|By John Tamny, Real Clear Markets, 02/27/2015|
MarketMinder's View: Here is an excellent discussion of markets’ ability to discount widely known information, with special attention paid to pundits’ common practice of forecasting bear markets or crises based on factors most of the world is well aware of today. “Crashes are once again the result of new information entering the marketplace, not what you, me, and the pundits already know.” We’d suggest keeping the points raised here in mind next time a spooky headline catches your eye.
|By Eric Yep and Nicole Friedman, The Wall Street Journal, 02/27/2015|
MarketMinder's View: The thesis here? Three years of low volatility in oil prices, decried by oil traders then, have given way to a sudden “new normal” of high volatility (decried by oil traders now), as evidenced by eight months’ worth of swingy prices. But here is the thing: Volatility has no normal. Volatility is volatile and unpredictable, and trading anything short-term is not easier or harder based on the degree of volatility (hence how traders seem to hate it both ways). Oh, and this is odd too: “Analysts and traders have thus found themselves grappling with newly important but unfamiliar data, such as how many U.S. drilling rigs are operating, or the financial health of U.S. shale companies.” Well, the Baker Hughes Rig Count is more than 70 years old, most oil analysts look at it in some measure (as they would many gauges of future supply) and it’s odd to emphasize that now—due to technological advance, the rig count alone is arguably less predictive of short-run production changes than it has been in the past. That is why Baker Hughes’ tally is down about -30% since October, yet US production has risen. Here is a picture of that.
|By Jonnelle Marte, The Washington Post, 02/27/2015|
MarketMinder's View: So there isn’t a lot of direct market impact in this piece, which is much more sociological than anything. We provide it for this reason: There are many misplaced long-term fears and hyperbolic warnings suggesting the aging baby boomer generation is an economic or market risk. There are lots of reasons these are wrong, like the fact demographic shifts are too slow and widely known to affect markets materially. But also, what if, as the interviewee suggests, retirement comes later due to medical advances and a more services-dominated economy? What if it just isn’t the same retirement the preceding generation had? (By the way, before you go buy book after book on demographic market risks, please read this.)
|By Bob Pisani, CNBC, 02/27/2015|
MarketMinder's View: So this basically argues February’s 5%+ gains across many indexes is a prelude to more gains next month because that happened in 9 of the 10 such occurrences since 2009, an example of how not to use history in investing. Past returns do not predict. But also this acts somehow surprised at the recent frequency of positivity—suggesting markets should revert to the mean and fall after a big up month. Yet markets do not mean revert—in a bull market, indexes rise more often than they fall, which is kind of how it works. Finally, the author states that 5% months are rare, but 10 occurrences since this bull began would put the frequency at 13%, which doesn’t seem that rare to us. Besides, it’s all myopic. Look, we’re bullish too, just not for because of anything that has already finished happening.
|By Timothy Lavin, Bloomberg, 02/27/2015|
MarketMinder's View: This is an interesting historical view of GDP and its origins, but it actually misses many more meaningful and practical critiques of the series: It presumes all government spending is good for growth (consider that in light of the austerity debate in Europe) and imports detract from growth, when they are actually a sign of healthy domestic demand. But as a confirmation of the economy’s recent trajectory, it’s still a useful gauge. PS: The title is a false either/or, which the article corrects without saying so in the first paragraph. GDP is the flow of economic activity occurring during a certain period. It is neither wealth (which would be the cumulative value of economic activity) or well-being, which is undefinable, fuzzy and emotional.
|By Jason Zweig, The Wall Street Journal, 02/27/2015|
MarketMinder's View: This is not a perfect article, by any stretch, particularly due to what we believe is incomplete due diligence advice at the end. But it is darn good and a very useful reminder that not all industry recognition and awards are equal—most include opaque criteria and many go so far as to be pay-to-play. Awards alone aren’t reliable proof of manager competency. For more, see Lance Lehman’s 6/6/2014 column, “Five Due Diligence Must Dos” and Todd Bliman’s 12/4/2013 column, “Incentives, Interests and Investors.”
|By Kevin Kingsbury, The Wall Street Journal, 02/27/2015|
MarketMinder's View: We are darned ambivalent on this one, for sure. It nonsensically points out the point gain could have been the largest in history. It sensibly guts that, pointing out that this is off a bigger base so the percentage is tiny and wouldn’t be the biggest in history. Then, stocks fell below point-record mark today, making the whole article a nonstory. Shucks.
|By Morgan Housel, The Wall Street Journal, 02/26/2015|
MarketMinder's View: Don’t make another trade until you read this, create a sign of these nine mistakes, print it, laminate it and tape it to your computer screen. All are timeless, costly pitfalls. The more you know them, and the more you develop the introspection to spot them in yourself, the better investor you will be.
|By Phillip Inman, The Guardian, 02/26/2015|
MarketMinder's View: We will spare you heavy analysis of the coffee metaphors here, mostly because we don’t understand them (mostly because we don’t get metaphors in general). The actual thesis here is the same old unsustainable/unbalanced expansion fears we’ve seen in Britain for a while—too much borrowing and spending, not enough business investment, industrial production or exports. The evidence seems to be Q4’s falling business investment and industrial production. Thing is, both are tied to North Sea oil, which pulled back bigtime as prices fell in Q4—widely expected. Manufacturing, which more directly reflects UK industry, rose. So did investment in IT equipment, non-transportation machinery and intellectual property products (including R&D). We don’t know what that means in coffee terms, but in non-metaphorical real-life economic terms, it all suggests the UK is on firmer footing than many believe.
|By Adam Liptak, The New York Times, 02/26/2015|
MarketMinder's View: The fish in question was a catch of undersize grouper a commercial fisherman tossed back into the sea after being busted by the Florida Fish and Wildlife Conservation Commission for breaking minimum size rules. The agents cited him and told him to surrender the fish to the port authorities, but tried to pull a fast one, dumping the small fish and replacing them with new, compliant fish, hoping to avoid the fine. Anyway, turns out that amounted to destroying “tangible” evidence in a financial fraud case, because he was tried and convicted under Sarbanes-Oxley. He appealed, and it went all the way to the Supreme Court, which overturned his conviction Wednesday. Now, this all probably seems fairly obvious, like duh, how silly to prosecute a grizzled, tattooed fisherman with a Fu Manchu moustache under a law aimed at white collar, Enron-style crime. But what’s really significant here are some things the Justices wrote in their opinion of Sarbox. The justices seem to believe “tangible” refers to actual physical evidence of falsified claims. The majority opinion asked: “Fish one may fry, but may one falsify, or make a false entry in the sea dwelling creatures?” One justice added that as tangible objects go, “a fish does not spring to mind—nor does an antelope, a colonial farmhouse, a hydrofoil or an oil derrick.” So that would seem to limit the law’s applications—something even the dissenting justices would welcome. The dissenting opinion called Sarbox “too broad and undifferentiated, with too-high maximum penalties, which give prosecutors too much leverage and sentencers too much discretion.” Sarbox is still alive, because the Court can’t rewrite legislation, but it does suggest Sarbox’s many shortcomings are attracting attention.
|By Greg Ip, The Wall Street Journal, 02/26/2015|
MarketMinder's View: The theory here is that deflation is always and everywhere bad—even if, like the slightly negative headline US Consumer Price Index reading, it’s driven entirely by volatile energy prices—because central banks may have to stimulate growth in the future by creating negative real interest rates (rates minus inflation), and that’s hard to do when prices are overall falling. However, there are three problems with this: The past, the present and the future. History shows there are long stretches of deflation while the economy booms—like in the Industrial Revolution. Also, currently, interest rates are negative in many parts of Europe (not that we are recommending this policy today, which is unnecessary and probably a minor headwind). Commodity prices are always and everywhere volatile, which is why most central banks don’t weight them heavily in weighing potential moves. The impact of the drop may prove to be a one-hit wonder, if oil prices merely stabilize. But overall, no, we don’t suggest “cheering” falling prices, in the sense that in this case they really just create winners and losers. P.S., lowflation plus growth had another name in the 1990s: The Goldilocks Economy.
|By Jamie Chisholm, Financial Times, 02/26/2015|
MarketMinder's View: And that supposedly new focus has dug up what some believe is a quandary as potentially unsolvable as Fermat’s last theorem: The eurozone’s cyclically adjusted P/E ratio (CAPE) is below the US’s, but the eurozone’s normal trailing P/E is higher than the US’s—so how the heck do you tell which one is undervalued? We will save you the trouble of pulling your hair out, because this is a false either/or. CAPE is nothing more than an oddly calculated, bizarrely inflation-adjusted, backward-looking Frankenstein’s Monster of a thing. It predicts neither near-term or long-term returns. Normal P/Es are somewhat more useful, but only because they can measure sentiment—but you can’t always assume lower P/Es in one nation vs. another mean sentiment is lower, too. Actually, qualitative evidence (headlines, media tone, Tweets, conversations with humans) suggest sentiment is more optimistic in the US than Europe. Valuations are more useful when trying to weigh sentiment in one place relative to history—like the fact valuations today are nowhere near the euphoric Tech Bubble peak. Look, it isn’t about whether the eurozone is under- or over-valued vs. the US—you don’t have to choose one or the other! What matters is that reality in both places is better than most perceive, creating fine investment opportunities in each.
|By Satyajit Das, MarketWatch, 02/26/2015|
MarketMinder's View: Tell us if you have heard this before. The theory here is Greece faces essentially four options: The ECB/IMF/EU troika moderates, Greece defaults and stays in the eurozone, Greece defaults and leaves or Greece submits to austerity. Which have been the options basically since 2010. It all comes to the thunderingly obvious conclusion that, “The EU’s lack of flexibility, self-discipline, and humility makes a rapid resolution for Greece difficult, at best.” We mean, this whole thing has been dragging on for years. Expecting a quick fix now is naïve.
|By Elaine Moore, Financial Times, 02/26/2015|
MarketMinder's View: This is all mostly hypothesizing, but it is an interesting look at potential reasons why banks are happily buying negative-yielding bonds. For one, most intermediate-term yields aren’t as negative as the ECB’s -0.2% charge on excess reserves, making them the lesser of two evils. Two, banks might also believe they can flip them to the ECB for a profit once quantitative easing begins.
|By Matt Clinch, CNBC, 02/26/2015|
MarketMinder's View: Most of this is just one guy’s opinion, which he is certainly entitled to. We feel compelled however, to note a few … umm … lapses? in the assessment of economic conditions. So here are a few questions: How is it possible “the downturn in U.S. profits is accelerating” when US earnings are overall positive in the most recent quarter? The answer is in the chart included—the growth rate is slowing. But as the same chart shows, that isn’t very uncommon in a bull market. Also, on a similar note, it’s true that an earnings drop is “associated with a recession,” but they are not a reliable predictor of one. Neither is the Citigroup Economic Surprise Index a measure of recession, which is an absolute condition (broadly negative economic output). That gauge measures selected economic data versus some analysts’ expectations. Ultimately, actual forward-looking gauges like The Conference Board’s US Leading Economic Index (LEI) are rising. No recession has begun while LEI has risen in the index’s 55-year history.
|By Robert Hutton and Mehul Srivastava, Bloomberg, 02/25/2015|
MarketMinder's View: Yes, the UK’s May election will probably be inconclusive, considering Labour and the Conservatives are polling neck-and-neck (between 32% and 34% each, as of the latest polls), and constituency-specific analysis suggests each will win in the neighborhood of 260-280 seats, well short of an outright majority. And yes, whichever ends up forming a government will probably have to cobble together an odd coalition with euroskeptics, Scottish Nationalists, Greens, Ulster Unionists, and/or Liberal Democrats. And yes, that fragile coalition would probably be able to pass very little legislation. However, none of this is inherently bad for UK stocks. Actually, it should be pretty good! The near-term uncertainty as the election approaches might drive volatility, but in competitive nations like the UK, gridlock is positive for stocks. It prevents any party from passing anything radical that could mess with property rights and the distribution of resources and capital. The UK has done great during five years of gridlock and should do great with more gridlock over the foreseeable future.
|By Michael Mackenzie, Financial Times, 02/25/2015|
MarketMinder's View: We have no idea how a market can play chicken with an institution. We’re pretty sure bond markets and Janet Yellen aren’t driving speeding hotrods at each other on the dried-up LA River in a deadly race to swerve last. Because that would be weird—markets can do a lot of things, but we’re pretty sure we never saw one drive. Oh, wait, this was a metaphor? We still don’t get it. Just because bond markets are allegedly pricing in a June rate hike doesn’t mean the Fed must act then or else risk driving volatility. That isn’t how it works. At this point, a rate hike is like the end of quantitative easing—so widely discussed for so long that there is little reason to think a hike at any point can really be a surprise to investors in general. Markets might take a short-term dip or jump when the Fed moves, they might not, and that’s true whether it happens in June or not. This is all just way too short-term and much ado about nothing.
|By Eleanor Warnock, The Wall Street Journal, 02/25/2015|
MarketMinder's View: Welp, another one bites the dust. For all Japanese Prime Minister Shinzo Abe’s claims that he is a champion of structural reform, most of his proposals have been scrapped, delayed or watered down. Latest to fall is his overhaul of the Government Pension Investment Fund’s governance, which would have streamlined decision-making with an eye toward making better long-term investment decisions and leading the charge for broader corporate governance reform nationwide. Apparently he couldn’t rally support in Parliament, despite having a supermajority, showing just how many Japanese politicians have a vested interest in the status quo, putting his reform efforts under pressure. Abe and his cabinet still talk a big game about reform, but their actions continue to disappoint, showing why expectations for Japanese stocks are too high. Lesson: When politicians say they will rock you with reforms, watch what they do, not what they say.
|By Min Zeng, The Wall Street Journal, 02/25/2015|
MarketMinder's View: Actions speak louder than words. For all the (incorrect and overstated) fears China is going to blow out a huge chunk of US debt and send US interest rates through the stratosphere—which have swirled for years and years and years—the Chinese seem to just keep on adding to holdings, overall. “The net increase in China’s purchases of Treasury notes and bonds, those maturing in two to 30 years, soared by $185.683 billion last year, surpassing the previous high of $123.454 billion set in 2009, based on capital-flow data released this week by the Treasury.”
|By Staff, The Telegraph, 02/25/2015|
MarketMinder's View: This one starts off fine, showing why the FTSE 100 price index’s new record high means bugger all looking forward. But then it argues against itself, claiming the record holds huge “psychological significance” and could prompt investors to pile in, creating a wave of demand that drives UK stocks way higher. And then it tries to justify that buying decision with a lot of mumbo jumbo about the index’s below-average cyclically adjust P/E ratio (CAPE), high yield and inflation-adjusted loss of roughly one-third since 1999. Folks, those are all weird ways to show a country’s stocks are undervalued. CAPE is overly tortured, backward-looking and not predictive. Neither is yield. And don’t even get us started on the pointlessness of inflation-adjusted price returns. If the whole point of adjusting for inflation is to measure the actual purchasing power you gain from investing in the stock market, why the heck would you ignore dividends, which are a huge component of return. (Inflation-adjusting total returns is silly, too, considering the whole point of investing in stocks is to earn higher returns over the long term than other similarly liquid assets, and last we checked, inflation is not an asset and is therefore a bizarre comparison.)
|By Matthias Rieker, The Wall Street Journal, 02/25/2015|
MarketMinder's View: There are some interesting nuggets here, but it ignores the elephant in the room when it comes to dual-registered investment professionals: Many of these have “fee-based” services, where they charge clients management fees and commissions, creating conflicts of interest and potentially higher charges overall. Fees and commissions aren’t always either/or, contrary to what this piece implies. Often they’re both/and, and that can put clients in a weird position. Like, the position of paying a guy 1% a year to manage their money and paying (through lock-up periods, product fees and surrender charges) him a huge commission when he sells them a variable annuity.
|By Joshua Robinson, Bloomberg, 02/25/2015|
MarketMinder's View: While this all sounds lovely, we think a friendly caveat is in order: Stocks don’t correlate one-to-one with economic growth. Political drivers and sentiment matter, too, and they can sometimes keep top economic performers from having top-performing stock markets. Exhibit A is China, whose local stocks didn’t do much for a decade despite gangbusters GDP growth. So don’t get too tempted by flashy charts and predictions like these. Some of these 20 countries have fine investing opportunities, but you must look beyond projected economic growth.
|By Tony Greenham, The Guardian, 02/25/2015|
MarketMinder's View: Look, whether we’re talking RBS, which is 81% owned by the UK government, or any old bank, creating a network of state-owned nonprofit regional lenders is not the solution to any country’s economic problems, real or imagined. Spain tried the whole nonprofit local lender thing once upon a time, with its cajas. They all went belly up when Spain’s housing bubble burst, as their business model was proven unsustainable—and the solution was merging them into big, for-profit national banks. That seems to be working pretty well for them. For all the griping about greedy bankers making bad loans in search of big profits, the fact is a not-for-profit bank arguably has less incentive to perform due diligence on borrowers.
|By Matthew Robinson, Bloomberg, 02/25/2015|
MarketMinder's View: Here is yet more evidence investors should take ratings agencies’ decisions with a ginormous grain of salt. They are not impartial ratingbots assigning grades to companies and corporations based on data alone. They are biased humans assigning grades based on a lot of things, and sometimes those things include financial incentives. The mother of those incentives, of course, is the issuer-pays model. But the study here suggests there are other iffy incentives at work, too.
|By Yoon Ja-young, The Korea Times, 02/25/2015|
MarketMinder's View: Looks like “initialing” is a precursor to actually signing Korea and China’s free-trade agreement, which would then have to be ratified by both countries’ legislatures. So, not a done deal, but close. If it gets signed, sealed and delivered, it should boost these countries’ already-large trade relationship, a positive. But many of the benefits are in the far future, considering the phase-in window for tariff elimination is 20 years. We wouldn’t expect this to be a huge near-term boost for either country.
|By Staff, EUbusiness, 02/25/2015|
MarketMinder's View: So in theory, an “energy union” making cross-border fuel sales more efficient and allowing the EU to be less dependent on Russia’s whims would be a long-term positive. But it doesn’t do anything to defend against Russia’s latest threats to shut off the gas this week. And, it appears the European Commission is eyeing arbitrary fossil fuel caps that could back oil and gas producers into a corner and make some countries less competitive over time.
|By Phillip Tutt and Katrina Bishop, CNBC, 02/24/2015|
MarketMinder's View: Well hot dog—eurozone finance ministers said Greece’s proposed structural reform plans look ok enough to warrant approving the four-month bailout loan agreed to in principle last Friday. But lest you were worried things were about to get boring over there, fear not—there is probably plenty of bickering ahead. Member-states must sign off on the plan. In Germany, that requires a Parliamentary vote—historically a rubberstamp, but you never know. Then there will be the inevitable arguing when the artist formerly known as the “troika” audits Greece’s progress when deciding whether to dole out the actual money. And the debate over reforms before they’re signed and sealed in April—Monday’s list was only a starting point. Oh, and we’ll do the whole shebang all over again in June, when the deal expires. So, good times. But ultimately, we guess this is a small step toward keeping Greece in the euro, which still seems to be the likely outcome.
|By Koichi Hamada, MarketWatch, 02/24/2015|
MarketMinder's View: This vastly misperceives both the effects of quantitative easing (QE) and the reasons Japan’s economy has so badly lagged the world since the late 1990s. First, on QE, the US and Britain are leading the developed world despite QE, not because of it. Both saw shrinking broad money supply (M4), sluggish GDP growth and the weakest loan growth in modern history during QE—and broad acceleration after it ended. As for Japan, 2001-2006 QE wasn’t “too little, too late,” it was the wrong prescription for an economy plagued by severe structural issues like a byzantine labor code, high trade barriers, low competition and an ineffective mercantilist economic system. Japan was barely managing to grow despite all that when the BoJ slashed its balance sheet in 2006, whacking the monetary base and reducing the broad quantity of money (M3). This time, far from working, QE has crippled Japan’s economy by weakening the yen—not the benefit claimed here, as it hurt households and businesses by jacking up import costs while it simultaneously failed to boost output or wages. We struggle to see how QE will boost consumption while it lowers Japanese real wages. So, in our view, the eurozone would be best off keeping its QE program small and short, allowing flat yield curves to steepen and provide actual stimulus.
|By Tommy Stubbington, The Wall Street Journal, 02/24/2015|
MarketMinder's View: Well huzzah for this narrow gauge of the UK stock market that doesn’t much resemble Britain’s broader economy or include dividends. The FTSE 100 Total Return Index, which includes dividends, clocked its record high a while ago. Ditto for broader UK indexes. But, we’ll pardon the milestone hype, because this piece spends most of its time discussing how few investors broadly seem to appreciate the UK’s prospects—a fair point. Note, we don’t think those prospects include the eurozone’s quantitative easing, which is a drag (and not easy-money market fuel, as this suggests), but other than that, sentiment is too low, with most focusing on false fears (upcoming election, falling oil prices) and overlooking the country’s overall economic strength.
|By Jon Hilsenrath, The Wall Street Journal, 02/24/2015|
MarketMinder's View: Well, actually, all she said was that the word “patient” means the Fed probably won’t hike for at least two meetings, and they might remove it from the policy statement sometime, and she could sort of possibly maybe envision a scenario in which if things look good and on target and whatnot then she could kinda maybe see rates rising at some point perhaps. That “two months” bit is probably as random and subject to change as her earlier (quickly retracted) statements that “considerable time” equaled six months. Today’s testimony was about as opaque and noncommittal as these things get. We’d suggest not trying to read between the lines.
|By J.D. Harrison, The Washington Post, 02/24/2015|
MarketMinder's View: Why? Because they don’t want to do it the same way! And President Obama looks quite likely to veto the permanent extender the House just passed (assuming, of course, the Senate were to pass it, too). Besides, if they etched these in stone, they’d lose one of their favorite campaign wedge issues, and then they’d be bored, and wouldn’t that be sad? So, we’ll probably see the same old retroactive patches and short-term can-kicking they’ve employed since always. On the bright side, businesses are used to this, so it likely doesn’t much impact their investment plans.
|By Phillip Inman, The Guardian, 02/24/2015|
MarketMinder's View: Evidently, because it gives businesses a little more “certainty” that cheap oil is here to stay, which helps “lighten the load” of concerns over Russian aggression and a eurozone collapse. We reckon this overstates both businesses’ uncertainty over those well-known long-running issues and their confidence oil will remain in the $50s for the foreseeable future. Given the continued increases in production (as this article documents), we wouldn’t expect oil to shoot up overnight, but setting price targets and predicting short-term movement is a fool’s errand.
|By Matthew Lynn, The Telegraph, 02/24/2015|
MarketMinder's View: While this piece is a tad too dour on the Internet’s overall economic impact since its development, it seems dead-on when it comes to robots. Those who believe robots will drive workers out of jobs and create “secular stagnation” ignore just how much similar advances in automation actually drove growth, employment and entire new industries over the past 150 years. Do we know how robotics will do this? Heck no! But seeing it all unfold and take our breath away is part of the fun. Robots are way cool, folks, and, best of all, if you own stocks, you own a share in all this way coolness!
|By Neil Irwin, The New York Times, 02/24/2015|
MarketMinder's View: This is all just mostly observations about the history of retirement investing and speculation about what “21st century retirement investing” might look like if some people got their way, which is all very speculative and probably not much use for investors. Also, President Obama’s plans to apply a fiduciary standard to any investment professional working with retirement accounts won’t resolve any of the conflicts of interest mentioned here or, necessarily, make the current system work better for less sophisticated investors. For more on that and why, see today’s cover story, “The DOL Gets a Homework Assignment.”
|By Alkman Granitsas and Nektaria Stamouli, The Wall Street Journal, 02/23/2015|
MarketMinder's View: Here is your daily Greek update: Greece’s government needs an extension on their midnight deadline to provide a proposed list of reforms, which euro officials require in order for Greece to get a four-month loan extension. Didn’t take long for any of the EU/IMF/ECB “troika’s” (now known as “institutions”) new arbitrary deadlines to get wiped and redrawn! Expect plenty more twists, turns and bluster where this came from, but if last week’s theatrics were any indication, more compromises to keep Greece in the euro look likely. For more, see our 2/23/2015 commentary, “Greece U-Turns, Declares Victory.”
|By Sofia Horta E. Costa, Bloomberg, 02/23/2015|
MarketMinder's View: Well, huzzah for market trivia buffs, but stocks don’t care about round numbers or previous market milestones. Some may see the 6,930 level as a “mental barrier,” but that seems more like an attempt to draw meaning where none exists—particularly when the FTSE 100 Total Return Index moved into record territory a while ago. For investors, the more important trend is this—like the US, the UK economy is one of the developed world’s strongest, and its government’s continued gridlock makes the political backdrop favorable. Along with increasingly optimistic sentiment, these drivers should push UK stocks higher—likely leading to even more record highs.
|By Jonathan Clements, The Wall Street Journal, 02/23/2015|
MarketMinder's View: We are pretty ambivalent about this one. On the one hand, yes, a globally diversified portfolio makes sense for most long-term investors. Though the US has been a top performer recently, leadership rotates—no country or region is inherently best. On the other hand, these four reasons to increase foreign exposure—foreign being “due” to bounce back, ample opportunities in foreign markets, the impact of a strong dollar, and relatively high US valuations—are batting just one for four. Yes, foreign markets have many underappreciated opportunities, but that isn’t unique to today—diversification and matters always, and if you’re ignoring foreign stocks, you’re ignoring half the world by market cap, missing opportunities to diversify. As for the rest, stocks don’t mean revert, currency moves are largely zero sum in a global portfolio over time, and valuations aren’t predictive.
|By David Reilly, The Wall Street Journal, 02/23/2015|
MarketMinder's View: This does describe some of the issues the Fed will be dealing with as it considers hiking short-term interest rates, and the perspective seems more or less rational—they’re trying to go back to a “normal” environment where the Fed controls the short end of the yield curve and the market controls the long end, and the first hike in a long, gradual tightening cycle isn’t bearish historically. But, nothing Janet Yellen tells Congress this week will tell you whether the Fed will hike rates sooner or later or how aggressively they’ll hike over the foreseeable future. Yes, it is possible Yellen’s words may stir up some market volatility, but they may not, either. For investors, our advice remains the same: Tune this noise out. Fed moves are inherently unpredictable, and initial rate hike hasn’t derailed an expansion or bull market.
|By Peter Spence, The Telegraph, 02/23/2015|
MarketMinder's View: Or so says the latest survey of business sentiment, which rose only 0.1% m/m this month, missing forecasts. Thing is, Russia has been a known issue for nearly a year, and Germany grew at its fastest rate since 2011 last quarter (and when it did contract slightly in Q2 2015, Russia wasn’t why). Germany has also done overall fine during five years of Greek hullaballoo. On the bright side, that (false) fears surrounding fallout from Greece and/or Russia persist shows sentiment still remains out of step with a reality that’s better than most believe.
|By Satyajit Das, Financial Times, 02/23/2015|
MarketMinder's View: Do falling oil prices, the strong dollar and fears of a Fed rate hike mean a repeat of the 1997-1998 Asian Currency Crisis is nigh? Err, probably not, as we discussed here and here. This is just another dose of those false fears. Also, for all the doom and gloom supposedly accompanying this parallel, global markets rose in 1997 and 1998. The Asia/Pacific region fell into recession, and life got extremely tough in the directly impacted nations (Thailand, Korea, Indonesia, Russia), but the global economy continued growing. Global stocks corrected both years (severely in 1998), but investors who hung on and didn’t react to volatility did overall fine.
|By Alan Tovey, The Telegraph, 02/23/2015|
MarketMinder's View: As in the US, the supposed death of manufacturing has been a long-running theme in Britain—particularly as manufacturing’s share of GDP declined from 18.5% in 1997 to 10.1% today. However, as this shows, UK manufacturing is alive and well—and growing! It might never reach those arbitrary EU targets of 20% of GDP, or the UK government’s own arbitrary targets, but it doesn’t need to. A country with a huge, growing, thriving service sector and a smaller, growing, thriving industrial sector is generally a growing, thriving country.
|By Phillippe LeGrain, Foreign Policy, 02/20/2015|
MarketMinder's View: A lot of the flowery, soaring rhetoric herein is basically sociology and not related to markets, but there are two major takeaways for investors. One, as this article and Exhibit 3 in our article here shows, there is zero sign of contagion to date. So the notion that the eurozone would near certainly face catastrophe if Greece left the euro because it would ripple across the continent is dubious. But more importantly, consider this quote against the backdrop of a eurozone that has grown in seven straight quarters: “Seven years into the crisis, the eurozone economy is doing much worse than the United States, worse than Japan during its lost decade in the 1990s and worse even than Europe in the 1930s: GDP is still 2 percent lower than seven years ago and the unemployment rate is in double digits.” Sheesh, talk about a gap between sentiment and reality!
|By Matthew Craft, Associated Press, 02/20/2015|
MarketMinder's View: Here is more speculation that the rising dollar will hurt big US multinationals’ revenue from abroad, and perhaps that’s true in some cases. However, stock and currency markets are equally forward looking—the moves in one are well known to investors in the other, so this is no surprise. But also, it ignores the fact that while revenues could be pinched to an extent, input costs likely fall. Very few products sold by US firms (or firms anywhere) are 100% domestically sourced. Also, sheesh, just invest globally and quell all these concerns anyway. For more, see our new, in-depth Research Analysis available for the low-low cost of zero, here.
|By Katy Burne, The Wall Street Journal, 02/20/2015|
MarketMinder's View: So we’ve long counseled investors not to get into a guessing game over the timing of a Fed interest rate hike, because you simply cannot game how the Federal Open Market Committee of the Fed will interpret economic data regarding inflation and unemployment, or any other factoid they may or may not look at. Wall Street has a cottage industry of folks who try, and they usually fail. Now Wall Street wants you to put your money where their mouths are via these ETFs, which are designed to rise if the Fed hikes. But what if they don’t? Or what if stocks react to a hike the way they normally do and are little influenced by a hike? We would suggest you celebrate this debut with a hearty, “Huzzah,” and then let someone more foolish than you do the buying. Greater fools, you know.
|By Ari Levy, CNBC, 02/20/2015|
MarketMinder's View: This is an overall sober take on the fact that the Nasdaq reaching 5,000 may conjure memories of the tech bubble, but that doesn’t make it a bubble this time around. In the course of doing so, the article plots out some excellent examples of made-to-go-public firms from 2000, with high cash burn rates and irrationally high valuations. You just don’t see those things today. Now, the discussion of the private markets is a separate matter, but the figures involved there are in the millions and tens of billions, while it takes trillions of lost economic activity to quash a bull market. Besides, if sentiment is really euphoric, you won’t have to look to small corners of non-publicly traded firms to find it. All in all, read this for what it is: An excellent comparison of today to a euphoria time, one that illustrates how far sentiment is from frothing over.
|By Staff, Reuters, 02/20/2015|
MarketMinder's View: Apparently, the Maltese
Falcon Finance Minister, Edward Scicluna, thinks Germany is likely to take a hard line in the negotiations of Greece’s bailout package, to the point of allowing Greece to leave the euro. This has long been the speculation, but in our view, it’s still highly unlikely—and statements are already emerging from talks Friday morning that a) deny Scicluna’s speculation and b) suggest eurozone FinMins (including Greece) got together and drafted common text for an agreement. We’ll see if that’s accurate and a deal comes to fruition soon, but assuming Greece is on its way out of the eurozone seems as premature today as ever.
|By Christopher Whittal, The Wall Street Journal, 02/20/2015|
MarketMinder's View: This is a multifaceted collection of jargon and gobbledygook suggesting certain assets are risky and certain others safe, and that folks are charging headlong into risky stuff and selling safe stuff, almost all of which is based on past returns and fund flows. Folks, if you don’t know exactly what “Risk On, Risk Off” or “safe havens” are in the investing world, you aren’t a naïve investor, you are correct. These things don’t actually exist.
|By Nathaniel Popper and Peter Eavis, The New York Times, 02/20/2015|
MarketMinder's View: Well, yes, it’s true that forcing banks to carry significantly more capital will water down profits, particularly if they raise capital by issuing more equity. But this treats that obvious statement as though it’s breaking news when it’s really a load of duh. What’s more, it acts as though making banks less profitable improves the safety of our financial system, but there isn’t any evidence supporting this notion to speak of. Fact is: We got a financial panic because of a well-intended but poor-in-practice accounting rule and haphazard government actions that followed its implementation in late 2007. Risky greedy bankers, while they make for nice campaign rhetoric, book villains and all-purpose whipping boys, didn’t play much of a role. Neither did trading desks at banks, considering banks’ losses weren’t centered on assets in the trading book. But you know, who are we to get in the way of a great narrative. Whip away, greedy-banker-whippers!
|By Matthew Lynn, MarketWatch, 02/20/2015|
MarketMinder's View: This is exactly the kind of fear-based, fact-light, ridiculous argument that investors all too often get sucked into out of emotion. First, the likelihood Greece leaves the euro is teensy. Second, if there were so many signs Syriza succeeding would spur extremist parties in other nations to the same, why aren’t bond yields anywhere outside Greece rising? Third, the notion that continuing the bailout package dooms Greece to further contraction/recession ignores the fact the country grew for most of 2014. It contracted in Q4 when all the campaign rhetoric started heating anew. Fourth, where is the evidence the IMF and EU are doing anything but negotiating currently? Fifth, why is it presumed the US would want a weak euro? To avoid its threatening the dollar’s status as a reserve currency? The euro’s share has been rising since 2000, but the absolute amount of dollars held hasn’t fallen. And even if it did, there isn’t any evidence the dollar’s status as primary reserve currency is a big benefit to our economy/markets. Next, consider: Greece is a tiny speck in the global economy. If a “Grexit” happens and they default, there is no evidence that would be catastrophic. Finally, it would take legislation for the US to bail out Greece directly. Can you really think the currently gridlocked US government would manage to pass this? Oh and BREAKING NEWS it seems a deal has been reached between Greece and the EU. So much for this thesis, which was off to begin with.
|By Tom Beardsworth, Bloomberg, 02/20/2015|
MarketMinder's View: Well, we wouldn't suggest buying into the whole Europe is gaining momentum due to the ECB's quantitative easing (QE) theme included herein, because a) economies aren't subject to physics principles like momentum and b) there isn't any evidence a PMI gauge for January—the month QE was announced—is impacted by ECB actions. All in all, we'd just chalk this up as more evidence reality is brighter than most appreciate in the eurozone.
|By Matthew Dalton and Alkman Granitsas, The Wall Street Journal, 02/19/2015|
MarketMinder's View: Apparently, Greece’s initial foray into negotiating “bridge financing” was a wee bit lacking in detail for German tastes, and it was rejected upon submission as a result. Which basically seems like an opening round in actual negotiations, because this is the first concrete, written plan to change hands since Alexis Tsipras was elected in late January. Now, the chart of maturing debt we are not fans of, as it erroneously makes it seem as though all Greece has to do is get over a 2015 hump. But the reality is that’s because of Treasury bills that mature this year. They will have to be rolled over in future years, too, so the obligation will repeat. (Unless they default or finance them much longer-term in 2015, which seems unlikely given Greece’s astronomical longer-term yields.)
|By Sophia Yan, CNN Money, 02/19/2015|
MarketMinder's View: Happy Lunar New Year! It is the Year of the Ram, and you know what that means for stocks? Absolutely nothing! Sure, some “experts” will suggest certain countries or sectors will do better this year for astrological reasons, but just like the “January effect,” “Sell in May” or “Financial Hurricane Season,” stocks don’t move based on a calendar page turning. As for our expectations for China, we believe the Middle Kingdom will continue to defy hard landing fears and grow at a healthy, if slower than in 2010-ish, pace—and contribute mightily to the global economy. We would suggest this is your real takeaway here: The Lunar New Year holiday period starting means Chinese economic data are likely to show some wacky skew over the next few weeks. Take ‘em with a grain of salt.
|By Matthew Yglesias, Vox, 02/19/2015|
MarketMinder's View: The still-historically high long-term unemployment rate is devastating for those impacted. But the implications are sociological, not economic or market-related. Labor markets do not drive economic growth or market returns, period.
|By Charles W. Calomiris and Peter Ireland, The Wall Street Journal, 02/19/2015|
MarketMinder's View: We are pretty darn ambivalent about this article, which claims the Fed hasn’t clearly communicated its intentions with respect to the timing or impact of a potential fed funds target rate hike. Now, we agree they haven’t clearly communicated this, but we aren’t so sure they should. In many respects, the Fed’s problem is that folks buy into their communications and draw conclusions about the timing of a potential hike—despite the fact Fed actions are now and have always been unpredictable. In that way, adding the “dot plot” of indicator and rate forecasts doesn’t and can’t add transparency. That being said, we would be on board with the Fed using its pulpit to remind folks that oil prices’ impact on inflation is fleeting and that an initial rate hike isn’t a material threat to the economy. So, like we said, ambivalent.
|By Mike Harris, Price Action Lab, 02/19/2015|
MarketMinder's View: This tongue-in-cheek post actually delivers a whole lot of sense regarding “technical patterns” in a short, pithy, fun way. We’d tell you what it is, but that would steal the fun of this post, which we don’t really want to do. We’d just suggest reading it and keeping it in mind the next time headlines decry head and shoulders patterns, the Hindenburg Omen, death or golden crosses and the like. For more, see our 10/18/2010 commentary, “A Recent History of Technical Analysis’ Recent History Lessons.”
|By Ralph Atkins, Financial Times, 02/19/2015|
MarketMinder's View: An interesting discussion and a fine look at why negative bond yields aren’t wreaking havoc. However, it also overlooks the elephant in the room: Negative yields are deflationary. As the anecdotal evidence from Denmark shows, banks don’t make loans if they can’t collect interest on them. Meanwhile, when banks pass on negative rates to savers, they lose money, and the overall quantity of money shrinks. Shrinking money supply plus a broad slowdown in the velocity of money? That’s a recipe for falling prices. Not the good, cheap-oil kind of falling prices. This isn’t anywhere near big or insidious enough to derail the bull market, but it is a negative that doesn’t get much airplay.
|By Shane Hickey, The Guardian, 02/19/2015|
MarketMinder's View: Last year, Britain’s regulator, the Financial Conduct Authority, studied whether competition was sufficient in retail banking—and decided it really wasn’t, prompting the government to take steps to lower barriers to entry and make it easier for customers to switch providers. This year, they’ve turned their sights on investment banking and asset management, investigating whether and how the field of providers is limited and customers captive. We are all for competition, in theory—the more choice consumers and investors have, the better. And the more firms have to compete, the better service they’ll provide. But as ever, the devil is in the details, and it’s premature to say whether and how this exercise will benefit UK investors. The execution will make or break this.
|By Rick Newman, Yahoo! Finance, 02/19/2015|
MarketMinder's View: Here is a good reminder for investors about why they should tune out the latest spate of oil price predictions, which range from $10 to $200. Consider: Most predicted West Texas Intermediate (WTI) crude oil would finish 2014 in the $90-$100 range—and it ended at around $53. Now we aren’t knocking those predictions, specifically—we didn’t see anyone forecast the magnitude of oil’s drop. But all that is worth keeping in mind when you read articles suggesting you should bottom fish based on oil hitting a relative low.
|By Staff, RTT News , 02/19/2015|
MarketMinder's View: While January’s growth slowed from December, The Conference Board’s US Leading Economic Index did growth in the month, and considering there hasn’t been a recession while LEI is rising in the series’ 55-year history, that seemingly shows growth will continue. Underpinning January’s rise were the two credit market gauges, which suggest credit growth continues to support the US economy.
|By Gerson Freitas, Jr., Bloomberg, 02/19/2015|
MarketMinder's View: Ignore the company-specific aspects of this story, which really highlights the sheer magnitude of the increase in iron ore output capacity. “Expansions … are creating a surplus in the seaborne market that Australia & New Zealand Banking Group Ltd. estimates will expand to 85 million tons from 39 million tons in 2014.” This is why you can't extrapolate weak commodity prices to mean troubles for the world economy—they are a sign of rising supply, not faltering demand.
|By Heather Stewart, Helena Smith and Jennifer Rankin, The Guardian, 02/18/2015|
MarketMinder's View: Here is your obligatory Greece update during yet another Critical Week for the Euro™. In today’s edition, Greek leaders have confirmed they’ll formally request “an extension of the loan contract,” otherwise known as a bridging loan, otherwise known as an extension of the bailout program, otherwise known as whichever euphemism for U-turn you prefer. This will allegedly happen tomorrow. Apparently they also plan to submit a request in writing, which is way more formal than their nebulous verbal proposals last week, and way more acceptable to those eurozone suits who want things in writing, so yay! They’re officially negotiating! Of course, this is Europe, so the proposal was leaked today, and some German and EU officials have already said, no dice. But we wouldn’t make too much of any of that. Since when have negotiations started with a compromise? They all need more time to posture and pander before they meet in the middle.
|By Liam Denning, The Wall Street Journal, 02/18/2015|
MarketMinder's View: Call us crazy, but we are pretty much convinced—by both public statements and actions—that Saudi Arabia is more concerned with matters in 2015 than what maybe the world could possibly look like in 2050. The notion that a long-term reduction in oil demand is triggering the Saudis to keep prices low assumes oil prices will influence behavior over a 35-year period of time, which we are darned skeptical of.
|By Szu Ping Chan, The Telegraph, 02/18/2015|
MarketMinder's View: So according to the BoE’s chief economist, robots will soon take over the earth and subjugate mankind through an evil self-aware computer network that controls cyborgs known as terminators and … oh, wait, sorry, wrong Skynet. Oops! No, what he really said is that the proliferation of “intelligent robots” will displace workers, “hollowing out” the job market and lead to ever-lower economic growth, lower pay and a stagnation or fall in living standards. While anything is possible, we have our doubts—history has overwhelmingly shown technological changes advance society and growth, not the other way around. Mechanized farming freed up agriculture workers for steadier, more predictable employment in trade and manufacturing. Automated manufacturing freed up factory hands for safer, better-paying employment in the service sector. The rise of the automobile turned blacksmiths into auto mechanics. As long as human creativity persists, we will continue finding ways to deploy technology that benefit mankind. This creativity is what you invest in if you own stocks. Robots aren’t anything to fear. They’re an opportunity to embrace. But really, watch out for that other Skynet.
|By Wallace Witkowski, MarketWatch, 02/18/2015|
MarketMinder's View: How? By ending the “cheap-money era” and thus “throwing cold water” on debt-financed stock buybacks. This thesis misses the elephant in the room: Companies borrowing money to buy back stock care more about long-term interest rates, not short-term rates, and history shows the first rate hike in a tightening cycle typically doesn’t trigger a rise in long-term rates. There are also plenty of other supply and demand factors keeping long rates on the low side now. So, Fed hike or no, we think the numbers still make this a favorable transaction for a lot of companies.
|By Joshua M. Brown, The Reformed Broker, 02/18/2015|
MarketMinder's View: So, considering our parent company is an active money manager, it’s fair to say we have a vested interest in the active vs. passive debate. But even if we didn’t, we’d have some big questions and issues about this argument, which states active managers will have a harder time outperforming as more investors flock to passive products, because they’ll no longer have a herd of stock-picking retail investors to try to game. Thing is, if you look at arenas like Frontier Markets, which are dominated by professional managers and have very few retail investor participants, active managers have found plenty of ways to outperform. Heck, they’ve arguably been more successful there than in developed markets. So we just don’t think this thesis holds water. It is no easier or harder to find top-performing managers today than yesterday, and the onus remains on the investor to discover what drives a manager’s performance—expertise, philosophy, resources and the like. But! None of this really speaks to what really matters in the active vs. passive debate, which is a) how do passive investors choose their asset allocation and b) do folks have the self-control required to be truly passive?
|By Brett Arends, MarketWatch, 02/18/2015|
MarketMinder's View: Why? Because … drumroll … the cyclically adjusted P/E ratio (CAPE) is way over above average! Never mind that markets have repeatedly debunked the theory that CAPE can forecast either cyclical turning points or 10-year returns, which is what it was (foolishly) initially designed to do. Never mind that comparing stocks to bizarrely smoothed, inflation-adjusted earnings from the past 10 years is ultra backward-looking, not predictive. For more, revisit some of the many articles where we have pointed out CAPE’s many shortcomings. Like this and this.
|By Omid Malekan, The Wall Street Journal, 02/18/2015|
MarketMinder's View: We’re totally ambivalent about this one overall, but it does make a very good point about an initial rate hike: “The Fed’s proposed increase would take the fed-funds rate from near zero to about 0.25% [note: the Fed hasn’t proposed a hike of any magnitude, and a 25 basis point hike would actually take rates to a range of 0.25% - 0.50%], and no that isn’t a misplaced decimal point. We aren’t talking 2.5%, which would still be less than half the 1954-2007 average. We are talking 0.25%, which would mean the Fed’s monetary policy would be rolled back from full pedal-to-the-metal to a fraction above pedal-to-the-metal. On a historical chart of the fed-funds rate, the proposed hike would barely be visible to the naked eye. Does that sound like inviting catastrophe?”
|By Viktoria Dendrinou, The Wall Street Journal, 02/18/2015|
MarketMinder's View: So this is awfully short on details, because the European Commission hasn’t released a super detailed plan yet—that is supposedly coming this summer, after the Commission gathers feedback on its broad plans. So, wait and see. But, in theory, and if executed well, broadening the EU’s capital markets to give businesses more financing opportunities, reduce their reliance on bank-lending and boost cross-border investment would be a nice long-term positive. But, their target date is 2019, so curb your enthusiasm in the here and now.
|By Jon Hilsenrath, The Wall Street Journal, 02/18/2015|
MarketMinder's View: None of this tells you when the Fed will hike rates. It’s all talk and marketing spin, no matter how hard pundits try to diagram every sentence in the Fed minutes. The Fed will hike when they hike, just like always. On the bright side, the embedded infographic is 100% fun.
|By James Quinn, The Telegraph, 02/18/2015|
MarketMinder's View: Ah, looks like the Brits are finally getting the all-time-high dread US investors have endured since March 2013, when the S&P 500 Price Index surpassed its prior peak. In this case, the FTSE 100 Price Index is a few points away from its pre-Tech Bubble high (the Total Return Index, as this notes, surpassed its prior peak long ago). Our take here is the same as our take on S&P 500 (and every other index’s) all-time highs—they’re fun, meaningless milestones. A bull market isn’t at more or less risk of ending because it has hit a new high. UK stocks aren’t any more vulnerable today than yesterday. Nor are the alleged risks here really so bad for them—the eurozone and Greece are too widely known to knock markets much, and the UK election should yield gridlock, which is good for stocks.
|By Andrew Ackerman, The Wall Street Journal, 02/18/2015|
MarketMinder's View: Welp, looks like the Obama administration is about to announce its plans to apply the fiduciary standard to every investment professional advising on an ERISA account, which includes IRAs, which touches pretty much every broker in America. Now, we haven’t seen the draft rules, so it’s premature to comment on them. But we have perused the leaked memo outlining the White House’s argument in favor of a fiduciary standard, and we’re a bit perplexed. It focuses on churning, implying the lack of a fiduciary standard enables it—thing is, churning is already illegal. It also focuses heavily on fees, rather than investigating whether the new rule will improve the quality of recommendations investors receive. So color us keen to see how the final proposal shakes out. All that said, though, we have a hard time envisioning this “fixing” all that ails the brokerage world. For example, it would not ban trading commissions, a major conflict of interest. It would simply require brokers to disclose this and other potential conflicts. A fiduciary standard also wouldn’t ensure clients receive the best possible recommendation. Best is in the eye of the beholder, after all, and a fool can render foolish advice while complying with the letter of the law. For more, see Todd Bliman’s “The Compass” and Elisabeth Dellinger’s “Values Rule.”
|By Tom Randall, Bloomberg, 02/17/2015|
MarketMinder's View: The number of active US oil rigs—known as “rig count”—has plummeted in recent months, leading some to speculate production will tank and prices will bounce. However, as this shows, that’s a premature assumption. When natural gas rig count fell in 2013, production still rose, because the rigs still operating were increasingly efficient. Don’t underestimate productivity gains in America’s shale fields. We wouldn’t be surprised if some firms were to cut back, focusing on the most efficient, profitable wells, but falling rig count doesn’t automatically mean production will go off a cliff.
|By Barry Eichengreen and Beatrice Weder di Mauro, Project Syndicate, 02/17/2015|
MarketMinder's View: So there have been rumblings from politicians in the US and elsewhere that central banks have ballooning liabilities and are buying too many allegedly risky assets and must be reined in—or else they could take massive losses and put their economies at risk. While we don’t agree with everything in this piece, it does show why this viewpoint is misplaced. Central banks aren’t for-profit. If they were, the Fed wouldn’t have sent all its profits on US Treasury bonds back to the Treasury. Central banks simply use their balance sheets to fulfill their mandates—in most cases, that means keeping inflation near some arbitrary target and serving as lender of last resort during a crisis. If they end up taking losses on assets they’ve purchased or that were pledged as collateral by borrowers, well, that happens, and governments can recapitalize them as they always have. But also! Most of these fears overstate the risk of loss here. Even if there are temporary unrealized losses on some assets, central banks don’t use mark-to-market accounting. If they’re holding bonds to maturity, temporary price fluctuations are a moot point. Unless the issuer defaults, that is, but the ECB skated through fine when it took a haircut on some Greek debt in 2012.
|By Stacy Meichtry and William Horobin, The Wall Street Journal, 02/17/2015|
MarketMinder's View: And they did it through the little-used Article 49.3 of France’s Constitution, bypassing the initial lower house vote and going directly to the Senate. Under French law, invoking this article allows Parliament to propose a no-confidence vote within 24 hours, and the opposition Union for a Popular Movement—led by former President Nicolas Sarkozy—has said they’ll bring it. Debate and a vote are expected to happen Thursday(ish), and if President François Hollande’s government loses, he’ll have to form a new one with the current Parliament’s backing or call a snap Parliamentary. Which is why most expect the motion to fail. All these Socialist MPs who denounced Hollande’s economic reforms are Socialist MPs who want to stay in power. Polls indicate they would not stay in power if elections were called Thursday, so they have a powerful incentive to fall in line, making this whole thing seem like a dog and pony show. Either way, the result is gridlock—as bullish in France as in America and Britain.
|By Toru Fujioka, Bloomberg, 02/17/2015|
MarketMinder's View: Yes, the fact Japan’s nominal GDP rose faster than real (inflation-adjusted) GDP for the first time since 1997 is a nifty milestone—the lag (and the fact nominal GDP has overall fallen for over 15 years) showed just how entrenched deflation was. And, yes, as this shows, the sales tax hike wasn’t solely responsible for this nifty milestone. But let’s not let enthusiasms run away here. We just don’t see much (if any) evidence Japan is entering a virtuous cycle of rising growth, rising wages and rising prices. Not with high imported energy costs still hampering businesses and households, and not with export gains being mostly a currency conversion phenomenon. The onus remains on Shinzo Abe’s government to reform Japan’s economy enough to lay the groundwork for that virtuous cycle—starting with the byzantine labor markets highlighted here. When conglomerates take a government-moderated, groupthink approach to setting wages, there is very little chance you can get wage hikes alongside productivity gains. Something has to give, and unfortunately, absent labor market reforms, that “something” is probably Japan’s overall economic potential.
|By Steve Gorman, Reuters, 02/17/2015|
MarketMinder's View: The partial shutdown of West Coast ports does indeed disrupt trans-Pacific supply chains and create headwinds for local retailers, farmers and manufacturers. However, scale is important. The economic impact is estimated at $2 billion a day, which sounds like a lot but pales in comparison to the $17.4 trillion economy. The US is big, broad and economically diverse enough to shrug off localized issues like this—just as it shrugged off a West Coast ports shutdown in 2002. That occurred in October and didn’t derail the recovery from the 2000-2001 recession.
|By Szu Ping Chan, The Telegraph, 02/17/2015|
MarketMinder's View: So there is the “bad” kind of disinflation, where weak growth in demand and the quantity of money keeps price gains sluggish, and there is the “good” kind, where falling gas prices and supermarket price wars give consumers more money to spend elsewhere (or save or pay down debt). As this piece shows, the UK is decidedly in the “good” column, with CPI slowing to 0.3% y/y in January on lower gas and food prices while core prices (ex. food and energy) accelerated to 1.4% y/y. Meanwhile, wages are rising—good news for a country that has endured falling real wages for most of this recovery. If energy and food prices keep falling and trigger deflation, so much the better—that’s the “good” kind of deflation, too. We wouldn’t call this huge economic stimulus, but it does give consumers more flexibility.
|By Alex Rosenberg, CNBC, 02/17/2015|
MarketMinder's View: This is a whole lot of speculation that does diddley-squat for investors. Fed guidance is marketing spin—nothing more—and traders are surprised by central bank decisions all the time (see Switzerland with any questions). Market expectations aren’t a great gauge, either—expectations for the UK’s first rate hike, for example, have moved all over the map for two years. Moreover, the entire discussion is misplaced. There is no evidence a rate hike is anywhere near as bad for stocks as this suggests. One pundit says markets will automatically sell off, but that isn’t true—stocks frequently defy consensus expectations. Trying to time such swings is a fool’s errand. The longer term matters more, and history shows the first rate hike in a timing cycle doesn’t flip a bull market into a bear.
|By Morgan Housel, The Wall Street Journal, 02/13/2015|
MarketMinder's View: So, yes, bear markets always follow bull markets. But not because every expansion fuels a credit bubble and stability breeds instability—the “Minsky moment” is academic theory and, often, real-world myth. Cycles happen because the human psyche is wired for them. We’re a greedy, excess-prone race and always have been. Eventually we get too far ahead of ourselves, whether by buying too many unprofitable Tech stocks in 2000, buying too many hopeless Energy stocks in 1980, or buying too many tulips in 1637. Business cycles haven’t changed since Wesley Clair Mitchell documented them over a century ago. So the first half of this piece, in our view, is mostly misplaced theory. The second half—advice on how to prep for the inevitable bear market—is more of a mixed bag. Tip 1, remember market volatility is normal, is a gem. Tip 2, own a lot of bonds if bear markets scare you, can lead some folks to a dangerous place—a strategy that potentially ignores their long-term goals. Tip 3, learn from your mistakes, is great in theory. But the prescribed application—own a lot of bonds if you panic-sold at the last bear’s bottom—has the same drawbacks as Tip 2. A better way to learn from your mistakes is to train yourself not to repeat them.
|By Ferdinando Guigliano, Financial Times, 02/13/2015|
MarketMinder's View: This is one of many attempts around the punditsphere to analyze Greece’s negotiating tactics from a game theory perspective, and they’re all doing it because Finance Minister Yanis Varoufakis wrote a game theory textbook. The discussion is interesting, but it’s also pure guesswork and psychology. Look, none of these people have any idea what is going through the head of a former professor who calls himself a “libertarian Marxist;” wears untucked shirts and (apparently) Burberry scarves to formal eurozone summits; tells Twitter followers his attempt to compromise is a euphemistic ruse; and occasionally contradicts himself mid-speech. None of their analysis tells you whether, how or when Greece and eurozone creditors will compromise, or what the terms will be. Which means none of it is terribly useful for investors. On the bright side, stuff like this and this (fifth story down) is really funny!
|By Paul R. La Monica, CNN Money, 02/13/2015|
MarketMinder's View: So according to this bizarrely calculated sentiment gauge—which uses indicators that have nothing to do with sentiment, like put/call volume and the number of 52-week highs—greed has returned to markets as “investors are choosing not to be as worried” about January’s risks. These “risks”, which include low oil prices, a “Grexit” and a strong dollar, seem more like false fears, in our view—so the bull’s continued upward march isn’t a surprise. Now sure, it is possible stocks fall tomorrow, next week or next month—they are volatile in the short-term, and pullbacks (or even a correction) can happen for any or no reason. But hitting big round numbers—whether it’s an all-time high or a birthday—isn’t among those reasons. Oh, and we’re also a bit confused by the statement, “Many people have pointed out that stocks have NEVER gone up for seven years in a row.” Ok, what index are we talking about? The MSCI World Index was down a bit in 2011. Besides, the past doesn’t write the future. Even if stocks do fall a bit this year, pauses are normal in long bull markets—like 1994’s pause during the 1990s bull, history’s longest (and while the S&P 500 Price Index fell in 1994, the Total Return Index and the MSCI World Index rose). The trouble with focusing on calendar years is that you miss the big picture of the market cycle. The cycle is what matters, and this cycle still looks bullish.
|By Tara Siegel Bernard, The New York Times, 02/13/2015|
MarketMinder's View: Here are some things a uniform fiduciary standard for any adviser or broker working with a retirement account would not do:
1. Abolish trading commissions
2. Require brokers to act in clients’ best interests, always and everywhere
3. Guarantee clients receive optimal advice
4. Prevent conflicts of interest
5. Fix any other issue described in this article
Instead, it would require brokers to disclose conflicts of interest, including revenue sharing agreements and commissions, and make recommendations they reasonably believe will help the clients reach their investment goals. That reasonable belief is based on their own knowledge and opinions, which vary—advice is only as good as the information and analysis underpinning it. A fiduciary who doesn’t understand capital markets well, has limited research resources and bases recommendations on antiquated industry mythology could give some terrible advice and still be on the right side of the law. Plus! Rules don’t guarantee behavior. People break rules. Uniform fiduciary rule or no, the onus is always on the investor to discover all they can about their adviser’s values, track record, philosophy and expertise. For more, see Todd Bliman’s and Elisabeth Dellinger’s columns, “The Compass” and “Values Rule.”
|By Matt O’Brien, The Washington Post, 02/13/2015|
MarketMinder's View: Errr…if prices are rising, even if they’re rising less than 1% annually, that’s inflation. But the larger fallacy here is the thesis that inflation is slowing and oil is falling because a bunch of credit bubbles globally are sapping demand. If that were true, why are consumer spending and business investment jumping in America and Britain—and why does Britain’s jump happen as loan growth is struggling? How can China’s growth be credit-driven if the government is curbing traditional lending and shadow financing? As for oil, how can demand be falling if consumption is at all-time highs and rising? The analysis cited as support for this thesis ignores huge copper supply gluts, so it doesn’t hold up in our view.
|By Jason Zweig, The Wall Street Journal, 02/13/2015|
MarketMinder's View: This has some good puns, and the philosophical argument—that unpopular stock categories often perform well looking forward—is fine. We agree with it! But the application is bizarre. It takes some interesting observations about so-called sin stocks’ (alcohol, tobacco, gambling and firearm companies) long-term returns and tries to argue they’re permanently superior because they’re permanently unpopular. And the same market that prices in every other category’s temporary leadership will never price in these companies’ leadership, even though it is very widely known through the studies highlighted here and others. That all just seems weird to us. We’re also sort of skeptical of the numbers here, considering they claim to show 115 years’ worth of outperformance, even though reliable market data go back only to 1926. A time, by the way, when booze was banned here. Look, these companies do fine at times, but their industries have ups and downs like any other. Consumer stocks do well at times and poorly at others. No one sector is best for all time.
|By Jeff Benjamin, InvestmentNews, 02/13/2015|
MarketMinder's View: This piece discusses some of the challenges target-date fund (TDF) managers are having in designing and promoting their product, given the rise in competition. It was probably always bound to happen that these funds would drift from their alleged and poorly executed purpose of “risk management” in order to win over return-chasing investors. But the real issue here is with the inherent flaws in TDFs overall: Assuming your age is the most important input in determining asset allocation and that your time horizon ends at retirement. Your time horizon is the length of time your assets must be invested to reach your goals. For many folks, this stretches across their whole life and maybe beyond. Dialing down equity exposure as an arbitrary retirement date nears ignores the time value of money over the next several decades.
|By Buttonwood, The Economist, 02/13/2015|
MarketMinder's View: Ahem. Long-term investing is not synonymous with gambling! Can we please eradicate all similar metaphors from the planet! One is using probabilities and forward-looking drivers to build wealth in the long run, in a market that pays out about 75% of the time; the other is making outsized risks in the attempt to turn a quick buck and throwing good money after bad. Clear? Ok. With that out of the way, we just don’t find much at all compelling about this argument against active investing, which sets up a false conflict between active mutual funds and index funds. That’s too limited, because it ignores the fact the person making all the decisions here is the investor, and they are prone to behavioral errors whether investing in managed or passive funds. The real question to consider if you’re thinking of going passive: Do you have the discipline to buy one index fund and hold it forever and ever, come what may? That, folks, is something even passive investing’s godfathers can’t or won’t do. The temptation to flip to and from different areas of the market is too great. Just because you flip in and out of passive funds doesn’t make you a passive investor.
|By Scott Grannis, Calafia Beach Pundit, 02/12/2015|
MarketMinder's View: Given the headline figure for the retail sales report—January fell -0.8% m/m—much of the coverage wondered why Americans weren’t spending money. So we found the take here refreshing: “Real retail sales rose 2.9% in the 12 months ended January, and that’s almost exactly the average annual rise we saw in retail sales in the years prior to the Great Recession. Abstracting from autos and gasoline, sales were up 5.7% in the past year. Nothing unusual going on here.” But! It’s a fallacy to debunk dour views on negative monthly numbers by highlighting positive year-over-year numbers. We agree trends matter, but the year-over-year number is even more backward-looking, so, you know. We’d instead point out that if you exclude gasoline and auto sales—stripping out oil prices’ decline and a notoriously volatile component that doesn’t reflect consumers’ actual health—sales rose 0.2% m/m. Not rousing growth! But growth, and more valid evidence consumers aren’t so very weak.
|By Anora Mahmudova, MarketWatch, 02/12/2015|
MarketMinder's View: So here is the argument: A stronger dollar makes US stocks look more attractive to foreign investors than they really are, because currency conversions inflate values. Foreign investors see this and pile into US stocks, driving up their prices and inflating a stock bubble. Which seems a bit odd, because markets are pretty good at discounting known information, and the dollar’s recent strength is one of the most widely discussed financial stories on planet Earth. As is the effect of currency conversions on perceived stock returns cross-borders. Plus, one could easily argue the reverse—foreign investors would see expensive US stocks and get fear of heights. Neither side holds much weight in the real world.
|By Bruno Waterfield, The Telegraph, 02/12/2015|
MarketMinder's View: Here is the obligatory daily installment of the Greek-euro tragicomedy: Greek Prime Minister Alexis Tsipras’s chief of staff “torpedoed” a “carefully crafted statement” that eurozone officials and Greek finance minister Yanis Varoufakis drafted after Wednesday’s meeting—a blow to progress! Or, maybe not—perhaps it just sets the stage for further politicking at next Monday’s finance minister rendez-vous. Look, they were never going to go from harsh rhetoric to Kumbaya hand-holding overnight. Our view remains the same: All this bickering likely results in some sort of compromise at some point. Regardless of what real-time countdowns (like the one here) until Greece’s funding expires might say—these guys have a long, long history of wiping and redrawing arbitrary lines in the sand.
|By Leonid Bershidsky, Bloomberg, 02/12/2015|
MarketMinder's View: Ordinarily, we wouldn’t highlight something with so little direct relation to markets. But, we’ve seen a fair number of articles today crediting the Ukrainian cease fire for markets’ rise, and it seems there is a great deal of optimism over what the prospect of peace could mean for European economies and the potential lifting of sanctions. That all seems like putting the cart before the horse. As this analysis shows, this deal is pretty fragile, particularly when you consider past cease fires haven’t caused firing to cease. Look, this is all probably a non-event for markets, considering Ukraine’s conflict was highly unlikely to cause a bear market. But irrational optimism can be a perilous path to follow in investing.
|By Ambrose Evans-Pritchard, The Telegraph, 02/12/2015|
MarketMinder's View: Call us sticklers, but countries simply altering their monetary policy does not a global currency war make. A currency war—or, a competitive devaluation—is a deliberate weakening of a country’s currency with the intent of boosting exports (and, by extension, economic growth). Sweden cutting interest rates to address growth and inflation concerns and Denmark lowering its rate to defend its currency peg seem like countries acting to address their own specific domestic issues. We see scant evidence that a “global currency war” is underway. For more, see our 2/11/2015 commentary, “One-Two-Three-Four, Who Declares a Currency War?”
|By Staff, The Yomiuri Shimbun, 02/12/2015|
MarketMinder's View: So we’re slightly disappointed there weren’t any new metaphors in PM Shinzo Abe’s latest policy speech, considering this time last year he told the world he would be like a drill boring into Japan’s entrenched interests. This one was just the typical vague political hyperbole that is big on promises, short on specifics and (if recent history is a guide) likely yields few results. While there has been some incremental reform progress—like proposed legislation chipping away at a powerful agriculture lobby’s influence—it is a far cry from drilling through the bedrock of vested interests. We remain skeptical Abe will put Japan on a sustainable path of economic growth, particularly when he seems more interested in spending his political capital in amending the country’s constitution.
|By H.C., The Economist, 02/12/2015|
MarketMinder's View: Evidently, BoE governor Mark Carney “hinted” the bank’s inflation-target mandate may warrant some reconsideration, given potential disruptions from unanticipated shocks (e.g. falling oil prices). This is not a huge surprise, as Carney has long advocated the theoretical benefits of central banks targeting nominal GDP growth instead of inflation. We wouldn’t read too much into any of it—or argue hard for one versus the other. This is a mostly academic debate, and in real life, no central bank mandate will be perfect. Targeting nominal GDP might avoid some of the traps inherent in an inflation target, but it introduces new ones. Like: If steady nominal GDP growth is entirely due to inflation, and real GDP doesn’t grow, is the economy really benefiting? Or is rising nominal GDP just masking deeper problems? We can’t help but wonder if chucking arbitrary economic targets and focusing instead on the growth in the quantity of money might be more beneficial. But again, this is all academic.
|By Glenn Ruffenach, The Wall Street Journal, 02/11/2015|
MarketMinder's View: Yes, if you aim to restrict hardship withdrawals and post-employment cashouts, you are probably going to reduce folks pulling funds out of their 401(k)s before retirement. But that does not mean average retirement balances will rise. If you add to restrictions and make folks fear they won’t have access to their savings in the event they need it, that could easily discourage some from contributing. Our guess is the average retirement account balance is impacted more by folks’ behavior on the contribution side than these narrow restrictions, so tampering with rules that could affect behavior could do more harm than good. For more, read 18th century French economist Frederic Bastiat’s legendary pamphlet, “That Which Is Seen, and That Which Is Unseen.”
|By Joe Chidley, Financial Post, 02/11/2015|
MarketMinder's View: A handy primer on why the Baltic Dry Index probably isn’t a wonderful barometer of future growth these days. Yes, all else equal, less shipping demand relative to supply might signal less demand for raw materials globally, which might be a sign of weaker growth to come. But all else is equal only ever in academic fantasyland. In real life, variables move constantly, and for the past seven years, the variable of ship supply has skyrocketed. A huge shipping supply glut will pull down shipping costs regardless of how high demand is, and that seems to be behind the Index’s latest slide. What’s more, as mentioned here, drops this time of year aren’t unprecedented thanks to lower demand in China surrounding the Lunar New Year. For more, see our 2/5/2015 commentary, “Global Growth Hasn’t Run Dry.”
|By Conrad De Aenlle, The New York Times, 02/11/2015|
MarketMinder's View: Indeed, there isn’t a global economic funk. But that doesn’t mean you should rush head-long into junk bonds, Energy stocks, oil-exporting nations and Emerging Markets simply because they look “cheap.” That’s over-emphasizing recent past performance and valuations and ignoring fundamentals and forward-looking conditions. We aren’t saying all of these categories are guaranteed to do poorly looking ahead, but being contrary for contrary’s sake is often a fool’s errand. You must consider all possibilities—and weigh questions like, are oil-related companies cheap for a reason, and is that reason likely to change over the next 12 to 18 months? We think folks are best off thinking bigger-picture here. If everyone fears global implosion, and you think it’s false, the best way to capitalize is probably just to own stocks—logically shunned by people who think doom is nigh.
|By William Horobin, The Wall Street Journal, 02/11/2015|
MarketMinder's View: So talks between Greece and creditors kicked off at Wednesday’s meeting of eurozone finance ministers, where Greek fin-min Yanis Varoufakis dazzled in designer duds and outlined his proposals to keep Greece funded and in the eurozone while keeping some of his party’s anti-austerity campaign pledges. He didn’t give many details, and—shocking no one—no agreement was reached, but in time-honored euro crisis tradition, they all agreed on a plan to talk more. Plans for plans? That is like step one in compromise, euro style.
|By James Titcomb, The Telegraph, 02/11/2015|
MarketMinder's View: And yield curves were steeper! Coincidence? We think not. This is just more evidence that the end of quantitative easing was actually quite bullish.
|By Robert J. Shiller, The New York Times, 02/10/2015|
MarketMinder's View: “When there is unusual uncertainty about the future, and if not enough new business initiatives can be found to increase the supply of good investments, people will compete to bid up existing investable assets. They may go so far in bidding up prices that even though the assets may have horrible prospects, people will still want to hold them because they feel they have to save somewhere.” Ok, so stock prices will rise when uncertainty is high? Also! If people are so darned uncertain about the future, then why are they charging so, so little to lend to entities over very long stretches? If you’re uncertain, wouldn’t you charge more?
|By Nikolaos Chrysoloras and Eleni Chrepa, Bloomberg, 02/10/2015|
MarketMinder's View: Here is your obligatory Greece update, folks. In today’s edition, Finance Minister Yanis Varoufakis said the government will stick to the existing bailout agreement after all, honor budget targets and implement 70% of the previously agreed-to reforms. It seems Greece will also privatize the Piraeus Port Authority after all, completing a very big U-Turn just one week after his deputy asked the staff of the privatization agency to privatize themselves. So it’s game on again. Tomorrow they might flip flop—these guys are unpredictable, regardless of your knowledge of game theory. Sometimes they flip-flop mid-speech. But ultimately, it looks like they’re inching toward compromise.
|By Szu Ping Chan, The Telegraph, 02/10/2015|
MarketMinder's View: Hey, maybe China and India will rank one and two in purchasing-power-parity (PPP) GDP in 2050, with the US third! But also maybe not. Long-term forecasts based on straight-line math are usually fiction. But if it’s right, does it matter? PPP GDP is a wacky stat that doesn’t measure actual size—it’s useful in academia, but that’s about it. Then again, even if China and India overtake America in nominal terms, it wouldn’t much matter. It’s not like the US economy would shrink or stagnate. It would just mean two of the world’s most populous nations got more productive and learned how to capitalize on their many innate strengths. If you’re a global investor, what’s not to love about that? Anyway, none of this is an issue for markets, which weigh probabilities, not possibilities, and don’t look beyond the next 30 months or so.
|By Laura Saunders, The Wall Street Journal, 02/10/2015|
MarketMinder's View: This is pretty much the sum total of the Foreign Account Tax Compliance Act’s (FATCA’s) damage. It had no real financial impact on markets or the economy, but a record number of folks did renounce their citizenship, which many tie to FATCA impacting their ability to bank abroad. Yet that record number is 3,415 people, or 0.001% of the US population. Immigration probably more than made up for it.
|By Jeremy Warner, The Telegraph, 02/10/2015|
MarketMinder's View: Why? Because Greece needs money, the EU supposedly won’t give it, and America will have to step in to prevent Greece from turning toward Russia with hat in hand—then becoming a Russian satellite and robbing the EU of what is apparently a mere buffer state. That’s the argument here anyway. Rather than delve into the nitty gritty, we’d counter with a simple question: Where is Russia, which is bleeding forex reserves and tipping into a nasty recession because of falling oil prices (which have hammered state revenues), going to get the money to bail out Greece? And another question: How well would that go down with Russians when supermarket shelves are bare and inflation is running over 15%? Look, anything is possible, but it’s important to weigh probabilities from all angles.
|By David Wethe, Bloomberg, 02/10/2015|
MarketMinder's View: This is all anecdotal, but it does suggest US oil producers are doing whatever they can to cut costs without cutting output—a counterpoint to the many who presumed cheap oil would spell instant death for the shale revolution.
|By Miho Kibiki, The Yomiuri Shimbun, 02/10/2015|
MarketMinder's View: We think it’s sort of telling that Japan’s government is spending this much time and effort debating which sweeteners to tack on to a sales tax hike that was delayed until 2017. They aren’t discussing labor market reforms, agricultural tariffs or any of the structural issues preventing Japan from regaining its 1980s dynamism. They’re bogged down with populist tweaks that are over two years away. This is reason 8,985 we think expectations for Japan’s resurgence are way too high. (OK, that 8,985 is a rough estimate. Just know that there are a whole lot of reasons!)
|By Christine Idzelis and Sally Bakewell, Bloomberg, 02/10/2015|
MarketMinder's View: Here’s a positive side-effect of the ECB’s quantitative easing program: Reducing long-term sovereign yields reduces corporate borrowing costs. While this doesn’t much help firms secure bank loans, as the spread between short and long rates is tiny, it does help firms raise more money on capital markets. Lower rates give them an incentive to sell bonds, and the relatively wider spread between corporate and sovereign yields gives investors an incentive to buy. Overall, it should help many small and mid-sized European firms (though obviously not mom-and-pop shops) get badly needed financing, and it should also promote the expansion of Europe’s relatively less-developed corporate debt markets—a long-term positive.
|By Alen Mattich, The Wall Street Journal, 02/10/2015|
MarketMinder's View: Sector weightings are an important component of portfolio construction. But this article has nothing to do with any of that. The thesis, we think, is that you’re hosed if you try to invest in spanking-new technologies and companies because only insiders and venture capitalists can ever make money there, so you might as well invest in boring old stuff instead, because it might be less lousy than people expect and therefore bring positive returns. This has nothing to do with sectors. The article goes on to suggest buying companies eight years past their IPO date and then holding on forever and ever—because if railroads could make money between 1900 and 2015, any old stinker can have smashing ultra-long-term opportunities! And hey, maybe that’s true, but we haven’t encountered any humans with a 115-year time horizon, so we’d suggest a different approach. Just make sure you diversify across most or all major sectors, put more in the sectors you think will fare best over the foreseeable future, put some money in the others just in case, and don’t let any weighting get hugely out of whack with that sector’s share of the broader market. Oh, and change things up as needed.
|By Phillip Inman, The Guardian, 02/10/2015|
MarketMinder's View: Just another data point confirming what Q4’s GDP report already told us: North Sea oil production fell, and manufacturing output rose. The broader economy grew, led by services. Manufacturing and services purchasing managers’ indexes suggest growth continued in January.
|By Staff, The Guardian, 02/10/2015|
MarketMinder's View: Wait. If 0.6% inflation in November 2009 did not precede a deflationary spiral or immediate economic crash, why would 0.8% inflation signal doom today? This is all just way too much searching for meaning in bouncy prices or maybe a bouncy rate of rising prices.
|By Brian Blackstone, The Wall Street Journal, 02/09/2015|
MarketMinder's View: The theory here holds that central banks are in an “unspoken currency war,” as evidenced by a series of rate cuts and the ECB’s quantitative easing program, all announced in recent weeks. But much of the evidence doesn’t jive with this: The Danish central bank, for example, cannot be a participant in a currency war because its currency is pegged to the euro. In addition, the Swiss Central Bank stopped artificially lowering the value of its currency by removing the euro/franc floor weeks ago. As the article admits, “[Central banks] are doing what they think is best for their economies and, if their currencies weaken in response, so much the better”—which is not a currency war, by definition. But also, the notion that a weak currency stimulates economic growth is wrongheaded in today’s globalized world—few exports are 100% domestically sourced, and weak currencies make imports costlier. Hence why Japan’s yen has been extremely weak, but the economy hasn’t gotten much stimulus. Meanwhile, US economic growth has accelerated amid a stronger dollar. In sum, we just don’t think the theory here holds any water at all.
|By E.S. Browning, The Wall Street Journal, 02/09/2015|
MarketMinder's View: This is a tour de force in bizarrely contorted data mining. Oil and stocks are just not correlated, so the presumption that stocks need rising oil prices to rise is bizarre—particularly since we just saw the S&P rise 13% while oil prices fell nearly -50% last year. But also, theory that the Fed’s zero percent interest rates and quantitative easing program forestalled volatility in past years ignores volatility from 2010, 2011 and 2012, focusing on the two years of this five year bull market that had below-average swings.
|By J.R. Robinson, NerdWallet (via The Christian Science Monitor), 02/09/2015|
MarketMinder's View: A whole lot wrong here. For one, this starts from two faulty assumptions: One, that Americans are on average too indebted, which this chart of household debt service costs relative to disposable income suggests is a stretch. The advice here—that it may not be so bad to borrow from your 401(k) if investment returns are poor for the next five years (bear market or other)—presumes you can forecast those returns, and if you can reliably do that, you could just short the S&P and be far better off. Or buy Treasurys. And if you can do any of that, you probably don’t need to borrow from your 401(k) because you are independently wealthy and have no need to read personal finance articles couched as debt management advice that are actually just bearish market calls based on the fact stocks are near record highs. (Hence why now is this allegedly good time to borrow.) Folks, stocks have been setting all-time highs since 2012. When do we get the bearish one?
|By Mohamed El-Erian, Financial Times , 02/09/2015|
MarketMinder's View: We think this article assumes central banks typically move in lockstep, which isn’t remotely the case. We think most of the economic arguments here hinge on myth, like low oil prices and high consumer confidence buoying the US economy, when neither do. We think this attributes far too much responsibility for growth and future conditions to central banks. But we can’t be sure. Why, you ask? Here’s an example: “The prospective moves in markets implied by the divergence theme would tend to complicate rather than facilitate policy making in a world subject to increasingly bimodal distribution of potential outcomes and low availability of broker-dealer liquidity during transitions.” That is one heckuva inscrutable piece of multisyllabic jargon!
|By Steve Goldstein, MarketWatch, 02/09/2015|
MarketMinder's View: So the theory here is two-pronged: One, that the strong dollar will hurt US firms sales abroad and two, that this will result in a wider trade deficit, which is supposedly “lost revenue” to US firms. It then theorizes that Fed head Janet Yellen may use language to prepare for an eventual rate hike, causing the dollar to continue to rise. Now then, the first leg of this—the dollar dampening revenue from abroad—is fine theory, but it’s overstated as the 1990s illustrate. The strong dollar then didn’t destroy US firms’ profits. The trade deficit does not represent lost revenue to US firms—consider, for a moment, that WalMart sells billions worth of imported goods. Besides, few goods are 100% domestically sourced, so many of those imports are intermediate goods or raw materials later assembled into an American final product. Lastly, Fedspeak is just noise—this is dramatically overthinking it.
|By John Durie, The Australian, 02/09/2015|
MarketMinder's View: This article’s opening tells you the thesis: “Over the last seven years Australia has had five prime ministers and over the last 32 years just three with any sense of economic ability, which partly explains the depression in the business community.” Yet Australia also hasn’t had a recession in nearly a quarter century, which highlights the fact you don’t need the radical-economic-reformer-as-leader type when you have a competitive private sector—gridlock and a government that can’t get in the way is better. The fact the Australian Prime Minister post is turning into a bit of a revolving door isn’t such dire news for Australian firms. Australia’s economy isn’t Japan’s.
|By John Ficenec, The Telegraph, 02/09/2015|
MarketMinder's View: China has roughly $3 trillion in forex reserves it could use to recapitalize its banking system, in the event the developments here do blow up into a bigger issue. But at this point, they are nascent and largely the effect of China aiming to control credit growth. Additionally, China’s financial system is largely closed, so the global effect of a possible-yet-unlikely China bank panic wouldn’t be a shot to the global financial system. What’s more, Libor isn’t up markedly—as the oddly scaled chart herein shows, it’s up 0.03 percentage point, which is not a lot. No other global measure—yield curve in the US or UK, 1 month Libor in dollars or euros, overnight in dollars or euros, the TED spread, bank capital measures, nothing—shows any material stress. Finally bitcoin as a sign of euphoria? Puh-lease.
|By Ben Steverman, Bloomberg, 02/09/2015|
MarketMinder's View: Stocks rise roughly 70% of the time. Thinking that retail investors are wrong 100% of the time is too polarized. Mom and pop aren’t always wrong—they are usually just late. Besides, trade data from one firm that doesn’t share the size of trades in question or what folks did with other asset classes or types of securities is quite useless, really.
|By Michael P. Regan, Bloomberg, 02/09/2015|
MarketMinder's View: Many quibbles with this piece, which mostly operates on the notion Price-to-Earnings Ratios (P/Es) will predict future direction based on reversion to the mean. Yet this isn’t how stocks work—P/Es (whether forward, backward or the bizarre, distorted Cyclically Adjusted P/E) are a loose marker of sentiment, but high P/Es often get higher, low P/Es lower and the gap between US P/Es and Emerging Markets P/Es doesn’t tell you all that much about where stocks head. For this same reason, the notion that profits as a share of GDP can’t expand is wrongheaded theory, and the sociological theory that folks’ well-being is best measured by GDP is wrong too.
|By Chico Harlan, The Washington Post, 02/06/2015|
MarketMinder's View: All great news! We’d just caution against reading too much into it. No level of employment or jobs growth makes an expansion self-sustaining, ever. Gangbusters hiring doesn’t mean we’ll grow faster, and the labor market is never the engine of an economic expansion—it’s actually the caboose. It lags growth by several months. January’s job and wage gains—and all the 2014 revisions—just confirm economic strength we’ve already seen in other data releases. Stocks have discounted all that, too, and are looking forward as usual.
|By Jason Zweig, The Wall Street Journal, 02/06/2015|
MarketMinder's View: Always, always, always know what you’re buying. If you’re considering a fund, find out what’s in it—and, if you’re considering an “unconstrained” bond fund, be ultra-careful, because it is exceedingly difficult to assess whether the risk/return profile of its holdings is consistent with your needs. As this shows, managers who aren’t bound to benchmarks can make some wacky, speculative trades, which may not mesh with the goals of a typical fixed income investor. Most long-term investors who own fixed income do so to cushion their portfolio’s expected short-term volatility. Some of these funds, which shoot for high yields and high returns, likely have higher expected short-term volatility, which largely defeats the purpose. Again, do your due diligence and what you ultimately believe is best and right for you, but we suggest thinking long and hard about whether the lure of high-yield might be tempting you from a strategy better suited to your needs.
|By Mark Gilbert, Bloomberg, 02/06/2015|
MarketMinder's View: Evidently, America is losing a currency war, and policymakers are ready to retaliate—whatever that means. (Maybe angry letters?) But then again, we also aren’t sure currency wars are even a thing. Like, why would all these countries try to race each other to rock-bottom currency valuations? Why would they make consumers’ lives harder by jacking up import costs? Haven’t they seen that a weak yen has, so far, done Japan basically no favors? As for the US side of things here, it seems like folks are vastly overstating the stronger dollar’s economic impact. Last we checked, the US was not an export-reliant, mercantilist economy. Wouldn’t cheaper imports thus technically be a small positive, reducing costs for consumers and businesses alike? These things always even out over time. The US did smashingly with an even stronger dollar throughout the mid-late 1990s, and it can probably do smashingly this time, too. For more, see our 2/3/2015 commentary, “Does a Strong Dollar Favor Smaller?”
|By Mark Peters and Aaron Kuriloff, The Wall Street Journal, 02/06/2015|
MarketMinder's View: Hey, look, Kansas is going on margin! We aren’t experts on municipal finance or pension funding strategies, but this story is interesting, and it gives us the opportunity to issue all investors a timeless and timely reminder: Investing in the market with borrowed money has caused a lot of investors a lot of heartache over the past 150-plus years. Regardless of whether this is a good tactic for the state of Kansas—again, not our field or forte—we humbly suggest not mimicking it in your own portfolio.
|By Anna Prior, The Wall Street Journal, 02/06/2015|
MarketMinder's View: This article is aimed at investment advisers, but everyone can get something from it! Because we’re pretty sure everyone, at one time or another, has been seduced by some big happy round number—or freaked by some big horrid low round number. They’re all meaningless trivia, and staying disciplined and immune to big shiny (or horrid) but inherently meaningless things is key to investing successfully.
|By Peter Coy, Bloomberg, 02/06/2015|
MarketMinder's View: Yes, yes, hip-hip-hooray for labor markets! But the “sea change”—the uptick in the labor force participation rate—isn’t quite as meaningful as this suggests. Yes, the rate—labor force as a percentage of total working-age population—has fallen for years. But, that doesn’t mean the workforce shrank. It went sideways for a while after the 2007-2009 recession, but it has climbed (albeit choppily) since mid-2011. Population—the denominator—just grew faster. So just as the falling participation rate was a weird reason to be bearish the last couple years, the rise is an odd reason to be bullish.
|By Wallace Witkowski, MarketWatch, 02/06/2015|
MarketMinder's View: If labor disputes caused West Coast ports to close temporarily, there would be economic disruptions. But 2002’s closure didn’t tip America back into recession, and the US economy is overall big and broad enough to weather localized setbacks like this.
|By Mehreen Khan and Andrew Trotman, The Telegraph, 02/06/2015|
|By John Carney, The Wall Street Journal, 02/06/2015|
MarketMinder's View: Here is a story about an unintended consequence of the “too-big-to-fail” extra capital requirement the Fed proposed late last year. Evidently, the quirky calculations would make some very big US banks even more too-big-to-fail as the dollar strengthens, forcing them to boost capital ratios. This is all fairly innocuous in the here and now, as the rule doesn’t kick in for a while and hasn’t been finalized yet—and most banks were already largely compliant. But it is interesting and an example of how well-intentioned rules can have odd downstream impacts.
|By Staff, Xinhua, 02/06/2015|
MarketMinder's View: If you’ve been wondering just what the heck China’s big monetary policy move was all about, here’s a handy primer. In short, when you have a command economy with a fixed exchange rate and somewhat free capital flows, you can’t have fully sovereign monetary policy through traditional channels, like interest rates. So they instead manipulate the quantity of money (and try to offset capital coming in and out) through loan quotas and reserve requirements. The more you know!
|By Ana Swanson, The Washington Post, 02/06/2015|
MarketMinder's View: This is an interesting look at employment trends, and it also shows some of the follies of taking academic studies and statistics at face value—in this case, “truck driver” is the most common job in most states today purely because of how all jobs are classified, with some categories broken down in narrow subsets (like teachers), some lumped broadly (truck drivers, delivery people and tractor drivers), and some excluded (many managers and salespeople). But the issue is also entirely sociological. Who’s working where isn’t a market driver.
|By Matthew Yglesias, Vox, 02/05/2015|
MarketMinder's View: While we don’t really buy the final takeaways here, the rest does a nice job of explaining some of the nuts and bolts about why interest rates are negative in Europe. Namely, it’s a supply and demand issue and an unintended consequence from ECB regulation. When the ECB implemented a negative bank deposit rate last June—charging to hold reserves—banks started looking for other places to put their cash. Those alternatives include sovereign and corporate debt, and because of increased demand and limited new issuance, yields have fallen—with those in great demand going negative. Now, the real lesson here, in our view, is that all of this flattens European yield curves, which is anti-stimulus—and we reckon growth would pick up if the ECB backed off and let yield curves steepen, which over a century’s worth of theory and data show provides the real stimulus.
|By Martin Crutsinger, Associated Press, 02/05/2015|
MarketMinder's View: Exports fell, imports “soared,” and folks fear Q4 GDP growth will be revised down as a result. And hey, it might be! But stocks look forward, not backward. Plus, a growing trade deficit isn’t necessarily bad. A drop in exports isn’t great, monthly data can bounce around: Total exports fell m/m in five months during 2014, but over the year, exports are higher. Also, consider why exports are falling. The biggest detractors were materials and petroleum products, so falling commodity prices likely played a big role (exports are reported in dollars, not volumes). Exports of other physical goods—and services—rose. And also! That “Americans bought a record amount of imports” doesn’t seem like a big bad to us—it seems like a big good. US consumers are buying lots of stuff, which benefits US firms that sell imported goods and the global economy. That imports get calculated as a negative input on GDP says more about GDP’s efficacy as an economic indicator than it does about reality.
|By Staff, EUbusiness, 02/05/2015|
MarketMinder's View: If you’ve ever played in sand, you know that it’s usually easy to manipulate. Lines can be drawn, erased and then redrawn without much effort—though we don’t think that’s the public message the ECB wants to send to Greece. However, despite how hot and blustery the rhetoric may get from Athens, the ECB or any of the other actors in this Greek drama, we suggest investors not get caught up in the headline hype—all sides involved have inched ever so slowly toward moderation after Syriza’s rise and victory, and while things can change, compromise seems to be the desired goal. But, full warning: It’ll probably take them a heck of a lot of time to get there, with plenty of brinkmanship along the way.
|By Ian Talley and Brian Spegele, The Wall Street Journal, 02/05/2015|
MarketMinder's View: Now, it’s a fallacy to assume cheap oil gooses consumer spending—paying less for gas doesn’t mean folks have more money to spend overall. Disposable income doesn’t change. It just gives them more to spend at the mall (or wherever), save or pay down debt. But! With that said, this is an otherwise insightful look at how consumers do (and in some cases don’t) benefit. In the US, the savings are huge. In Europe, where gas taxes are high, folks don’t save as much. In developing nations where fuel is heavily subsidized, benefits are minimal. In Indonesia, where the government scrapped subsidies, prices rose. Ultimately, this all just creates winners and losers worldwide.
|By Jim O’Neill, Project Syndicate, 02/05/2015|
MarketMinder's View: While we think some of these reasons are a bit misperceived or overstated (cheap oil isn’t as big a boon to consumer spending as it’s made out to be here, and bilateral trade deficits aren’t a big deal), it also contains some fun, underappreciated happy factoids about the world economy. Sure, they’re backward-looking, like global GDP more than doubling from 2000 to 2014. And that the BRICS economies (Brazil, Russia, India, China and South Africa), which combined to make just a quarter of US GDP in 2000, are now close to equaling it. But, they’re a good reminder for investors who get caught up in the dreary day-to-day news of weakening global growth—all this progress happened despite the many short-term ups and downs along the way.
|By Scott Grannis, Calafia Beach Pundit, 02/05/2015|
MarketMinder's View: A few minor quibbles aside—like, the VIX doesn’t tell you anything about future volatility—the take here nicely highlights how economic reality is better than current skepticism suggests. Investors have all but lined up to own ultra-low and negative-yielding bonds worldwide, illustrating just how low their stock return expectations are. But data suggest that pessimism just isn’t warranted: “We aren’t seeing robust growth, but neither are we seeing any of the signs that ordinarily precede a recession. The yield curve is not inverted; the Fed is not tightening aggressively; real yields are very low or negative; and swap spreads are at normal levels.” We’d add that The Conference Board’s Leading Economic Index (LEI) has also been rising, and no recession has started while LEI was rising in its 55+ year history.
|By Gary Dayton, MarketWatch, 02/04/2015|
MarketMinder's View: The psychological advice here—items 1, 2, 5, 6 and 7—is pretty good. Accepting responsibility for losing tactics, embracing mistakes as learning opportunities and applying what you learned are all key to battling behavioral errors and becoming a better investor. However, the tactical advice—items 3, 4 and even a bit of 2—is chock full of industry mythology and rules of thumb with little (to no) real-world use. Stop losses and technical indicators often compound mistakes by triggering ill-timed trades. We’d suggest applying the psychological advice to the tactical and learning from others’ mistaken use of such losing tactics.
|By Ambrose Evans-Pritchard, The Telegraph, 02/04/2015|
MarketMinder's View: Here is an interesting look at the latest Greek politicking and some theories behind the negotiating strategy on both sides. We haven’t bugged Syriza’s headquarters or Angela Merkel’s office, so we (like everyone not intimately involved here) have no idea whether this theorizing is correct. But it is plausible, and comments from both sides indicate slow moderation and compromise to keep Greece in the eurozone is the ultimate desired endgame. That, not all the specifics here (which are preliminary, speculative and subject to change), is what matters for investors.
|By Joseph E. Stiglitz, Project Syndicate, 02/04/2015|
MarketMinder's View: This is based on a very bizarre comparison suggesting austerity is equivalent to America and Greece’s creditors reinstating nineteenth century-style debtor’s prisons, and that Greece should have its debt forgiven instead of being consigned to jail. Huh? Look, this illogical argument for Greek debt forgiveness is entirely sociological. It says nothing about whether Greece can recover economically without another debt writeoff, which is really the main issue here. Neither Greece, the eurozone nor global markets need Greek debt forgiveness to emerge from all this just fine. Throughout history, other nations with even higher debt loads have survived and thrived. What purports to be anecdotal evidence to the contrary—postwar Germany—is wholly unrelated. So if you’re worried Greece and the eurozone will collapse unless eurozone leaders cave and drop the debt, don’t be. Might it benefit Greece? Sure. But more broadly, it would create winners and losers, just like the status quo creates winners and losers. The real choice is between a mixed bag and a mixed bag. Considering stocks yawned when Greece defaulted twice in 2012, we suspect markets wouldn’t care much either way this time.
|By Steve Goldstein, MarketWatch, 02/04/2015|
MarketMinder's View: It may be true that the gauge cited here doesn’t include Emerging Markets currencies, but the Broad Trade-Weighted US Dollar Index—our preferred measure—does. It is trade-weighted, which means currency weights are determined by the amount of bilateral trade between the US and the corresponding country. That said, the general statement that the strong dollar hasn’t capped inflation is correct, but not because of any of the factors here. It’s because inflation is about the absolute purchasing power of a dollar, the indexes in question measure its value relative to another currency. The two are very different.
|By Paul Hannon, The Wall Street Journal, 02/04/2015|
MarketMinder's View: Well, here is an interesting counterpoint to the widely held notion eurozone deflation is going to quash consumption, driving a deep downturn: “Retail sales in the eurozone rose for the third straight month in December, and at the fastest rate in almost eight years….” Oh and, “[the eurozone] composite purchasing managers index—a measure of activity in the manufacturing and services sectors—rose to 52.6 in January from 51.4 in December.” All while prices fell! Who’d have thunk it?!? Oh, as for the bemoaning of uneven growth at the end of this, we’d suggest growth across any 19-nation bloc is unlikely to be even. Arguing otherwise is basically suggesting Greece should grow just like Germany, despite their economies sharing few similarities.
|By Christopher Whittall, The Wall Street Journal, 02/04/2015|
MarketMinder's View: Yet another piece claiming recent interest rate cuts and currency volatility amount to a competitive devaluation—countries deliberately driving down their exchange rates to gain an exporting edge—more colorfully known as a currency war. We have thought long and hard about this and are still fairly convinced this isn’t a thing. Nor is higher currency volatility some huge market risk, despite what a chart displaying one nontransparent overly tortured data series might indicate. Currency swings are largely zero sum in today’s globalized economy, where exporters import many of their end-products’ components. Save your sanity and don’t overthink this.
|By Nicole Friedman, The Wall Street Journal, 02/04/2015|
MarketMinder's View: Here is a fun historical look at oil supply, which shows just how high production, not cratering demand, has driven crude’s slide—and why fears we’re running out of (insert Resource X here) always underestimate technology and human creativity.
|By Staff, Reuters, 02/04/2015|
MarketMinder's View: Just the facts, ma’am: “JPMorgan's Global All-Industry Output Index, produced with Markit, nudged up to 52.8 in January from December's 14-month low of 52.4. It has now held above the 50 mark that divides growth from contraction for 28 months.” The US and UK services PMIs both accelerated some, too.
|By Kevin Yao and Judy Hua, Reuters, 02/04/2015|
MarketMinder's View: Once again, Chinese officials do what they believe is necessary to cushion China’s gradual slowdown and keep growth humming as their efforts to re-engineer the economy continue. We wouldn’t expect this to jumpstart some massive acceleration, but it does suggest that long-feared hard landing remains as unlikely as ever.
|By Peter Spence, The Telegraph, 02/04/2015|
MarketMinder's View: It’s just one month, but January’s across-the-board rise in UK purchasing managers’ indexes shows Britain’s economy is off to a fine start this year—and counters all those weak-growth jitters prompted by Q4’s slightly slower preliminary GDP reading.
|By Staff, The Yomiuri Shimbun, 02/04/2015|
MarketMinder's View: But real wages, adjusted for inflation, fell for the third straight year, providing more evidence monetary policy alone can’t restore Japan’s economy.
|By Michael J. Casey, The Wall Street Journal, 02/03/2015|
MarketMinder's View: This thesis—that rate cuts elsewhere are smashing and will offset all the allegedly negative impact of a Fed rate hike—pretty much falls apart when you consider why all these other countries are cutting rates. They all fear (rightly in some cases, wrongly in others) weakening economies. Seems like a bizarre reason to be bullish, no? Mind you, we think the world economy is doing overall fine, and fears of a big slowdown are misplaced, and data from around the world largely support this viewpoint. We just think this article’s flavor of bullishness is misplaced. (Though at least it resists the temptation to yammer on about currency wars.)
|By Victor Fleischer, The New York Times, 02/03/2015|
MarketMinder's View: Whether any tax proposal is “right” or “wrong” is chiefly a matter of opinion. So, whether you think it’s great that repatriated earnings would be taxed less or terrible that foreign-earned profits would be taxed whether repatriated or not, consider this: The Obama budget has next to no chance of passing through the Republican Congress. Seems like 2015 may be yet another year the gridlocked government operates sans budget, which is a-ok with us. Legislation of this sort tends to create winners and losers, which can create angst. Gridlock is angst-reducing.
|By Tony Barber, Financial Times, 02/03/2015|
MarketMinder's View: So after a week of apparent flip-flopping, Greece’s new finance minister said his country doesn’t want a wholesale debt write-off anymore—instead, they propose swapping bailout loans for GDP growth-linked bonds and exchanging Greek debt owned by the ECB for open-ended bonds (which is basically a haircut disguised as not-a-haircut for marketing purposes). He also said the administration is targeting a primary budget surplus of 1.5% of GDP, even if it means chucking campaign pledges for extra public spending. As always, take verbal pledges from any politician with a grain of salt. But this is a change from last week’s hardline stance, and if the official proposal matches what was outlined in this interview, it will be evidence Greece’s new government is already moderating as negotiations open—step one in preventing a disorderly eurozone exit.
|By Mark Gilbert, Bloomberg, 02/03/2015|
MarketMinder's View: Much like the concept of a currency war generally, this is all unsubstantiated rumor, which we suggest you pay little heed. There is ample evidence having a weaker currency isn’t really an advantage in today’s global economy. The weaker currency doesn’t win, and the stronger currency doesn’t lose. For examples, look to Japan’s weak currency and economy and compare it to the US’s strong currency and economy. The Swiss economy probably did take a shot from the franc’s sudden, sharp move up. But that says more about the lack of wisdom of currency pegs than it does the strong franc.
|By Ben Wright, The Telegraph, 02/03/2015|
MarketMinder's View: Here is your handy user’s guide to Greek politicking, which carries an important reminder: Most of these people are communicating in their native tongues, and things get lost in translation to English. Yet another reason to take all the pledges, flip-flopping and apparent brinkmanship with a big grain of salt.
|By Simon Kennedy, Bloomberg, 02/03/2015|
MarketMinder's View: Wait! Economists and analysts can’t forecast central bank moves?!? Eek!
We jest. Economists and analysts have never been able to forecast central bankers’ moves—they are not gameable.
|By Peter Spence, The Telegraph, 02/03/2015|
MarketMinder's View: While long-term inflation expectations influence bond yields, they aren’t the sole driver—so it’s a bridge too far to say low German and yields indicate the eurozone is entering a Japan-style decade-plus of deflation and shrinking nominal GDP. In Europe, falling yields largely mean that a) the market is pricing in the central bank bond-buying program that starts in February and b) banks are buying a heck of a lot of bonds to meet capital requirements and avoid penalties on central bank deposits. Both A and B have their own issues and create headwinds to money supply growth, but none of this means the eurozone is doomed for a decade.
|By David Biller, Bloomberg, 02/03/2015|
MarketMinder's View: Industrial production was expected to fall, and it did, but by a wee bit more than analysts expected. But none of this is surprising very many investors, considering Brazil's economy is commodity-heavy and still dealing with high inflation, power shortages and other headwinds. So, yes, as the article notes in the end, there is a risk of renewed recession this year. But the issues here are largely homegrown and unlikely to infect other nations. After all, Brazil was in a mild recession until it posted modest growth in Q3 2014.
|By Nikos Chrysoloras, Bloomberg, 02/02/2015|
MarketMinder's View: Greece’s new government has flip-flopped so many times in the last week that we can scarcely keep count. It also kind of seems like Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis are playing good cop/bad cop, so take this latest news with a grain of salt. We wouldn’t be surprised if this administration played hardball a while longer. Ultimately, though, Greece and its creditors have ample incentive to compromise and keep Greece in the eurozone—where this government and about three-fourths of its constituents want to stay. For more on Greece, see our 1/27/2015 commentary, “Greek Government Theatrics and Other Reruns.”
|By Heather Long, CNN Money, 02/02/2015|
MarketMinder's View: Yes, it was, and as this piece shows, that means little for full-year returns. While Wall Street folklore says January returns correlate with full-year returns, reality says otherwise. As this notes, down Januarys didn’t prevent positive returns in 2003, 2005, 2009, 2010 and 2014. Even the Stock Trader’s Almanac, which has long promoted the January barometer, says a down January has a 50/50 shot of preceding a positive year. Doesn’t sound all that telling to us. Plus, the January barometer is decades-old and widely discussed, making its (bizarre) conclusions likely priced in. Past returns don’t predict the future, and stocks aren’t materially serially correlated. They’re volatile and move on the gap between expectations and fundamental reality, and right now that gap looks bullish.
|By Jonathan Allen and Derek Wallbank, Bloomberg, 02/02/2015|
MarketMinder's View: This is the official, on-paper version of the tax and spending proposals our President outlined broadly in his State of the Union address. If passed, they would create winners and losers, but they almost surely won’t pass, so it isn’t worth spending much effort dissecting, cheering or fearing them. Congress has already said most of these measures are nonstarters, and this is really just a starting point for negotiations. Expect plenty of noise, politicking and brinksmanship, but the chance fiscal policy changes materially is next to nil. For more, see our recent column on Equities.com and our 1/29/2015 commentary, “Reason #529 Why Stocks Love Gridlock.”
|By Nouriel Roubini, Project Sydicate, 02/02/2015|
MarketMinder's View: Would some nations benefit from fiscal stimulus? Probably! But its broad absence in the US and eurozone isn’t why “loose” monetary policy hasn’t goosed growth. Rather, it’s because policy isn’t so very loose. Truly loose monetary policy would mean faster broad money supply growth, increasing the supply of capital. Instead, quantitative easing gave us falling broad money supply (M4) for long stretches in the UK and US. It made loan growth weak in both places and Japan—and will probably do the same in the eurozone, where yield curves are already flat. That’s the elephant in the room here. Global stocks can keep doing fine without governments loosening the purse strings, just as they’ve done fine during this supposed age of austerity.
|By Mattthew Lynn, The Telegraph, 02/02/2015|
MarketMinder's View: So this does some things we would suggest not doing when analyzing politics’ impacts on markets. One, it lets ideological bias seep in, assuming one party is good for business and one party is bad—reality is more nuanced, and history shows parties of all ideological bent are pretty equally adept at doing things stocks both love and hate. Two, it uses anecdotal evidence and coincidence to support its claim—in this case, arguing a hung UK Parliament was responsible for a deep downturn in 1974. Um, the entire world was in a bear market. It was global and had very little to do with UK politics. So then, what of the article’s thesis? It says markets would equally fear a Conservative or Labour government, due to their respective proposals for an EU membership referendum and price controls—but a hung Parliament would also be bad because it creates uncertainty. That sort of argues against itself, no? Wouldn’t a hung Parliament just reduce the likelihood of both extremes and prevent politicians from doing anything radical? Gridlock is as beneficial in Britain as it is in America and elsewhere. Besides, Parliament is currently hung and has been since 2010, and unless we missed something major, UK markets didn’t implode in a fit of fury over do-nothing legislators.
|By Staff, Reuters, 02/02/2015|
MarketMinder's View: A bit slower than December’s read, but still plenty growthy, with output and forward-looking new orders well above 50 (the line between growth and contraction). Besides, slower PMIs don’t necessarily mean growth slowed—they measure the breadth of growth, not magnitude, and they’re surveys. So don’t overthink the slowdown, and just focus on the growthiness.