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

Brexit: One Year Later

By, 06/22/2017
Ratings404.225


Breaking up is hard to do. Photo by Chris Ratcliffe/Bloomberg via Getty Images.

Do you remember where you were when Britain turned its back on Europe? It was headline writers’ time to shine! After “Little England Beat Great Britain” and “opened Pandora’s Box,” pundits reflected on the “24 Hours in Which the World Has Changed.” Some said Brexit was “the biggest blow to a united Europe since the Second World War” and the Continent “may be plunged into the worse crisis in its history.” Though a few outlets weren’t quite so apoplectic—“Brexit won’t be as bad as people think[i]”—many were freaking out over the surprising result and what it meant not just for the UK, but the world. Yet a year after Brexit, the UK is still in the EU. We know, shocker! (Kidding, of course.) With a year now behind us, the present seems like a good time to recap what has—and, perhaps more importantly, hasn’t—happened.   

After the vote, fear abounded. Stocks’ sharp selloff drove bear market dread. The business environment suddenly looked iffy, with uncertainty allegedly icing potential mergers. Others predicted businesses would spend less and inflation would crimp consumers, rendering recession. Across the channel, EU-types feared losing a major trading partner as well as a potential domino effect if increasingly popular anti-EU political parties gained power.

Jamie Silva
Interest Rates, MarketMinder Minute

When to Fret the Fed

By, 06/22/2017
Ratings573.877193

In this Market Insights video, we discuss when investors should start worrying about the Fed. The time to fret the Fed is when it takes action impacting the yield curve and most folks neither see nor appreciate it.

Fisher Investments Editorial Staff
Media Hype/Myths

Survey Says: Media Still Dour

By, 06/20/2017
Ratings334.515152

A recent study found 82% of surveyed fund managers don’t think Tech is currently a bubble. And media, in reviewing these findings, cited the vast rationality of this huge majority of professional investors, called it a day and decided not to publish anything. Kidding! They fixated on the 18%—and the others who fretted slightly less about valuations—that did. If some experts are worried stocks are partying like it’s 1999, should regular investors be concerned? In our view, no. Surveys can roughly indicate sentiment since they show how one segment of investors feels at a specific time, but they can’t tell you where the market is headed—a point media seems to miss.  

The survey in question—Bank of America Merrill Lynch’s Global Fund Manager Survey (FMS)—asks participants[i] about their current views on stock valuations, popular trades, tail risks[ii] and portfolio positioning, among other topics. June’s report is making headlines because 44% of 210 respondents say equities are overvalued: the highest response on record. Combine this tidbit with other findings—like 57% believing Internet stocks are expensive, 18% calling them “bubble-like” and 38% thinking the most popular trade right now is a play on Tech rising for the foreseeable future (via being long the Nasdaq)—and the comparisons to the late 1990s Tech Bubble seem obvious.[iii]  

While we have no qualms with the FMS itself, we are generally skeptical about drawing any big takeaways from surveys because of their natural limitations. Surveys reflect how respondents feel at one particular time, which is often tied to what just happened or what they’re hearing. But feelings can change quickly! If stocks enjoyed a week-long hot streak, investors are probably feeling pretty good. They’ll probably feel the opposite way (and then some) if markets pulled back a bit. Or, for a bunch of contrarian fund managers, maybe a big run sparks fears of “crowded trades,” while a pullback inspires visions of opportunities.

Elisabeth Dellinger
Capitalism, Media Hype/Myths

Technology: Coming for Your Job Since John Kay

By, 06/20/2017
Ratings524.596154

The printout that started it all. Note the dust. Photo by Elisabeth Dellinger.

“Will you lose your job because of a machine?”

Elisabeth Dellinger
Currencies

Dennis Rodman and Bitcoin Walk Into a Dutch Coffee Shop

By, 06/16/2017
Ratings634.103175

So here’s the thing about Bitcoin: Yah, it had a big run, and yah, its sharp slide this week might look like a buying opportunity, but really, what are you actually buying? And is it worth it?

For those not in the know, Bitcoin is the most famous cryptocurrency—basically, funny money for cyberspace. It isn’t backed by governments or created by central banks. Instead, a dude or dudette going by the pseudonym Satoshi Nakamoto wrote a computer program that basically spits out one Bitcoin at a predetermined rate, and capped the amount available. To get Bitcoins, cyber whippersnappers would fire up mega-powerful computers and run an algorithm to “mine” them, with the winning miner getting whichever Bitcoin was up for grabs based on Nakamoto-san’s program. Once in possession of Bitcoins, you can either hoard them—a popular choice—or spend them wherever they are accepted. While that includes an array of stores and websites, Bitcoin’s real allure is its untraceability—transactions are logged on this thing called “blockchain,” and they don’t include details like who exchanged them, where or for what. Hence, Bitcoin has become the currency of choice on the Dark Web, which is where, according to media reports, unsavory folks go to do unsavory things. (DISCLOSURE: WE DON’T RECOMMEND YOU PARTICIPATE IN UNSAVORY THINGS.)

Now, purportedly unsavory folks’ conducting transactions in an untraceable currency wouldn’t be a noteworthy story for a finance website, but for this wrinkle: The price of one Bitcoin rose from about $10 in 2012 to $2,871 last Friday.[i] Even as recently as March 31, it was at only $1,074. A 167% gain in just two months and nine days? Yowza. But here’s another yowza: Since then, in just four days, it tumbled near $2,000 in intraday trading. The boom giveth, the afterboom taketh away.

Fisher Investments Editorial Staff
Others

Ken Fisher and Jim Cramer to Chat in Upcoming TheStreet Webcast

By, 06/16/2017
Ratings533.188679

Next week, Fisher Investments’ founder and Executive Chairman Ken Fisher will sit down with TheStreet founder Jim Cramer in a new webcast titled “Investing For Your Future.” This special, online-only event will be streamed live from TheSteet’s studio in New York City at 11:00 AM EDT/ 8:00AM PDT on June 21, 2017. UPDATE: The event has now concluded. However, a replay of the webcast is available for a limited time at the link below. Please note: Registration is required.

During the webcast, Fisher and Cramer will discuss how today’s market trends are shaping retirement planning. Topics covered will be diverse, but are expected to include how you can generate retirement income through stocks, the current investment landscape and how current geopolitical events are influencing the economic and investing environment.

You can sign up for the webcast at TheStreet.com by clicking here.

Fisher Investments Editorial Staff
Monetary Policy

The Fed’s Diet Plan

By, 06/15/2017
Ratings734.465754

On Wednesday, the Fed raised rates for the fourth time in this bull market, no one cared, and everyone went home and enjoyed a summer evening walk. Oh, wait, sorry, Janet Yellen and friends also released their roadmap for getting all of those trillions of quantitative easing-related assets off their balance sheet, and made a loose pledge to start the process sometime this year. In other words, another Fed-related thing people have feared for years is about to finally happen. Yet markets took the news in stride, as they have most Fed “tightening” in recent years. Seems about right to us: Not only is shrinking the Fed’s balance sheet not inherently negative for the economy (or stocks or bonds), but this is shaping up to be one of the slowest monetary policy moves in central banking history.

The Fed’s plan pretty much matches what the bank has telegraphed for months: A slow, steady unwinding that doesn’t involve outright selling anything—just not replacing bonds as they mature. We pointed out earlier this year that if the Fed simply let everything roll off its balance sheet as it matured, it would constitute a gradual move that shouldn’t shock markets. Well, turns out they’re going to go even more slowly, capping the amount allowed to roll off each month. From the official statement:

  • For payments of principal that the Federal Reserve receives from maturing Treasury securities, the Committee anticipates that the cap will be $6 billion per month initially and will increase in steps of $6 billion at three-month intervals over 12 months until it reaches $30 billion per month.
  • For payments of principal that the Federal Reserve receives from its holdings of agency debt and mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month initially and will increase in steps of $4 billion at three-month intervals over 12 months until it reaches $20 billion per month.
  • The Committee also anticipates that the caps will remain in place once they reach their respective maximums so that the Federal Reserve's securities holdings will continue to decline in a gradual and predictable manner until the Committee judges that the Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.

In other words, they’ll start by letting $10 billion roll off each month, and increase the cap by another $10 billion quarterly until it hits $50 billion, where it will stay until the balance sheet has shrunk to where they want it, which isn’t specified here. They also hedged a lot and left a few get-out clauses at the end of the statement, giving them plenty of wiggle room to stop the process or (goodness gracious please no) restarting QE if they think they need to.

Fisher Investments Editorial Staff
Across the Atlantic

Europe’s Bank Bail-In Roadmap Yields Two Routes

By, 06/14/2017
Ratings254.48

Financial media around the world spent last Wednesday celebrating Banco Santander’s purchase of failing Spanish lender Banco Popular, billing it as a successful first test of the eurozone’s new system for dealing with failed banks. Known as the “Single Resolution Mechanism,” (SRM) it is supposed to be a clear, predictable process for winding down banks without tapping taxpayer funds. When Santander bought Popular for €1 after shareholders and junior creditors were bailed in, markets simply shrugged, leading observers to conclude the system had passed with flying colors. For now, the Banco Popular acquisition does help clear some of the lingering uncertainty over eurozone Financials, and it has clearly helped sentiment—both positive. However, over time, we believe there remain several details to iron out, and we’d caution against presuming the SRM will magically fix the next banking crisis whenever it occurs.

The SRM has been around since 2014, but until now, it remained largely untested. Italy had a chance to use it when determining how to address Monte dei Paschi di Siena and other struggling lenders, but instead the government got special permission to inject state funds into the bank to keep it afloat (a move the European Commission just rubber-stamped June 1). The SRM requires banks’ junior bondholders to take losses as part of any formal resolution. In Italy, this was politically untenable since most junior bondholders are retail depositors—normal mom and pop savers—who were sold bonds pitched as safe, high-yield alternatives to a traditional bank account. When a smaller Italian bank failed in 2015, wiping out bondholders, there was a huge public backlash. One saver committed suicide, blaming the bank in his note. This tragedy and the general outcry took a bail-in for the much larger Monte Paschi off the menu.

No such drama surrounded Banco Popular. Consistent with the SRM, shareholders, junior bondholders like contingent-convertible (coco) bondholders and even holders of AT-2 bonds—higher in the pecking order than cocos—were wiped out (depositors and senior bondholders were spared). Instead of injecting capital into Banco Popular to allow it to remain a going concern, regulators brokered its sale to Santander, which is raising €7 billion in new capital to handle Popular’s obligations. Spanish stocks ticked down on June 7, the day the deal was announced, but Spanish Financials rose 0.3%.[i] Investors didn’t panic, depositors didn’t flee banks, and the entire process seemed seamless.

Fisher Investments Editorial Staff
Into Perspective, Media Hype/Myths

Searching for Meaning in Bouncy Tech

By, 06/12/2017
Ratings704.35

How do you know when it’s a slow news stretch in the world of finance? Easy: When one sector has a bad day and headlines still haven’t stopped talking about it three days later. So it went after S&P 500 Tech stocks fell -2.7% Friday, sparking fears that the trend was no longer investors’ friend and this crowded momentum trade had hit a wall, or some such jargoney mumbo jumbo.[i] Media even spilled more pixels Monday, when Tech opened down and finished the day -0.8% lower, a daily move even the media probably wouldn’t point out without Friday’s.[ii] We wouldn’t normally devote space to such short-term swings in one sector, but there is an avalanche of coverage trying to draw forward-looking conclusions, and we believe it is our duty to attempt to set the record straight. One day’s volatility simply isn’t predictive, even if the sliding sector is the market’s year-to-date leader.

Tech has been hogging headlines most of the year—partly because it has done quite well, and partly because five of its largest constituents were responsible for 41% of the S&P 500’s year-to-date market cap increase until they took a pounding Friday. That pounding, we’re warned, is potentially evidence investors are out of cash or unwilling to “buy the dips,” sapping these Tech giants’ ability to prop up the market moving forward. Never mind that Tech has had steeper falls since this rally began on February 11, 2016, when the last correction ended. Observers argue those don’t count, since they occurred during broad-based drops. Friday was unique, we’re told, because it was out of the blue and otherwise a mostly fine day for markets, with 7 of the S&P 500’s 11 sectors positive.  

Now, we didn’t buy into the “five Tech companies are driving the market while everyone else stinks” story, so don’t take any of our next 535 words as an argument for five firms’ continued dominance. That isn’t what we do. But we also don’t think it’s fair to declare Tech’s longer run dead based on one day. This isn’t the only time Tech has had a short burst of underperformance since last February. Exhibit 1 shows the S&P 500 Information Technology Index’s returns since February 11, 2016, divided by the S&P 500. When the line is rising, Tech is outperforming. As you’ll see, there are steep, deeper drops in November and April 2016. Neither prevented Tech from outperforming moving forward, because past performance does not predict or drive future returns. Often a blip is just a blip.

Fisher Investments Editorial Staff
Others

Ken’s Latest in USA Today—and Some News!

By, 06/12/2017
Ratings184.583333

Greetings, Readers! We’re writing today to share Fisher Investments’ founder and Executive Chairman Ken Fisher’s latest USA Today article, published this morning in the Money section. This is Ken’s first piece for USA Today since they reached an agreement to publish a column every other week. So, you can anticipate seeing much more of his work there going forward.

The latest:

Don’t Roll Over for This 401(k) and IRA Ripoff

Fisher Investments Editorial Staff
Into Perspective, The Global View

The World Beyond Covfefe, Comey and GE2017

By, 06/12/2017
Ratings374.364865

A fresh batch of economic data—May purchasing managers’ indexes, or PMIs—largely tell this tale: Businesses around the world are expanding. This isn’t breaking news if you follow these monthly releases religiously, but most regular folks don’t.[i]  However, when media flash a story on the latest, they often pen a headline focused on a single, eye-grabbing tidbit that omits more important context and details. Focusing only on headlines or even just the one month of data usually obscures the more telling bigger picture—something we recommend investors keep in mind when consuming financial media.

Brexit Still Hasn’t Hurt UK Services 

Media Reaction: The May IHS Markit/CIPS Services PMI disappointed some who had hopes of an economic rebound. Others blamed the lower reading on General Election jitters and weak consumer spending.   

Fisher Investments Editorial Staff
Across the Atlantic, Politics

Stray Thoughts on the UK Election

By, 06/09/2017
Ratings124.083333

The final tallies are in, the exit poll more or less held, and the UK now has a hung Parliament. Theresa May remains Prime Minister and is off to form a government with Northern Ireland’s Democratic Unionist Party (DUP). May lost her Conservative Party’s majority, but the Tories’ 318 seats plus the DUP’s 10 equals 328—2 more than needed to win a confidence vote. As of now, it isn’t clear whether May will aim for a coalition with the DUP or secure their support for a minority government, but either way, it looks like the UK will get plenty of political gridlock—bullish for stocks, as we wrote yesterday. Here are some other interesting nuggets, including a few underappreciated positives for investors.

MayDay! MayDay!

Perhaps the biggest surprise is that Ms. May still has a job. Calling a snap election three years early to increase your majority—only to lose 13 seats and be forced into a coalition or minority government—is the textbook definition of a political screw-up. Bookies are already making odds on her replacement, with Boris Johnson the favorite.[i] Labour leader Jeremy Corbyn, who has decided to ignore math and claim victory, has called on her to resign. Tory MPs and cabinet ministers are a bit cagier, and party bigwigs don’t seem to want the chaos of leadership challenge, but it’s clear her hand is weakened. Maybe not to the extent portrayed by the Evening Standard, where former Chancellor-turned-editor George Osborne—sacked by May last year—had perhaps a bit too much fun with cover layout overnight,[ii] but it’s hard to envision her accomplishing much now. Tory backbenchers have plenty of leverage over her. So do the DUP’s 10 MPs. With Sinn Féin winning 7 seats and vowing to continue abstaining from Parliament, May needs just 322 votes to pass legislation, rather than 326, so she doesn’t need every Tory and DUP MP to fall in line. But if all it takes is seven rebels to block a bill, that argues for a very inactive, squabbly Parliament. If you like riffing on campaign slogans, we invite you to call it a Strong and Stable Coalition of Chaos.

Fisher Investments Editorial Staff
Politics, Across the Atlantic

Is This Theresa’s Month of May or Oopsy Daisy?

By, 06/08/2017
Ratings274.074074

As always, our political commentary is non-partisan by design. We favor no politician or party and assess politics solely for its potential market impact.

Welp. Brits went to the polls today, voting in the general election Prime Minister Theresa May called back on April 18—presumably because her Conservative Party had a 20-point polling edge over Labour at the time, making it seem like a fine opportunity to increase her 12-seat majority. Alas, it’s always the best laid plans: As the campaign heated up, polls narrowed, and the first round of exit polls sees May’s Tories losing 17 seats, walking away with just 314—12 short of a majority.[i] Counting is only just under way, and it will be hours before we know whether these early results stand—2015’s exit polls proved wrong, projecting a hung Parliament, but exit polling in 2010, 2005 and 2001 was more or less right. This could easily shift in any number of directions. But if it holds and the UK gets a hung Parliament, our views are unchanged from our earlier commentary: A hung Parliament means gridlock, which should be fine for UK stocks.

Here are the exit poll’s full projections:

Fisher Investments Editorial Staff
Politics, Media Hype/Myths

Comey Comes to Capitol Hill

By, 06/08/2017
Ratings484.229167

As always, our political commentary is non-partisan by design. We favor no politician or party and assess politics solely for its potential market impact.

All this week, we’ve read ad nauseam that stocks were treading water ahead of former FBI Director James Comey’s Congressional testimony, which would supposedly bring the biggest televised bombshell since David Lynch revealed who killed Laura Palmer.[i] Bars across America held viewing parties with themed cocktails for those who like a little Irish Covfefe or Impeachmint Mojitos with their C-Span. Yet when it was all over, for all the buzzy coverage and day-drinking,[ii] investors didn’t have any new information. Comey revealed no new facts and presented very little new evidence. The lack of substance underscores what we’ve said since this whole kerfuffle … um … kerfuffed: Absent any actual evidence of wrongdoing that could increase the probability of a presidential impeachment, the Comey saga is a sideshow for markets—and even then, it isn’t at all clear how an impeachment trial would affect stocks. In our view, it’s all just noise to markets and isn’t actionable for investors.

Markets move on probabilities, not possibilities. They are also quite efficient and adept at pricing in all widely known information—hopes, fears, speculation, opinions, conspiracy theories, you name it. Opinions of Comey, President Trump and all related matters have dominated the Internets for months. They are all over the place, both literally (on every publication) and figuratively, making this the textbook definition of a widely known event. We have seen many an impassioned argument for or against the administration based on nothing more than feelings, assumptions and guesses. And as Comey’s performance progressed, the live-blogosphere and professional soap-boxers simply gave us one more round of said evidence-free treatises. We aren’t condemning—it’s just what these folks do for a living. But what markets do for a living is price all this stuff in. Anyone trading for the last several months is most likely well aware of all these competing opinions and probably has their own viewpoint. The stock prices they bought or sold at incorporated their views on this and many, many, many other factors. People have spent months considering the circus, so markets have considered it. Absent new, material, factual information, there is really nothing more for investors to consider here.

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Recent Commentary

Fisher Investments Editorial Staff
Into Perspective

Brexit: One Year Later

By, 06/22/2017
Ratings404.225

A review of what has come to pass after the UK voted to leave the EU a year ago. 

read more
Jamie Silva
Interest Rates

When to Fret the Fed

By, 06/22/2017
Ratings573.877193

In this Market Insights video, we discuss when investors should start worrying about the Fed.

read more
Fisher Investments Editorial Staff
Media Hype/Myths

Survey Says: Media Still Dour

By, 06/20/2017
Ratings334.515152

A recent survey says more about the dour media than the current market environment.

read more
Elisabeth Dellinger
Capitalism

Technology: Coming for Your Job Since John Kay

By, 06/20/2017
Ratings524.596154

People have feared job-destroying robots for longer than you might think.

read more
Elisabeth Dellinger
Currencies

Dennis Rodman and Bitcoin Walk Into a Dutch Coffee Shop

By, 06/16/2017
Ratings634.103175

On cryptocurrencies’ big boom and hazy future. 

read more

Global Market Update

Market Wrap-Up, Thursday, June 22, 2017

Below is a market summary as of market close Thursday, June 22, 2017:

  • Global Equities: MSCI World (+0.1%)
  • US Equities: S&P 500 (-0.0%)
  • UK Equities: MSCI UK (-0.1%)
  • Best Country: New Zealand (+1.4%)
  • Worst Country: Austria (-1.5%)
  • Best Sector: Health Care (+1.3%)
  • Worst Sector: Consumer Staples (-0.5%)

Bond Yields: 10-year US Treasury yields were unchanged at 2.15%.

 

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. S&P 500 returns are presented including gross dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.