|By Jason Douglas, The Wall Street Journal, 01/31/2014|
MarketMinder's View: While it’s true changes in capital requirements affect some types of lending more than others, in our view, this doesn’t “strengthen the case for targeting capital changes at troublesome sectors.” This implies central banks are somehow good at spotting bubbles, which history shows isn’t true. Business cycles—up- and downturns—will always be with us. Macroprudential regulation won’t end boom and bust.
|By Timothy B. Lee, The Washington Post, 01/31/2014|
MarketMinder's View: And it’s about one-sixth the price, illustrating why innovation is extremely difficult to account for in inflation—and why the inflation rate isn’t the best barometer of living standards. Economists try, using a “quality adjustment factor” to account for technological improvements, but it’s a shot in the dark at best. Like this piece, we “suspect the way we measure inflation understates how quickly our standard of living has been improving.”
|By Martin Crutsinger, Associated Press, 01/31/2014|
MarketMinder's View: In our view, this analysis is a touch myopic. The broader thesis that because spending rose while incomes were largely flat, consumers are tapping savings and growth could be wobbling. But data suggest otherwise! Disposable (after-tax) income exceeded total spending by nearly $1 trillion (seasonally adjusted annual rate). The savings rate fell, but the rate’s calculation is wonky—it excludes portfolio investment (savings) and charges homeowners the hypothetical rent they’d have to pay if they rented their home instead of owning it.
|By Jonathan Spicer and Ann Saphir, Reuters, 01/31/2014|
MarketMinder's View: To this and all the other odes to Ben Bernanke on his last day, we pose a question: Did the US economy and markets grow—and the US emerge from financial crisis—because of Bernanke’s policies, or despite them? Many assume “because,” citing the fact that, well, here we are. But there isn’t a counterfactual. Where would we be today if his and the Treasury’s decisions in 2008 weren’t so haphazard? Where might the US economy be if quantitative easing hadn’t flattened the yield curve and weighed on money supply growth for years?
|By Paul Krugman, The New York Times, 01/31/2014|
MarketMinder's View: This piece misses an important point. Fixed exchange rate regimes are a key driver of currency crises—they played a huge roll in Europe in the early 1990s and Asia in the late 1990s. Then, the trouble comes when countries use their foreign exchange reserves to defend the currency peg, then are forced to devalue when reserves run out, shocking their economies and financial systems. Turkey’s situation is different—and not because of US monetary policy. The troubles are localized and political. See our 1/28/2014 cover story, “About That Turkish Flu,” for more.
|By Paul Hannon, The Wall Street Journal, 01/31/2014|
MarketMinder's View: Low eurozone inflation isn’t a result of slow growth or weak demand—money simply isn’t circulating quickly since banks aren’t lending. Monetary gimmicks can’t fix this—especially while regulatory policy encourages banks to deleverage. That said, slow inflation isn’t an economic risk—continued growth amid low inflation has historically been an enviable economic environment!
|By Floyd Norris, The New York Times, 01/31/2014|
MarketMinder's View: That assumes it was ever there at all. Export values are up big over the past year, but export volumes barely budged—the weak yen didn’t drive meaningful output gains. And while the cheap currency might have boosted exporters’ revenues, it also hiked the cost of every imported input, including components and energy.
|By Geoffrey T. Smith, The Wall Street Journal, 01/31/2014|
MarketMinder's View: Four takeaways. One: Banks will be allowed to draw down Tier 1 capital during the “adverse” test, suggesting some regulatory flexibility. Two: Banks will have to mark sovereign debt holdings in their trading account for market—for the first time ever—which could have unintended consequences downstream. Three: National regulators, not the ECB, will determine which “prudential steps” to take if banks fail, minimizing the risk the ECB decides to close them. Four: Stress tests remain arbitrary exercises that aren’t grounded in reality, and their results are largely meaningless—hence why it’s headscratching that they continue to influence regulatory policy.
|By Staff, Jiji Press, 01/31/2014|
MarketMinder's View: Well, Japan’s main CPI rose—but once again, it was largely due to rising energy prices. Excluding food and energy, prices fell -0.2% y/y. Core deflation persists, once again showing the weak yen isn’t a net benefit for Japan.
|By Jim Puzzanghera, Los Angeles Times, 01/31/2014|
MarketMinder's View: Confidence surveys aren’t predictive. They capture how people feel at one moment, which is influenced by the recent past. People frequently say one thing and do another.
|By Mary Williams Walsh and Michael J. de la Merced, The New York Times, 01/31/2014|
MarketMinder's View: This bears watching for the precedent it could set, but it likely doesn’t mean much for muni bond markets in the near term. On the whole, state and local finances are in vastly better shape, with tax revenues rising again in 2013.
|By Ylan Q. Mui, The Washington Post, 01/30/2014|
MarketMinder's View: Strong Q4 GDP growth reinforces just how well the US economy did in 2013, but that doesn’t mean the economy just got a jolt of “momentum” going into 2014—momentum is a law of physics, not economics, and the economy was already in a long upswing. That said, it’s clear the private sector is strong, and with profits and cash balances at all-time highs, businesses have plenty of latitude to continue investing.
|By Giovanny Moreano and Pradip Sigdyal, CNBC, 01/30/2014|
MarketMinder's View: “While January is only one of 12 months of the year, history shows that it tended to predict the year’s direction quite accurately.” Actually, because stocks are up more than they’re down, there will naturally be more positive months—Januarys included—than negative. More positive years, too. More telling, in our view, is this: Per the table shown in this article, the S&P 500 has had 12 negative Januarys. The index finished positive in seven of them. January isn’t predictive. For more, see our 01/23/2014 cover story, “The January (Non)Effect.”
|By Staff, Associated Press, 01/30/2014|
MarketMinder's View: Headlines bemoan Emerging Markets, but overall and on average, the category isn’t full of basket cases. Exhibit A: The Philippines’ strong growth in 2013.
|By Andrew Walker, BBC News, 01/30/2014|
MarketMinder's View: While this misconstrues the causes of currency declines in some Emerging Markets—localized political and economic issues, like Turkey’s turmoil and South Africa’s dependence on commodities are largely responsible, not the end of quantitative easing—it does make a key, overlooked point. While some fret a repeat of the late-1990s Asian Currency Crisis, developing countries today have larger foreign exchanges reserves—and don’t have fixed currencies, so defending the value becomes much less important. For more, see Elisabeth Dellinger’s column, “Q(E) the Contagion? I Think Not.”
|By Linda Yueh, BBC News, 01/30/2014|
MarketMinder's View: Forward guidance isn’t the be-all, end-all this suggests. It’s just a fancy name for jawboning. Central bankers’ words don’t matter. Actions do, and only time will tell what the Yellen Fed does—central bank moves aren’t gameable. For more on our new Fed head, see “A New Head for the Fed.”
|By Katie Little, CNBC, 01/30/2014|
MarketMinder's View: While the drop in pending home sales caught experts by surprise, these data shouldn’t indicate any worrisome trends. For one, tight supply remained a significant driver—a positive, as it encourages more construction. Inclement weather, specifically in the Northeast, also factored into the fall. Housing’s longer-term trends look healthy—low supply and still high demand means housing’s recovery should continue.
|By Angeline Benoit, Bloomberg, 01/30/2014|
MarketMinder's View: Spain has now grown for two consecutive quarters for the first time since 2011, with long-suffering consumer spending and private investment both rising—more (underappreciated) positive news from the much-maligned eurozone periphery. For more about the eurozone, see our 1/9/2014 cover story, “Europe’s Improving Health.”
|By Staff, Associated Press, 01/30/2014|
MarketMinder's View: Historical evidence from Nixon’s America to Argentina itself shows, time and again, price controls don’t work. They actually lead to higher prices over time, by creating scarcities and forcing trade onto the black market. Moves like this likely further erode investor confidence in Argentina, potentially exacerbating the problems policymakers are trying to solve.
|By Jonathan Spicer and Jason Lange, Reuters, 01/29/2014|
MarketMinder's View: That the Fed continued decreasing its bond buying by another $10 billion per month is likely a small positive, though the moves are much smaller than we’d like to see—end it altogether! What’s important to keep in mind, however, is forward guidance from the Bernanke Fed may not illustrate how the Yellen Fed will act moving forward.
|By Damian Paletta and Anne Tergesen, The Wall Street Journal, 01/29/2014|
MarketMinder's View: Helping more people save for retirement is a nice goal, but this plan may not be the windfall many hope. It misunderstands a basic tenet of finance: No risk means no reward. According to the plan, participants will receive a savings bond-like instrument carrying the same variable interest rate as the Thrift Savings Plan Government Securities Investment Fund. Warns that fund’s website: “The G Fund is subject to inflation risk, or the possibility that your G Fund investment will not grow enough to offset the reduction in purchasing power that results from inflation.” In other words, the principal could be worth less at retirement.
|By Don Boudreux, Café Hayek, 01/29/2014|
MarketMinder's View: Income inequality and wealth gap arguments tend to rely on one or more of the assumptions listed—and nicely debunked—here. Ultimately, wealth isn’t a fixed pie: One person’s gain isn’t another’s loss. In modern economies, it’s actually the opposite! Because wealth isn’t just money—it’s comprised of goods, services, investments, returns and almost anything else people value. Even “hoarding” money in a bank account allows the bank to grow its business and spread more wealth—whether by loans, employee compensation or investing in other businesses—while the depositor gains via interest yields.
|By Orhan Coskun, Reuters, 01/29/2014|
MarketMinder's View: Raising rates in one (very big) move may be better than the previous policy with random “tightening days,” but it isn’t a fix-all. Note, however, Turkey’s many issues don’t include the end of US quantitative easing. They’re largely political. Turkey’s unpredictable shadow-of-a-democracy government creates huge uncertainty, discouraging local and foreign investment. For more, see our 01/28/2014 commentary, “About That Turkish Flu.”
|By Peter Wise, Financial Times, 01/29/2014|
MarketMinder's View: Just a year ago, many still feared eurozone fallout. Now, Portugal is on the verge of following Ireland and Spanish banks in exiting its bailout. Looking ahead, the country appears well-positioned. Its constitutional court makes headlines for striking down austerity measures, weighing on sentiment, but the economy has resumed growing, and Portuguese debt is in high demand.
|By Sheila Bair and Preston Cooper, Fortune, 01/29/2014|
MarketMinder's View: This argues the Fed should reduce its inflation target to help narrow the gap between nominal median income growth and inflation since 2008. But the gap isn’t very telling about how well off Americans are—more important is the growth in real (inflation-adjusted) income. Since the recession ended in June 2009, real disposable income is up 6.3%—not gangbusters, but better than this piece suggests.
|By Leslie Shaffer, CNBC, 01/29/2014|
MarketMinder's View: “Not every national problem that crops up needs to be extrapolated to a global existential contagion issue … Most of the emerging-market world (certainly in Asia) doesn't suffer such abjectly high inflation as Argentina, doesn't have Argentina's recent record of external defaults and foreign asset expropriation, or have domestics giving up on local currencies.” Agreed! For more, see Elisabeth Dellinger’s commentary, “Q(E) the Contagion? I Think Not.”
|By Jim Brunsden, Bloomberg, 01/29/2014|
MarketMinder's View: The European Commission finally released its long-awaited proposal to end proprietary trading at the region’s largest banks and give national regulators the ability to enforce “ring fencing.” But the final rules don’t appear set to take shape any time soon. The European Parliament has intimated it won’t be able to pass companion legislation before its May election, and the chamber’s makeup could look very different after that contest, potentially throwing a wrench in things. This ongoing regulatory uncertainty is one reason (among several) we aren’t optimistic on eurozone Financials.
|By Mark Peters, The Wall Street Journal, 01/28/2014|
MarketMinder's View: More evidence state finances just aren’t the toxic mess some have feared. Tax revenues are rising as economies continue growing, giving states plenty of room to address lingering fiscal issues.
|By Ken Parks, Taos Turner and John Lyons, The Wall Street Journal, 01/28/2014|
MarketMinder's View: While letting citizens buy more dollars might help buttress Argentina’s currency in the short term, as this article suggests, it likely isn’t a long-term solution. Long-term, Argentina would benefit more from more stable and investment-friendly economic policy—actions like nationalizing a Spanish energy firm’s local operations don’t exactly inspire foreign firms to invest in Argentina. If those barriers fall, Argentina likely attracts much more hard currency and doesn’t need monetary gimmicks.
|By Josh Mitchell, The Wall Street Journal, 01/28/2014|
MarketMinder's View: While new orders for durable goods dropped on a month-over-month basis in December, they were still 4.9% higher than December 2012. Plus, a fall in aircraft orders drove most of the drop. Exclude that volatility, and the fall was much smaller (-1.6%)—in line with other blips earlier last year.
|By Staff, Reuters, 01/28/2014|
MarketMinder's View: The UK’s post-quantitative easing expansion continues apace—more evidence investors shouldn’t fear the end of Fed bond buying in the US.
|By Ylan Q. Mui, The Washington Post, 01/28/2014|
MarketMinder's View: The Fed’s ending its bond purchases (quantitative easing, or QE) has no fundamental relationship to Emerging Markets currencies, economies or markets. Fed jawboning about continuing its wind-down of QE slowly might help calm the nerves of those who see this differently, but that’s about it—nothing in tomorrow’s announcement will help (or hurt) Turkey and Argentina, which are dealing with deep local problems.
|By Alex Brittain, The Wall Street Journal, 01/28/2014|
MarketMinder's View: This highlights why gunning for a high trade surplus isn’t necessarily the right tactic. Reducing imports purely for the sake of it limits manufacturers’ ability to source cheaper or better components from abroad. If firms have more latitude to import, they can produce goods more efficiently and re-export the final product (i.e., a car) for a much bigger profit. That’s a huge, often overlooked net economic benefit.
|By Jason Zweig, The Wall Street Journal, 01/28/2014|
MarketMinder's View: Volatility, both down and up, can be tough to stomach. As this article points out, “If you have a small stake in a company, you own the stock. But if that stake suddenly grows enormous, the stock owns you. Thinking rationally about it then can become all but impossible—even if you have a doctorate in economics.” Another reason why growth-oriented investors should stay disciplined and focus on their long-term goals and objectives.
|By Kathleen Madigan, The Wall Street Journal, 01/28/2014|
MarketMinder's View: Like many external events, dismal weather creates winners and losers—and how those balance over short periods is impossible to forecast. The polar vortex might bog down in-store retail spending, but maybe people splurge online for a toasty winter coat. Construction might slow, but utility output or even salt demand could increase. Further, it’s only one month—maybe some activity just gets pushed to February. Nothing about this signifies a weak economy.
|By Ambrose Evans-Pritchard, The Telegraph, 01/27/2014|
MarketMinder's View: Contrary to popular belief, Fed policy hasn’t pumped massive amounts of hot money into Emerging Markets—maybe if it had, their stocks wouldn’t have underperformed during the bull. The Fed is also far removed from the current issues in Turkey, Argentina, South Africa and Russia—and their various political and economic problems aren’t emblematic of most Emerging Markets, which appear structurally sound. For more, see Elisabeth Dellinger’s column, “Q(E) the Contagion? I Think Not.”
|By Scott Hamilton and Emma Charlton, Bloomberg, 01/27/2014|
MarketMinder's View: Whatever Mark Carney’s “Phase Two” of forward guidance may entail, we wouldn’t advise spending much energy parsing it—jawboning just doesn’t matter or give meaningful clues into future central bank decisions. More important, in our view, is the UK’s longer-term trend: Ever since ending its QE program, the UK has emerged as one of the developed world’s strongest economies and looks poised to continue growing this year.
|By Tomi Kilgore and ES Browning, The Wall Street Journal, 01/27/2014|
MarketMinder's View: Some say the headline observation means we’re entering a correction, but it’s just an interesting observation—not an indicator with any predictive power. Whether or not this ends up being a correction will only be clear in hindsight. As ever, we advise long-term investors to stay cool—corrections are normal during bull markets, and trying to time them is nearly impossible. For more, see today’s cover story, “Keep Calm as Stocks Carry On.”
|By Staff, BBC News, 01/27/2014|
MarketMinder's View: Japanese leaders deliberately weakened the yen in an effort to boost exports. To an extent, it worked—export values rose 15.3% y/y in December. But export volumes finished the year only 2.6% higher, suggesting Japanese firms have yet to receive a meaningful boost. Compounding matters, a weaker currency means higher import prices, driving up input costs for Japanese manufacturers. Simply, the weak yen hasn’t yet been a net benefit and won’t fix all that ails Japan.
|By James Bessen, The Washington Post, 01/27/2014|
MarketMinder's View: “The experience of America’s textile industry demonstrates that technology sometimes interacts with society in surprising and counterintuitive ways.” While technology may replace certain types of work, it also creates new, different types of work—and even more opportunities for growth.
|By Marcus Walker and Matthew Dalton, The Wall Street Journal, 01/27/2014|
MarketMinder's View: Inflation isn’t an economic driver—money supply growth is, and inflation is merely a side effect of growth in money supply relative to the growth of output. What would benefit the eurozone is a rise in the velocity of money—more lending. With ECB stress tests looming, banks are deleveraging—one of the region’s bigger economic headwinds, albeit a widely known one.
|By Joe Light, The Wall Street Journal, 01/27/2014|
MarketMinder's View: Passive funds just might outperform active this year—historically, they tend to do better. Problem is, while passive strategies do well, people can’t be passive. Emotions get in the way, often prompting ill-timed trades that carry significant opportunity costs. Discipline is important to long-term success, and an active manager with sound tactics and the right values can help.
|By John W. Schoen, CNBC, 01/27/2014|
MarketMinder's View: While some fret the impact of quantitative easing’s (QE) end on corporate earnings, as this piece shows, there shouldn’t be much (if any) visible effect. Balance sheets are healthy, input costs are manageable, and sales are on the rise. For more reasons why we’re bullish in 2014, see our cover story, “A Bullish 2014.”
|By Ye Xie and John Detrixhe, Bloomberg, 01/24/2014|
MarketMinder's View: Fed policy likely has nothing to do with any of this. Turkey, Argentina and South Africa have long-running, widely known issues. Turkey is a political mess. Argentina, too—and an economic basket case. South Africa is smarting from a big slowdown in metals and mining. These are country-specific fundamental issues and don’t at all signify broader Emerging Markets’ vulnerability to the end of Fed bond buying.
|By Sylvester J. Schieber and Andrew G. Biggs, The Wall Street Journal, 01/24/2014|
MarketMinder's View: Those who believe they are base their assumptions on data from the Census Bureau’s Current Population Survey, which shows retirement income falling. But as this piece points out, the survey has underreported retirement income for decades, excluding huge sources—namely, IRAs and 401(k)s. Including these sources, which account for at least 60% of retirement income, paints a vastly different picture.
|By James Kynge, Financial Times, 01/24/2014|
MarketMinder's View: Well, they really don’t go anywhere. This piece nicely highlights the “economic mismanagement” in the countries reeling today, particularly Argentina—but what’s missing is the 1997 side. Then, Asian nations (particularly Thailand, Indonesia and South Korea) got hammered when foreign investors sold off dollar-denominated debt and forex reserves couldn’t handle the outflow. Argentina hasn’t raised a dime on international markets since 2001. A falling currency is about the only thing it has in common with the victims of Asia’s crisis.
|By Anjli Raval, Financial Times, 01/24/2014|
MarketMinder's View: Public Service Announcement: Non-traded REITs are illiquid, opaque and expensive. It’s exceedingly difficult for owners to assess their true value—or sell them once they discover just how bad a deal they are. For more, see our 11/25/2013 commentary, “The Perils of Non-Traded REITs.”
|By Emily Glazer, The Wall Street Journal, 01/24/2014|
MarketMinder's View: Mexico’s free-market reforms appear poised to continue this year as legislators focus on passing the secondary legislation needed to cement the broad Telecom, Energy and banking reforms passed last year. These are long-term positives for Mexico’s economy (and people!) and an example of the little-noticed political progress in some Emerging Markets (something markets like).
|By Kathryn Buschman Vasel, Fox Business, 01/24/2014|
MarketMinder's View: Nah—it’ll help! Tight supply and rising home prices are a big incentive for developers to build more. They already are! This piece described housing starts as weak, but that’s not quite accurate—last year was the best for new construction since 2007. Nothing turns around overnight, but it’s clear housing is on the right path.
|By Gao Changxin, China Daily, 01/24/2014|
MarketMinder's View: The more freely China’s currency is used globally, the better it is for the world—it means the world’s second-largest economy is becoming more of a market force. Ultimately, this evolution creates more economic and investment opportunities for all.
|By Floyd Norris, The New York Times, 01/24/2014|
MarketMinder's View: Gangbusters oil production is the most visible result of the shale boom, but consider what it means for the broader economy. Energy costs are falling for businesses and consumers, allowing them to deploy capital in other, more productive endeavors—that provides a big boost to growth nationwide and helps offset some small negatives, like last year’s payroll tax hike.
|By Kamal Ahmed, The Telegraph, 01/24/2014|
MarketMinder's View: Even when forward guidance “evolves,” we wouldn’t put much stock in it—it’ll probably keep evolving to suit policymakers’ needs and whims. Words have a way of doing that. Rates will rise when they rise—maybe when the BoE sees a need to rein in inflation. And when they rise, it isn’t automatically negative, just one of many variables influencing the economy.
|By Lu Zhengwei, China Daily, 01/24/2014|
MarketMinder's View: For the first time, China’s central bank is injecting liquidity into small and mid-sized banks—no longerd the big six state-run banks have a monopoly on funds! Time will tell whether this development is big enough to foster real change in how Chinese banking functions—namely, whether small businesses will gain access to traditional credit markets—but it appears to be a step in the right direction.
|By Matina Stevis, The Wall Street Journal, 01/24/2014|
MarketMinder's View: Eurozone inflation isn’t slowing because of tight money supply—M3 money is rising just fine. The velocity of money is what’s low—banks are deleveraging, not lending. The ECB can help, though, by easing up on threats to wind down banks that fail its upcoming stress tests.
|By Jeremy Warner, The Telegraph, 01/23/2014|
MarketMinder's View: According to this (and other commentary originating from this year’s World Economic Forum), world leaders and thinkers believe rising income inequality is a threat to growth. Yet there isn’t much (if any) credible data indicating a widening disparity exists. In the US specifically, incomes might be rising faster at the top than at the bottom, but all are rising—otherwise, US median income wouldn’t be rising over time, and it wouldn’t have finished 2012 at all-time highs (adjusted for inflation). For more, see this recent analysis by Dr. Mark J. Perry.
|By Ambrose Evans-Pritchard, The Telegraph, 01/23/2014|
MarketMinder's View: While Japan’s sales tax hike likely will have an impact on consumer spending in the short term, the second half of this article is what really caught our eye. It seems Japanese Prime Minister Shinzo Abe wants the world to know he’s dedicated to tackling the many vested interests trying to block structural reform efforts. Which sounds great—reform would benefit Japan tremendously! But talk is cheap. Aside from recent measures to gradually abolish rice farming subsidies and quotas, there isn’t much evidence Abe is actually “drilling” through barriers. At least, not yet—and if the current path continues, reality likely won’t live up to investors’ still-lofty expectations.
|By Michael S. Derby, The Wall Street Journal, 01/23/2014|
MarketMinder's View: It’s a well-known fact markets price in all widely known information—they’re efficient! Hence why interest rates started to tick up a bit after Ben Bernanke alluded to slowing (and eventually ending) Fed bond buying last May. But this misses the broader point: Interest rate rises aren’t inherently bad (or good) for stocks. The level of interest rates—and how rates square with expected changes in inflation—is merely one variable markets weigh. Assuming any market movement is tied to rate moves is folly, in our view.
|By Robert R. Johnson, The Wall Street Journal, 01/23/2014|
MarketMinder's View: We think so. In our view, investors should stick to making investment decisions based on fundamentals—not the outcome of a single sporting event. Results listed here are coincidental at best.
|By Jonathan Cable, Reuters, 01/23/2014|
MarketMinder's View: Total eurozone private sector activity accelerated in January and beat expectations. Germany led, hitting a 31-month high, and while France contracted again, its downturn slowed—and both services and manufacturing beat expectations. Once again, it seems the eurozone is faring better than most perceive. For more on the eurozone, see our 1/9/2014 cover story, “Europe’s Improving Health.”
|By William Kazer, The Wall Street Journal, 01/23/2014|
MarketMinder's View: In our view, there are several factors at work here. For one, HSBC’s preliminary gauge focuses on early data from mostly smaller, private firms—exactly the ones who’ve been on the receiving end of monetary tightening as the Chinese government cracks down on the non-traditional lending practices. Additionally, manufacturing output is still declining in the wake of the government’s destroying blast furnaces to reduce supply and boost falling prices. In other words, it’s more or less an intentional slowdown—not a sudden, surprising event or sign of fundamental weakness. For more see our 1/3/2014 cover story, “Chinese Cud and Manufacturing Moguls.”
|By Staff, The Telegraph, 01/23/2014|
MarketMinder's View: By “run out of money,” our Treasury Secretary means his agency will exhaust the so-called extraordinary measures to continue funding the government without issuing debt by late February. Maybe! But that isn’t the death knell for US public finances. Tax revenues more than cover interest payments—and Congress can prioritize other spending as need be. Though, ultimately, it’s a virtual certainty Congress will raise the debt ceiling again—just as they’ve done 108 times before. It’s just a matter of when—brinksmanship is always possible.
|By Staff, Reuters, 01/23/2014|
MarketMinder's View: Manufacturing growth slowed in January, but Markit’s Flash PMI remains well in expansionary territory. While the forward-looking new orders index slowed, too, it’s still growing faster than output, suggesting factories should keep chugging right along.
|By Mark J. Perry, AEIdeas, 01/22/2014|
MarketMinder's View: More proof the bull market has stronger fundamental footing than many people believe: “The complete recovery over the last several years in the global economy to new record highs in 2013 for global trade, global industrial output and world stock market capitalization demonstrates the incredible resiliency of economies around the world to recover and prosper, even following the worst financial crisis and global economic slowdown in generations.”
|By Alan Tovey, The Telegraph, 01/22/2014|
MarketMinder's View: That’s the biggest quarterly drop in more than 15 years, and it brings the rate within a hair of the BoE’s stated “threshold” for raising short-term interest rates. But that doesn’t mean a hike is nigh (nor would it much matter—rate hikes aren’t inherently bearish or bullish). Central bank guidance is just words. Words can change. Besides, as clarified in BoE minutes released Wednesday, they never said 7.0% unemployment was a “trigger.”
|By Jonathan House, The Wall Street Journal, 01/22/2014|
MarketMinder's View: While many fretted the impact of December’s cold weather on construction activity, one month’s relative weakness shouldn’t determine where the industry is headed. Construction grew quite nicely throughout 2013, and the fundamentals driving that expansion remain in place—hence why contractors expect growth to continue apace through 2014.
|By Staff, EUbusiness, 01/22/2014|
MarketMinder's View: The US-EU trade pact negotiations are underway, but hurdles remain. Genetically modified foods and hormone-treated livestock are the current hot-button issues, but both sides are also far apart on auto safety and banking regulation. If they can seal the deal, it should be a long-term positive, but current expectations seem a touch too optimistic.
|By Staff, BBC News, 01/22/2014|
MarketMinder's View: The Chinese and UK governments went to great length to strengthen trade ties last year, and it seems to be benefiting both sides—UK exports to China shot up last year, and Chinese firms are now looking to expand their global reach by investing in the UK.
|By Katie Lobosco, CNN Money, 01/22/2014|
MarketMinder's View: While some workers would benefit from higher minimum wages, they aren’t automatically a net benefit for all workers or the economy as a whole. As this piece points out, higher wages also mean higher payroll taxes, which would discourage firms from hiring or even maintaining current headcount. That ends up hurting some of the very workers the legislation tries to help.
|By Staff, EUbusiness, 01/22/2014|
MarketMinder's View: It seems the EU has resisted the temptation to issue strict regulation on hydraulic fracturing, opting instead for recommendations to ensure environmental safeguards are in place as countries inch from shale exploration to exploitation. This removes some lingering uncertainty over shale’s European future, but only time will tell if the EU reaps the same benefits as the US has from its shale boom.
|By Kim Tae-gyu, The Korea Times, 01/22/2014|
MarketMinder's View: Korea would benefit from reducing the regulations impeding foreign investment. Though these are just big-picture pledges for now, should actual measures follow, it would be a positive for the country’s ongoing emergence.
|By E.S. Browning, The Wall Street Journal, 01/21/2014|
MarketMinder's View: It seems awfully premature to base sweeping conclusions about Q4 earnings on results from about one-tenth of the S&P 500’s constituents. Looking longer-term, stocks haven’t kept pace with earnings growth throughout this bull market, and we’ve yet to see the P/E multiple expansion typical of late-stage bulls. Add in the abundance of strengthening economic fundamentals and persistently skeptical sentiment, and it’s difficult to accept the thesis that stocks are overvalued.
|By Dexter Robert, BloombergBusinessweek, 01/21/2014|
MarketMinder's View: China’s growth rate has slowed for a while—that’s what happens when growth compounds off a bigger base. It doesn’t mean China is weakening or somehow more vulnerable to disruption when (and if) officials’ planned economic restructuring takes off in earnest. What matters more for global stocks is that whether China grows at 7.7%, 7.4%, 7% or even more slowly, the country still contributes significantly to global demand growth.
|By James Titcomb, The Telegraph, 01/21/2014|
MarketMinder's View: Lending to businesses likely isn’t tight because UK banks over-focused on mortgage lending, with or without government schemes—there is little evidence suggesting they had much impact anyway. Rather, UK banks, facing regulatory headwinds, are likely only willing to lend to the most credit worthy, and small business lending is simply a risky endeavor.
|By Ken Kamen, CNBC, 01/21/2014|
MarketMinder's View: While we don’t agree with everything here, this article contains a number of sensible points, especially: “Market tops are usually associated with excessive speculation and irrational investor exuberance, neither of which characterizes the present market.” Those worried the market is unsustainably high need only read headlines to see how far behind reality sentiment is—this bull has a ways to go before it catches up (never mind exceeds it).
|By Staff, The Wall Street Journal, 01/21/2014|
MarketMinder's View: While today’s cash infusion likely helps ease some ongoing concerns about a liquidity shortage in China’s banking system, it’s difficult to envision the other development here—eased restrictions on some bad loan write offs—having a material long-term impact. Since the changes are limited to small loans, the scope seems too small to free up a significant amount of money for new lending to small businesses.
|By Scott Hamilton, Bloomberg, 01/21/2014|
MarketMinder's View: After new orders hit a two-year high in December, UK manufacturing firms appear poised to raise production to keep up with growing demand—more evidence the UK recovery is alive and well.
|By Chikako Mogi, Bloomberg, 01/21/2014|
MarketMinder's View: Loosening restrictions on residential construction in commercial districts likely would help encourage more construction and efficient land use, but the likelihood the benefits spread much beyond the special economic zones affected is low. More broadly, solving Japan’s long-running economic issues likely requires deep structural change, particularly in areas of the economy (foreign trade, agriculture, energy, etc.) with more political sensitivity than urban land use.
|By Staff, Reuters, 01/21/2014|
MarketMinder's View: Fearing low inflation’s impact on strong global growth seems odd to us. Inflation doesn’t drive growth. It naturally occurs as the broader money supply increases—similar to economic growth. And we expect to see more of all three as quantitative easing, which largely only boosts banks’ balance sheets, winds down. For more see our 01/17/2014 commentary, “Sentiment’s Goldi-Lockdown.”
|By Brian Fung, The Washington Post, 01/17/2014|
MarketMinder's View: We’ll never know whether and how home video would have developed if the Supreme Court didn’t rule that taping TV shows isn’t piracy—there isn’t a counterfactual. But it’s safe to say the decision enabled tremendous growth over the past three decades, from home video to DVRs, online streaming and beyond—along with all the industries that grew alongside, like home fitness and even professional skateboarding! With that growth came countless opportunities for investors. That same fountain of opportunity exists today.
|By Paul Krugman, The New York Times, 01/17/2014|
MarketMinder's View: The scandal, lest anyone wonder, is the Socialist French President’s dalliance with free-market policies—he’s cheating on ideology. Let’s set all that aside—markets aren’t ideological, and neither are we. The issue is economic: Would France benefit more from stimulating demand or supply? We won’t argue demand is perfect—weak bank lending is preventing the free flow of capital. But supply-side reform can foster more lasting gains than a patchwork fix for demand. When firms face fewer taxes and restrictions, they can produce goods more efficiently (and cheaply) and invest more throughout the broader economy. As that capital circulates, it ultimately boosts demand, too.
|By Jeremy Warner, The Telegraph, 01/17/2014|
MarketMinder's View: As this piece shows, it’s actually part of the problem—punitive measures make it exceedingly difficult for banks to perform their core function of lending to the real economy. The US and UK have largely moved past this—regulators are granting a touch more flexibility—but the eurozone is getting ever-more restrictive. Unless they change tack, eurozone bank deleveraging likely continues, weighing on the region’s growth.
|By Emma Dai, China Daily, 01/17/2014|
MarketMinder's View: As this shows, Chinese financial reform is a trial-and-error process—regulators are figuring this out as they go. The IPO reform saga is likely a microcosm of what broader reform will entail over the next several years, if not decades. Anyone expecting lightning-fast results will likely be disappointed, but for markets, quality matters more than speed—if slow change limits the likelihood of errors and unintended consequences, gradual reform is likely a long-term positive.
|By Ylan Q. Mui, The Washington Post, 01/17/2014|
MarketMinder's View: Words, words, words. Our takeaway: That our Fed chief likened the financial crisis to trying not to drive off a bridge after a car wreck, then nearly dying of shock after, epitomizes how discombobulated he and the Treasury were at the time. Perhaps that explains why, rather than keeping cool with orderly, predictable methods of addressing failing financial institutions, officials were haphazard—having JPMorganChase buy out Bear Stearns and WaMu, bailing out Fannie Mae and Freddie Mac, nationalizing AIG and letting Lehman fail. Now we learn they were just plain panicked. Is it any wonder markets did the same?
|By Szu Ping Chan, The Telegraph, 01/17/2014|
MarketMinder's View: So much for all the handwringing about weak holiday sales at allegedly bellwether retailers—online and high street sales surged 5.3% in December! But the news was received with rampant skepticism, illustrating how low expectations and sentiment remain.
|By Sophia Yan, CNNMoney, 01/17/2014|
MarketMinder's View: No shock there—the official target is more of an acceptable minimum. Those pulling the strings in China’s command economy have a knack for squeezing out whatever activity is needed to exceed the target. For global markets, the number doesn’t much matter. What’s more important is the amount of dollars China contributes to global GDP. Even if growth slows now or in the future, China will remain a big, growing source of global demand.
|By Josh Boak, Associated Press, 01/17/2014|
MarketMinder's View: Like many sectors of the US economy, industrial production is growing apace, but forecasts expect weakening over 2014. These low expectations create a nice backdrop for strong results to keep surprising investors, giving this bull market plenty more fuel.
|By Editorial Board, The Wall Street Journal, 01/17/2014|
MarketMinder's View: Trade surpluses aren’t inherently positive, and trade deficits aren’t inherently negative. They just don’t matter. Countries that import more also receive more foreign investment. Countries that export more invest more abroad, fueling growth. None of this needs “solving”—it’s just how the world works.
|By James Fontanella-Khan, Financial Times, 01/17/2014|
MarketMinder's View: More roadblocks for the eurozone’s banking union, which would establish the ECB as regulator of the region’s biggest banks—potentially with the authority to wind down teetering institutions at its own discretion. With the European Parliament stonewalling and elections looming in May, key questions likely won’t be resolved any time soon, feeding the regulatory uncertainty plaguing eurozone Financials.
|By Mari Iwata, The Wall Street Journal, 01/17/2014|
MarketMinder's View: A more robust futures market for liquefied natural gas (LNG) won’t solve all Japan’s energy woes, but it is a long-term positive. More futures trading helps prices become more efficient, which might help ease regional discrepancies—in Japan, LNG costs about four times what it does in the US. This also speaks to the opportunity awaiting the US if Congress approves broad LNG exports.
|By Lee Jong-Wha, Project Syndicate, 01/16/2014|
MarketMinder's View: It might be, but so far, there isn’t much evidence the country’s special economic zones are anything more than a vehicle to get hard currency into the country, and investors have often been burned by the North’s arbitrary policies. Opening of the kind that would benefit the country’s starving people, as this piece points out, would require sweeping legal and political reform, which Kim Jong-un’s government doesn’t seem keen on pursuing.
|By Todd Bliman, Equities.com, 01/16/2014|
MarketMinder's View: The latest from our Managing Editor, Todd Bliman, on rational expectations for 2014.
|By Michael Schuman, Time, 01/16/2014|
MarketMinder's View: But as this article points out, this shouldn’t alarm Americans either—it’s a sign of global growth! Just as Japanese investment and expansion into the US has boosted growth and employment on our shores, Chinese expansion means more business opportunities—and jobs—for Americans, too.
|By Jeff Black, Bloomberg, 01/16/2014|
MarketMinder's View: Ordinarily we’d suggest not paying much mind to stress tests, considering how arbitrary they are. Cyprus’s banks, for example, passed ECB stress tests with flying colors and still went under last year. In this case, however, they’re more significant as the ECB has intimated failing banks could be subject to significant capital raises or even bail-in procedures. That they seem to favor an easier capital threshold suggests they’re aware a wave of failures likely wouldn’t be in the best interests of the general populace.
|By Felix Salmon, Reuters, 01/16/2014|
MarketMinder's View: Two letters: QE (quantitative easing). While the US housing recovery has continued, QE has disincentivized banks from lending, as the Fed’s continued asset purchases flattened the yield curve, sapping banks’ lending margins (as this piece shows). This leaves banks with little incentive to lend to anyone besides the most creditworthy parties. An end to QE and a steepening of the yield curve will change this—and more lending means more access to credit for people like homebuyers. Chalk up another reason why we can’t wait for the end of QE!
|By Mark Deen and Ian Wishart, Bloomberg, 01/16/2014|
MarketMinder's View: The eurozone, and especially the periphery, still have their share of problems, from competitive issues to choppy economic results. But its situation is also better than many investors give it credit for. From Ireland’s successful bond auction to Greece’s projected budget surplus, these bits of good news can exceed the still dour expectations surrounding the region—as (perhaps unintentionally) highlighted in this piece.
|By Eleanor Warnock, The Wall Street Journal, 01/16/2014|
MarketMinder's View: While it’s interesting to see Japanese firms seem willing to embark on long-term business plans despite an expected drop in consumer demand once sales taxes rise in April, no one monthly data point (machinery orders here) indicates where an economy is headed—it’s too narrow, short-term and backward-looking. Considering the numerous other headwinds Japan faces—including significant structural issues—investors who expect Japan to be a world economic leader likely end up disappointed. For more on Japan, see our 12/13/2013 cover story, “Shinzo’s Stalemate.”
|By Anna White, The Telegraph, 01/16/2014|
MarketMinder's View: UK housing is hot, but is a bubble forming? Evidence suggests it isn’t. The heat seems concentrated in London, where demand far outstrips supply—more broadly across the UK, the housing recovery reflects the overall economic strength we saw pick up last year. For more, see Akash Patel’s column, “Heating Up—A Look at UK Housing.”
|By Staff, Associated Press, 01/16/2014|
MarketMinder's View: Contrary to popular fears, foreign demand for US Treasurys is alive and well!
|By Cheyenne Hopkins and Jesse Hamilton, Bloomberg, 01/16/2014|
MarketMinder's View: Regulators granted an exemption for community banks to continue holding TruPS-backed CDOs, but the American Banking Association is pushing for additional allowances for Collateralized Loan Obligations, claiming the rule as written could cause a ripple to the tune of $70 billion. Though this amount is too small to cause sweeping losses in the US financial system, the issue bears watching as another potential unintended consequence of the rule, and we’d suggest expecting more in the weeks and months ahead. For more, see our 12/27/2013 cover story, “The Volcker Games.”
|By Allan Sloan, CNN Money, 01/15/2014|
MarketMinder's View: This piece hits on a few truths all investors should recognize: Data can be manipulated, when you begin investing impacts your total return, and one big up or down year will skew average returns over short windows. Investing decisions shouldn’t be made on trailing returns alone—especially over short, arbitrary periods like one, three, five and ten years. Investors need to consider their long-term goals and objectives, time horizon, different asset classes’ long-term performance (at least 70 years of history can be obtained) and expected risk/return characteristics, and what long-term returns are necessary to achieve their goals over time.
|By Ambrose Evans-Pritchard, The Telegraph, 01/15/2014|
MarketMinder's View: The biggest headwind to French growth over the years has been waning competitiveness, exacerbated by the state’s outsized role in the economy. Now, it seems President François Hollande is pushing to address some of these issues. If he’s successful, it would be a long-term positive for France, though lawmakers in his Socialist Party might be tough to convince. For now, though, this is the latest evidence Hollande’s policies are not the sweeping negative many presume—another instance of eurozone reality exceeding expectations.
|By William Watts, MarketWatch, 01/15/2014|
MarketMinder's View: That stocks went two straight years without registering a year-to-date negative return—at any point—is just a quirky observation. It doesn’t mean stocks went straight up for two years—there were plenty of drops along the way, including a full-blown correction in spring 2012. And none of this means a thing for future returns—past price movement doesn’t dictate future performance. Fundamentals do, and fundamentals are better than most perceive.
|By Rana Foroohar, Time, 01/15/2014|
MarketMinder's View: In our view, this misunderstands how banks function and Basel III’s proposed rules. It alleges forthcoming capital standards allow banks to conduct business with “roughly 96% borrowed money.” But this is what banks are designed to do! In the simplest of terms, they borrow from depositors and lend to people and businesses. Basel III establishes guidelines for them to continue doing this while keeping a certain amount of cash and high-quality liquid assets on hand. For more, see our 01/14/2014 commentary, “Three Breaks for Basel III.”
|By Brian Parkin, Bloomberg, 01/15/2014|
MarketMinder's View: As well they should. German export growth doesn’t hurt the overall eurozone—it helps! Products are rarely produced start to finish in one country, and many German exports were made with imported components. Plus, trade is voluntary—countries don’t trade with each other if it isn’t mutually beneficial. Finally, one country’s success isn’t another’s loss. Economic growth isn’t a fixed pie—growth in Germany likely helps spur growth among its neighbors, especially considering Germany’s trade surplus also implies a surplus of German investment abroad.
|By Paul Hannon, The Wall Street Journal, 01/15/2014|
MarketMinder's View: The eurozone’s November trade report wasn’t stellar—imports fell, implying shaky demand within the region—but other reports suggest the recovery continues. Ireland’s first post-bailout bond auction was a smashing success; Spain grew in Q3; eurozone retail sales, services and manufacturing PMIs and industrial production were strong; and German factory orders excelled. Overall, the region likely continues improving, even if different areas grow at different rates—and even if some temporarily contract.
|By Ylan Q. Mui, The Washington Post, 01/15/2014|
MarketMinder's View: We agree the world shouldn’t fear the taper, but not for the reasons described here! Simply, the notion “hot money” flows from the US to Emerging Markets, courtesy of quantitative easing, have propped up growth and asset prices in the developing world is false. Investment flows have been more or less in line with historical norms during QE, growth has slowed, and markets don’t appear wildly detached from reality. If anything, ending QE will fuel growth as rate spreads widen globally.
|By Philip Stafford and Alex Barker, Financial Times, 01/15/2014|
MarketMinder's View: This development is likely a ways from completion, but it’s worth watching. Regulation limiting trading (high frequency or other) also limit markets’ liquidity and often lead to increased prices—a negative for all market participants.
|By L. Gordon Crovitz, The Wall Street Journal, 01/14/2014|
MarketMinder's View: An interesting example of how regulation can carry opportunity cost: By banning commercial drone use, regulators prevent entrepreneurs and businesses from using the technology to boost output and increase efficiency, much in the same way regulators prevented businesses from capitalizing on Internet technology until the mid-1990s.
|By Jim O’Neill, Bloomberg, 01/14/2014|
MarketMinder's View: Nothing! This so-called “five-day rule” doesn’t predict where stocks are headed for 2014. That stocks have risen in 75.4% of years when the first five days were positive simply tells you stocks rise more often than fall. Markets don’t move on past performance—they’re forward looking. Though, the allegedly forward-looking factors mentioned here, like the US trade deficit, aren’t fundamental market drivers.
|By Staff, BBC News, 01/14/2014|
MarketMinder's View: UK inflation inched down to its 2% target in December—the lowest since November 2009—as food prices rose more slowly. Take note: UK inflation has eased even though M4 money supply growth accelerated after the BoE’s bond-buying program (quantitative easing or QE) stopped—evidence a post-QE surge in US money supply growth shouldn’t automatically trigger runaway inflation at home.
|By Mark J. Perry, AEIdeas, 01/14/2014|
MarketMinder's View: A telling study about rising incomes for taxpayers from 1996 through 2005: “Contrary to prevailing public opinion that Americans get stuck at a given low-income level for decades or generations, the empirical evidence … tells us that there is significant movement up and down the economic ladder over even very short periods of time, like one decade.”
|By Tobias Buck, Financial Times, 01/14/2014|
MarketMinder's View: According to Spain’s finance minister, its economy grew 0.3% q/q in Q4, continuing its climb back from an 18-month recession. With the long-suffering periphery returning to growth and returning to pre-crisis sovereign bond yields, the eurozone is on much firmer footing than investors expected.
|By Emily Gosden and Bruno Waterfield, The Telegraph, 01/14/2014|
MarketMinder's View: It seems the European Commission won’t pursue complex legislation regulating hydraulic after all. Instead, they appear set to simply issue a recommendation for developing the resource in line with existing UK guidelines. This should abate some of the uncertainty hanging over shale in the UK—boosting more hope for the nascent industry.
|By Jeffrey Sparshott and Paul Ziobro, The Wall Street Journal, 01/14/2014|
MarketMinder's View: Defying fears of meager consumer spending during the holiday season, overall retail sales continued to advance, rising 0.2% m/m in December. Excluding weak auto sales, retail sales were up a healthy 0.7%—proof the economy is chugging along. But not for the reasons this piece suggests (i.e., a supposed wealth effect from rising stocks and home prices)—rather, disposable incomes have risen throughout the year.
|By Staff, The Telegraph, 01/14/2014|
MarketMinder's View: Though it’s just one month of data, eurozone industrial production exceeded forecasts by rising 1.8% in November, rebounding from October’s contraction and logging the biggest jump since May 2010—providing further evidence against a widely feared double-dip recession.
|By Jason Zweig, The Wall Street Journal, 01/13/2014|
MarketMinder's View: When few (if anyone) believe trouble is even remotely possible! “The fact that you can’t open a newspaper, watch financial television or visit an investment website without encountering a commentator worrying about a bubble is probably encouraging. And the fact that market pundits can declare that this is a bubble without being insulted is almost certainly a good sign.”
|By Anne Tergesen, The Wall Street Journal, 01/13/2014|
MarketMinder's View: Every investor’s long-term strategy should be based on their long-term goals and objectives for the assets, time horizon, cash flow needs, financial situation and other personal factors. However, assuming your goals are consistent with equity exposure, it would likely be a mistake to implement it late: This overlooks the time value of money.
|By Staff, The Economist, 01/13/2014|
MarketMinder's View: Time will tell whether French President François Hollande follows through with high-level plans to pursue more market-friendly economic policies. But the rhetorical shift is the latest instance of Hollande backing off some parts of the anti-business agenda he touted during his 2012 campaign. Like all politicians, he is moderating—perhaps one reason French stocks have outperformed the MSCI World Index since his election. For more on France, see Emily Dunbar’s 12/9/2013 column, “Great French-Pectations.”
|By Jim Brunsden, Bloomberg, 01/13/2014|
MarketMinder's View: More notable than the actual rule changes, which are incremental and probably don’t have much impact on lending one way or the other, is regulators’ apparent slight shift of focus away from punishment and crisis prevention toward fostering a system that allows banks to go about their core business while managing risk in a prudent, transparent fashion. If this holds, it would be positive for banks and the broader economy.
|By Staff, China Daily, 01/13/2014|
MarketMinder's View: Every investor’s long-term strategy should be based on their long-term goals and objectives for the assets, time horizon, cash flow needs, financial situation and other personal factors. However, assuming your goals are consistent with equity exposure, it would likely be a mistake to implement it late: This overlooks the time value of money.
|By Staff, EUbusiness, 01/13/2014|
MarketMinder's View: We aren’t really sure what “normal” means—if it implies the absence of risk and volatility, then “normal” doesn’t exist. But semantics aside, this highlights how far the eurozone periphery has come since the debt crisis escalated. Exhibit A: Healthy demand for peripheral sovereign debt as many countries’ yields return to pre-crisis levels. For more, see our 1/9/2014 cover story, “Europe’s Improving Health.”
|By Ben Winkley, The Wall Street Journal, 01/13/2014|
MarketMinder's View: The UK government is going “all out” for shale, trying to replicate the US’s success with hydraulic fracturing. However, only time will tell whether fracking takes off there or throughout Europe. The US shale boom happened because private landowners hold mineral rights—people and communities had an incentive to allow firms to develop the resources underneath them. In Europe, governments hold mineral rights, and it’s far from certain government sweeteners like allowing communities to keep tax revenue from shale projects will be enough to seal the deal.
|By Staff, BBC News, 01/13/2014|
MarketMinder's View: While Indonesia’s ban on exporting raw minerals isn’t so great for foreign trade or Indonesia’s economy, it is very widely known—it was passed in 2009, giving markets over four years to deal with it. Hence, it likely has little market-moving power looking forward.
|By Neil Irwin, The Washington Post, 01/10/2014|
MarketMinder's View: The headline is an ironic reference to other pundits’ fretting over a 347,000 drop in the labor force and “only” 74,000 new jobs. The article is a friendly reminder to take the notoriously wonky jobs report with a grain of salt: “[It] can’t be real. All the other evidence we have on how the economy is doing is inconsistent with a mere 74,000 newly added jobs … Manufacturing surveys are reporting strong output. Trade numbers are looking favorable. Business investment appears strong.”
|By Angela Monaghan, The Guardian, 01/10/2014|
MarketMinder's View: Bully for them. But this isn’t the “landmark milestone” officials claim, nor a sign of “dominance.” It just means a nation with well over a billion people is providing a bigger outlet for goods made elsewhere—a driver of growth globally!
|By Ambrose Evans-Pritchard, The Telegraph, 01/10/2014|
MarketMinder's View: Quantitative easing (QE) isn’t the answer to falling eurozone inflation—bond buying is deflationary! M4 money supply contracted in the US and UK during QE. Eurozone inflation isn’t low for lack of liquidity. It’s because the regulatory environment encourages bank deleveraging. QE isn’t a fix.
|By Dinny McMahon, The Wall Street Journal, 01/10/2014|
MarketMinder's View: The tools in question are steps pioneered in the developed world, like spinning off non-performing loans to “bad banks” (think the Fed’s Maiden Lane portfolio) and creating exchanges for collateral. Time will tell whether they work—but if they don’t, China can always fall back on its $3.5 trillion in foreign currency reserves. Plus, China’s financial system is state-run and largely closed, and the debt in question is denominated in local currency. This situation is highly unlikely to ripple globally.
|By David Bird, The Wall Street Journal, 01/10/2014|
MarketMinder's View: That doesn’t mean the shale boom is over—it just means the early gains from opening new fields have passed. We also wouldn’t put much stock in long-term price and supply forecasts. Any number of variables, including approval of new export terminals, a green light from California regulators on drilling in the Monterey shale, efficiency gains and infrastructure improvements could easily change the outlook. Heck, higher prices themselves incentivize more production, which would push prices down again.
|By Victoria McGrane, The Wall Street Journal, 01/10/2014|
MarketMinder's View: “There are a couple of likely reasons the Fed made less profit in 2013 than the previous year, even though its securities portfolio was larger. These include profits the central bank booked in 2012 from liquidating the crisis-era Maiden Lane funds that held toxic assets acquired from the 2008 bailouts of American International Group Inc. and Bear Stearns. With the funds closed, the Fed made no such profits this year.” Sure seems those assets were toxic now, huh?
|By Staff, Xinhua, 01/10/2014|
MarketMinder's View: A country where a key gauge of domestic demand rose 7.3% in a year would seem not to be landing hard. Or soft. Or at all. No, the world’s second-largest economy is growing apace, contributing mightily to global GDP and beating investors’ dour expectations.
|By Staff, Gazzetta del Sud, 01/10/2014|
MarketMinder's View: Labor reform is one of the biggest tasks facing Italy’s government, and it seems a proposal unveiled Wednesday could have broad support—more evidence Italy’s political outlook is clearing some, which is yet another underappreciated positive for the eurozone.
|By Staff, EUbusiness, 01/10/2014|
MarketMinder's View: Yields on the five-year bonds sold fell from 4.891% a year ago to 4.657%, and demand was strong. Combine strong bond sales and low interest rates with growing GDP and continued (if fitful) progress on public sector cuts and economic reforms, and Portugal appears on target to exit its bailout as planned later this year—a far better outcome than most expected when Portugal received its bailout in 2011.
|By William Schomberg and David Milliken, Reuters, 01/10/2014|
MarketMinder's View: The occasional weak report is helpful—it keeps expectations in check, creating a better backdrop for stocks. It also doesn’t much change the UK’s economic outlook, which appears among the developed world’s strongest.
|By Martin Crutsinger, Associated Press, 01/10/2014|
MarketMinder's View: After Q3 inventories were revised up significantly, most headlines assumed stockpiles would automatically fall in Q4, dragging down GDP growth. But so far, that hasn’t happened—inventories grew 1.3% in October and 0.5% in November.
|By Alison Sider, The Wall Street Journal, 01/09/2014|
MarketMinder's View: Coal has been under pressure from both a relative cost standpoint—cheap US natural gas’s use in firing power plants is on the rise—and from new regulations limiting CO2 output. The result is increased exports of coal—an important source of demand for the industry moving forward. For more, see our 09/25/2013 column, “The Real War on Coal.”
|By Joseph Sternberg, The Wall Street Journal, 01/09/2014|
MarketMinder's View: “There was a time, not so long ago, when the world feared China was going to use its dominance of the global rare-earth-element industry to crush Western economies and militaries in a strategic vise. Those were the days. Recent developments highlight how wrong those alarmist predictions were.” It turns out China lacked both the incentive and wherewithal to pull off cornering the market for rare earths. Now, China’s share of global rare-earths production is down 15%, likely poised to fall more as production comes online elsewhere and Technology firms are substituting where needed. See Brad Pyles’ analysis, “An Overview of Rare Earth Metals,” from 11/30/2010 to see our thoughts on the “crisis” as it was happening.
|By Steve Rothwell, Associated Press, 01/09/2014|
MarketMinder's View: Calendar changes don’t dictate stock movement. Not the first five days. Not the first month. Not the fifth calendar month of the year nor when the holidays are near. As alluded to in our recent video, data do not support the notion that any outcome in January predicts the rest of the year.
|By Staff, EUbusiness, 01/09/2014|
MarketMinder's View: While sentiment toward the eurozone seems mostly focused on an uneven recovery, fears over France and more, the fundamental data from the eurozone has been positive. This is the exact backdrop forming the “wall of worry” bull markets are often said to climb. For more, see today’s cover story, “Europe's Improving Health.”
|By Steve Tobak, Fox Business, 01/09/2014|
MarketMinder's View: While it is true manufacturing employment is a shadow of its former self—and some people have been hurt by that over time—blaming outsourcing for this is a stretch. The principal and proximate cause is technology and automation. That is why the US has a higher manufacturing output than ever, and output per worker is vastly higher than China’s. Manufacturing employment isn’t likely to return to levels seen in the 1950s or 1960s regardless of what happens abroad. The jobs are simply different and they’re in the service sector. For more, see Todd Bliman’s 10/20/2011 column, “That (Non-Existent) Giant Sucking Sound.”
|By Jesse Hamilton and Yalman Onaran, Bloomberg, 01/09/2014|
MarketMinder's View: In theory, the Volcker Rule was to limit the largest banks’ proprietary trading arms, perceived by some as a source of systemic risk. But the definition of proprietary trading developed in the “final” rule hit small banks’ holdings of certain collaterized debt obligations—an unintended target. As detailed here, regulators are weighing a revision grandfathering in such holdings to mitigate the impact to small banks. For more, see our 12/27/2013 cover story, “The Volcker Games.”
|By Staff, Reuters, 01/09/2014|
MarketMinder's View: We’re not sure what reaching a national debt “danger zone” means for a country, but we’re pretty sure France isn’t in one—and markets seem to agree. French 10-year bond yields are presently 2.35%, and the spread from supposedly stalwart Germany is 0.41 percentage point—down markedly from a peak spread of 1.5 percentage point in mid-2012.
|By Amrita Jayakumar, The Washington Post, 01/09/2014|
MarketMinder's View: While one day/weekend/week doesn’t make a retail season—and a season doesn’t define a year—this news counters all those December headlines bemoaning weak holiday shopping.
|By Katherine Rishton, The Telegraph, 01/08/2014|
MarketMinder's View: This is a little overstated, in our view. A couple of days of cold needn’t signal economic pain—and estimates of dollars lost are often wrong. That some business activity halted will likely be balanced out by other business activity boosted by the cold spell—it’s zero sum. More importantly, most areas inflicted with the severe cold weather aren’t unused to cold weather, and a large part of the country will continue business as usual, further mitigating fears.
|By Annalyn Kurtz, CNN Money, 01/08/2014|
MarketMinder's View: At any given time, some people will be unemployed for a while, and some will become discouraged—and that’s very difficult for those individuals. But in the bigger picture, unemployment is a lagging indicator (always has been), and it often improves gradually throughout an expansion. What this article really shows is how dour the media still is despite continued improvement in economic data—including unemployment.
|By Christopher Matthews, Time, 01/08/2014|
MarketMinder's View: Here’s a hugely sensible answer: It doesn’t matter. “Americans should hope for the Chinese economy to grow because that means there will be a larger market for the goods and services we create here in the U.S.” We’re in a global economy—another country’s gain isn’t our loss.
|By Clement Gignac, The Globe and Mail, 01/08/2014|
MarketMinder's View: This is a prime example of investors’ and media expectations for Japan being much too high. Japan’s sales tax isn’t part of Abe’s third arrow—it was legislation passed by the previous administration, and it isn’t exactly a pro-growth reform. But it’s doing a great job of distracting politicians from the real issues holding Japan’s economy back, like deep-seated protectionism in foreign trade, Corporate Japan, the Energy sector and labor code. Abe has been fairly successful seeking short-term fixes, but we doubt he has the chutzpah to push through measures for sustainable growth.
|By Andrew Rice, Life Health Pro, 01/08/2014|
MarketMinder's View: This is a great analysis of promises investors receive from annuity salesmen, what they really mean and how they actually pan out. As with any investment, investors should critically assess a broker’s sales pitch, the product’s prospectus and the likelihood of better options available to them.
|By Scott Hamilton, Bloomberg, 01/08/2014|
MarketMinder's View: UK housing’s marked improvement in the last several months is a sign of broader economic growth and improving lending conditions (at least in mortgages) post-QE—a positive with room to grow! As for those bubble fears, nationwide home prices haven’t yet reached prerecession highs again, never mind bubble-like territory. For more, see Akash Patel’s commentary “Heating Up—A Look at UK Housing.”
|By Kathleen Madigan, The Wall Street Journal, 01/08/2014|
MarketMinder's View: December’s strong private sector payrolls growth reiterates the US economy is alive and well, and as other economic data continue improving, payrolls likely increase more, too.
|By Ambrose Evans-Pritchard, The Telegraph, 01/08/2014|
MarketMinder's View: Low eurozone inflation is primarily due to bank deleveraging. Higher capital ratios phase in soon (shrinking the amount they have available to lend), and the regulatory environment is uncertain and potentially punitive. QE wouldn’t help any of these items—and by flattening the yield curve, it would likely make lending even less attractive, exacerbating the decline in money velocity across the continent.
|By Stefan Riecher, Bloomberg, 01/08/2014|
MarketMinder's View: Rising 2.1% m/m versus 1.5%, and eurozone retail sales had an even bigger beat (1.4% m/m vs. 0.1%)—more positive data underlying the eurozone’s ongoing (albeit uneven) recovery.
|By Floyd Norris, The New York Times, 01/07/2014|
MarketMinder's View: While courts consider the American Banking Association’s request to suspend a provision of the Volcker Rule prohibiting banks from owning CDOs backed by Trust Preferred Securities, it appears Congress might attempt to water down the same provision, potentially sparing community banks from approximately $600 million in writedowns—one of the rule’s most visible potential unintended consequences. For more, see our 12/27/2013 cover story, “The Volcker Games.”
|By Staff, BBC News, 01/07/2014|
MarketMinder's View: What matters more than the trade deficit is total trade—exports plus imports, which are a key indicator of domestic demand. Exports rose $1.7 billion, indicating rising international demand for our goods and services. Imports fell, but the decline was concentrated in petroleum products—a byproduct of the shale boom. Non-petroleum imports rose by $124 million—small, but evidence domestic demand remains firm.
|By Shawn Pogatchnik, Associated Press, 01/07/2014|
MarketMinder's View: After exiting its bailout last month, Ireland’s first bond issue was a smashing success—demand was over 3.7 time coverage, and 10-year yields hit 3.25%, the lowest in eight years.
|By Ben Chu, The Independent, 01/07/2014|
MarketMinder's View: The overall economy likely grew, and services exports rose, but survey participants reported a slight fall in export orders—a more forward-looking indicator. While other surveys, like Markit’s PMIs, indicate total manufacturing and services new orders are still growing apace, this report is still worth being aware of.
|By Staff, EUbusiness, 01/07/2014|
MarketMinder's View: Eurozone disinflation isn’t surprising, considering banks are still deleveraging, which limits money supply growth. This is an economic headwind, but it has also long been widely discussed—markets have had ample time to deal with these concerns.
|By Mark J. Perry, AEIdeas, 01/07/2014|
MarketMinder's View: The title says it all, but the data paint a striking picture. Whether you define “lower-income” households as those making $25,000, $35,000 or $50,000 and under, fewer US households today qualify as “lower-income” than ever before—more people are making more money.
|By Adam Shell, USA Today, 01/07/2014|
MarketMinder's View: Indeed, the first three trading days don’t set course for the year. But neither does the first month! Markets are forward-looking. Where they end up next December has nothing to do with something backward-looking, like performance during one week or month.
|By Staff, Xinhua, 01/07/2014|
MarketMinder's View: Like most of China’s pending reforms, these are just plans—China hasn’t issued private banking licenses yet. Regulators merely expect to issue three to five by year end. If all goes according to plan, however, this will help open the banking sector to private capital and competition, which should benefit businesses throughout the real economy.
|By Rana Foroohar, Time, 01/07/2014|
MarketMinder's View: Trying to predict what a new Fed head will do is folly, in our view—new chairmen frequently do the opposite of what people would expect based on their resume and occasional statements. Plus, there are 12 voting members on the FOMC—Janet Yellen is just one vote. Trying to divine what goes through the minds of 12 human beings is likely time misspent.
|By Liz Capo McCormick, Bloomberg, 01/06/2014|
MarketMinder's View: This article sheds some light on a common fear: That the dollar could lose its status as the reserve currency of choice. As noted herein, if measured by the share of global currency reserves, that’s been underway since 2001! Yet if measuring by dollars held, they’re growing. You see, as other markets gradually open, reform and improve market liquidity, it’s likely their currencies grab a bigger share of reserve holdings’ growth. However, US capital markets are the world’s deepest and most liquid. Any change here would be slow in coming and unlikely to cause any negative impact at all. For more, see Elisabeth Dellinger’s 10/31/2013, “The Tale of the Dollar’s Demise.”
|By Peter J. Wallison, The New York Times, 01/06/2014|
MarketMinder's View: Defining a bubble as home prices diverging from the Bureau of Labor Statistics’ definition of rental costs is bizarre and could lead to overly aggressive policy. It is also important to note that 2008’s Financial Crisis wasn’t precipitated by the housing bubble. That was a contributor, but it accounts for about $300 billion in loan losses, a manageable sum for banks. It was FAS 157’s fair value accounting that did most of the damage in triggering $2 trillion of unnecessary losses to banks. And then the government stirred uncertainty through its schizophrenic actions. The housing bubble is actually a small piece of the story, not a big one.
|By Eamon Quinn, The Wall Street Journal, 01/06/2014|
MarketMinder's View: On the heels of re-entering capital markets after officially exiting its bailout program, more positive news for Ireland: 2013 tax revenue rose 3.2%, paced by rising corporate tax receipts—implying a healthy private sector continues driving growth. This welcome development implies Ireland is on stronger footing than many appreciate.
|By Alex Rosenburg, CNBC, 01/06/2014|
MarketMinder's View: The Hangover Indicator and its five trading days are no more predictive than the “January Effect,” “Sell in May” or any other seasonal indicator. Folks: The calendar, no matter how it’s sliced and diced, isn’t predictive of market outcomes that are determined by economic, political and sentiment drivers. For more, see our latest video here.
|By Holly Ellyatt, CNBC, 01/06/2014|
MarketMinder's View: Eurozone manufacturing and services expanded and accelerated in December, with composite PMI hitting 52.1—a figure suggesting the eurozone economy posted its third consecutive quarter of economic growth to end 2013. Interestingly, Spain led the charge in services with a much bigger-than-expected gain—yet more evidence the eurozone is in better shape than many appreciate.
|By Reuters, CNBC, 01/06/2014|
MarketMinder's View: The US services sector grew more slowly than expected in December. Growth is growth, so that’s a plus. Though, the thing that caught our eye most was the seven point drop to a contractionary 49.4 reading in the forward-looking new orders component. However, this is the first negative read and new manufacturing orders are still nicely expansionary, suggesting dipping services orders may prove an anomaly. Either way, though, it is worth being aware of.
|By Suzanne Daley, The New York Times, 01/06/2014|
MarketMinder's View: Consider this a cautionary tale in two major respects: One, an undiversified investment in anything is assuming an enormous amount of risk. And two, hinging those bets on government policy—which can and does change—is also a poor strategy.
|By Neil Irwin, The Washington Post, 01/06/2014|
MarketMinder's View: This exemplifies the still-skeptical camp of investors who acknowledge US economic health, but do so with a quick, “yeah but….” Also, the focus here is much too heavily tied to GDP, an imperfect measure of economic growth. So we actually agree using models to understand the economy is flawed—but acknowledging that point suggests to us that maybe the low statistical rates of growth we’ve seen since 2009 aren’t as telling as some would claim.
|By Spencer Jakab, The Wall Street Journal, 01/03/2014|
MarketMinder's View: Consensus “expert” forecasts are notoriously inaccurate, but they have their uses—they often show you the direction stocks are least likely to go, helping you narrow your own outlook and determine the tactics likeliest to prove successful.
|By William Pesek, Bloomberg, 01/03/2014|
MarketMinder's View: If Abe was unwilling to tackle vested interests to complete difficult economic reforms while his approval rating was at 80%, it’s difficult to envisioning him doing so now, with support under 50%. But investors’ expectations remain lofty, which likely sets up Japanese stocks to underperform if reality disappoints.
|By James Titcomb, The Telegraph, 01/03/2014|
MarketMinder's View: Many factors influence a stock’s return—its sector, country, earnings, revenues and growth potential, to name a few. But we daresay any apparent relationship between a stock’s long-term performance and its CEO’s looks is coincidental.
|By Patrick Chovanec, Bloomberg, 01/03/2014|
MarketMinder's View: This piece overlooks three points. One, China’s financial system is almost entirely state-run and closed to the outside world—the market forces this piece assumes will wreak havoc aren’t in the equation there. Two, China has bailed out its banks many times and has plenty of cash (and political incentive) to do so, if needed. Three, they’ve already started addressing that local debt mountain, allowing local agencies to roll over debt they can’t repay just yet into securities with longer maturities. For more, see our 12/24/2013 cover story, “China Credit Crunch Redux?”
|By Michael A. Fletcher, The Washington Post, 01/03/2014|
MarketMinder's View: While some portray the slow disappearance of corporate pension plans as a negative for workers, in our view, this piece shows why that isn’t the case. With plans in their best shape in years, they’re ripe for offloading, leaving workers with either a lump sum or—if the plan is sold to an insurance firm—an annuity. If you have a 401(k), you don’t have to worry about this—your retirement assets are yours, in an account in your name, and your financial future doesn’t depend on your company’s retirement plan management decisions.
|By Sujata Rao, Reuters, 01/03/2014|
MarketMinder's View: While India and Turkey would benefit from free-market reforms, the end of quantitative easing isn’t the tipping point this makes out—contrary to popular belief, quantitative easing didn’t cause foreign capital to flood into Emerging Markets, and the program’s end won’t leave them high and dry. Moreover, the widespread belief high current account deficits make certain Emerging Markets especially vulnerable is a fallacy. Like trade balances, current account balances don’t matter—economies aren’t fixed pies.
|By Simon Johnson, The New York Times, 01/03/2014|
MarketMinder's View: A big, profitable financial sector isn’t a societal ill—it’s generally a force for good! Banks’ core business is to lend to households and businesses, providing the fuel for economic growth and the ever-improving quality of life it brings. While the industry has its fair share of charlatans—as all professions do—allowing their behavior to taint the entire sector is shortsighted.
|By Staff, Associated Press, 01/03/2014|
MarketMinder's View: Weak bank lending is one of the eurozone’s biggest headwinds (albeit also a widely discussed one, limiting its market surprise-power). With ECB stress tests looming, banks have a big incentive to continue deleveraging for the foreseeable future, which likely weighs on the region. This doesn’t mean the recovery can’t continue—the eurozone was able to emerge from recession as lending fell—but it likely keeps the bloc from leading the world any time soon.
|By Sean Fieler, The Wall Street Journal, 01/03/2014|
MarketMinder's View: Regardless of how you feel about incoming Fed head Janet Yellen and quantitative easing, politicizing monetary policy isn’t the answer. Congress’s track record of managing US monetary policy is disastrous (e.g., the Panic of 1873), and Hungary’s current experiment isn’t exactly working wonders.
|By Quoctrung Bui, NPR, 01/03/2014|
MarketMinder's View: And one of the most meaningless. Confidence surveys tell you how people feel at one moment time, but that doesn’t always match what they do. The chart in this article even shows as much, with confidence and sales often moving in opposite directions. What people do, not that they say, is what matters.
|By Jeremy Warner, The Telegraph, 01/03/2014|
MarketMinder's View: The evidence here—which nicely shows how British household balance sheets are overall healthier than assumed—is helpful and worth a look. But the thesis that the UK needs higher short rates simply for “normality” seems off base, in our view. There isn’t any inherently normal level of short rates—rates should be wherever they need to be for the money supply to grow at a stable, predictable rate without triggering high inflation. That seems to be where the UK is today, with money supply accelerating—fueling the economy—as inflation eases.
|By Steven Rattner, New York Times, 01/02/2014|
MarketMinder's View: While we could find a specific misperception in each one of these charts, investors can also look at it this way: A lot of skepticism surrounds this economic expansion. Whether it’s unemployment, government gridlock or doubts about the economy in general, sentiment still seems to have a foot in skepticism—suggesting this bull market still has room to run.
|By Staff, Reuters, 01/02/2014|
MarketMinder's View: Germany was one of the strongest contributors while France among the biggest detractors. But consider—Italy was one of the biggest detractors in November, but it’s one of the biggest contributors in December. This is what an investor can expect from the eurozone—expansion and contraction will come from different parts at any given time, but occasional country-specific weakness shouldn’t stop the region as a whole from growing.
|By Mark J. Perry, AEIdeas, 01/02/2014|
MarketMinder's View: An amazing stat to ponder in light of the New Year: “The 80% reduction in world poverty in only 36 years, from 26.8% of the world’s population living on $1 or less (in 1987 dollars) in 1970 to only 5.4% in 2006.”
|By Larry Elliott, The Guardian, 01/02/2014|
MarketMinder's View: Central banks didn’t find “their traditional policy instruments were ineffective” in 2008—they just never tried them. More monetary activism, which this piece calls for, isn’t the magic ticket to continued growth. Going back to tried and true tools (e.g., adjusting the discount rate so it’s lower than the Fed funds rate to boost liquidity) would likely be a more welcome (and helpful) change. On the bright side, central bank action isn’t needed for continued growth—after all, the global economy has grown despite poor monetary policy. For more, see Elisabeth Dellinger’s column, “The Misadventures of Bazooka Ben.”
|By Staff, Reuters, 01/02/2014|
MarketMinder's View: Remember how some feared rising interest rates would discourage borrowing? Ever since the Fed announced the possibility of slowing bond purchases last May, rates have been rising—and small business lending has increased.
|By Matthew Philips, Bloomberg BusinessWeek, 01/02/2014|
MarketMinder's View: Actually, the private sector’s underappreciated strength, not the Fed’s quantitative easing (QE) program, is driving US growth. QE is a headwind—by flattening the yield curve, it made lending less profitable, giving banks little incentive to lend. Ending QE means a steeper yield curve, encouraging banks to lend more so businesses can gain more capital to invest and grow.
|By Marcus Walker, The Wall Street Journal, 01/02/2014|
MarketMinder's View: From deflation to high unemployment, this piece rehashes many of the concerns that have surrounded the eurozone for years—not much of a surprise to markets, nor a headwind to overall global growth. Nor are they big risks to recovery in the eurozone, which is on firmer fundamental footing than this piece suggests.
|By Jennifer Ryan, Bloomberg, 01/02/2014|
MarketMinder's View: UK manufacturing is stronger than this headline suggests. Export growth slowed a bit, but new order growth—the most forward-looking component—was up, and the index has been on a tear for nine months.