentrate on the first part. Namely, the notion that we can divine future policy from central bankers’ words. If you have a magic decoder ring and fully functional crystal ball, perhaps you can, but for us nonmagical folk, it’s an impossible task, and we’re all best off not trying—and not putting much weight on analyses that claim they’ve cracked the code.

Fisher Investments Editorial Staff
Monetary Policy, Reality Check, Media Hype/Myths

A Fun Fight With the Fed

By, 10/03/2014
Ratings174.411765

These congressmen seem to be approaching the Fed unnecessarily timidly. Photo by Mark Wilson/Getty Images News.

If you are anything like us, your mother probably taught you not to fight with anyone. But on Wall Street, that lesson is much more specific: An old saw holds that you aren’t supposed to fight the Fed.[i] Everyone else is fair game! Whee! Kidding. Effectively, the adage means that if the Fed is dead set on hiking interest rates—“tightening,” to use the industry vernacular—then equity investors should look out because the results will be Very Bad. If the Fed is lowering rates, cue the band and load up on stocks. This presumes liquidity is key to equity market direction, so even small changes might threaten stocks. At times true! But a faulty, wrongheaded rule of thumb that could easily lead you astray. You can fight the Fed. And win. In fact, very often you should fight the Fed.[ii]

Subscribe

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

Recent Commentary

Fisher Investments Editorial Staff
Commodities

About Those Falling Commodity Prices

By, 10/21/2014
Ratings134.692307

Some say falling oil and metals prices are a sign global demand is sinking, but a closer look suggests the truth is much brighter.

read more
Fisher Investments Editorial Staff
Behavioral Finance

Amid Volatility, Beware Your Inner Investing Demons

By, 10/20/2014
Ratings194.657895

With volatility up, investors should be conscious of how their brains may blindside them.

read more
Fisher Investments Editorial Staff
Media Hype/Myths

Did a Fed Waffle Cause Thursday’s Rebound?

By, 10/17/2014

Sentiment can swing on some pretty crazy factors, as Thursday’s action illustrated.

read more
Christopher Wong

Four Tips for Retirement Investing

By, 10/16/2014
Ratings1134.190266

Planning for retirement doesn’t have to be scary.

read more
Fisher Investments Editorial Staff
Inflation

Why We Don’t Fear Deflationary Doom Is Here

By, 10/16/2014
Ratings444.397727

Fears of deflation doom seem like typical correction ghost stories. 

read more

Global Market Update

Market Wrap-Up, Mon Oct 20 2014

Below is a market summary (as of market close Monday, 10/20/2014):

  • Global Equities: MSCI World (+0.8%)
  • US Equities: S&P 500 (+0.9%)
  • UK Equities: MSCI UK (0.5%)
  • Best Country: Japan (+3.8%)
  • Worst Country: Norway (-1.7%)
  • Best Sector: Consumer Discretionary (+1.4%)
  • Worst Sector: Energy (0.0%)
  • Bond Yields: 10-year US Treasurys fell by .04 to 2.19%

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.