|By Jeanna Smialek, Bloomberg, 04/30/2014|
MarketMinder's View: US Q1 GDP rose 0.1%, greatly missing 1.2% expectations. Rather than stoking weakness worries, though, most folks are seemingly shrugging off the miss as weather-related—as spring and summer arrive, more growth should be ahead. To us, this is a sensible take on poor short-term data and a sign sentiment keeps improving.
|By Pan Pylas, Associated Press, 04/30/2014|
MarketMinder's View: Inflation is a monetary (not seasonal) phenomenon. Easter may or may not have impacted eurozone inflation’s 0.7% rise in April, which may rise or fall from here. But that’s not the bigger takeaway. The eurozone isn’t presently at risk of deflation. Eurozone inflation is low because banks are hoarding cash ahead of autumn stress tests. Neither easing nor lower or negative rates would address that fundamental issue (and both would cause unintended consequences—including, quite possibly, actual deflation)—something we hope the ECB remembers when determining future policy.
|By Staff, Agence France Presse, 04/30/2014|
MarketMinder's View: While we wonder where the IMF gets its quarterly Russian GDP data—Q1 results aren’t out yet and official data show a rise in real and nominal GDP in Q4—Russia’s economic ills aren’t only aftereffects of its struggle with Ukraine or Western sanctioned wrist slaps to specific Russian politicians. Russia has been weakening for a while as stable oil prices weigh on the Energy-dependent economy. The situation in Ukraine likely isn’t helping, but it’s not the sole cause. For more, see our 04/28/2014 commentary, “Russia’s Symbolic Downgrade.”
|By David Román, The Wall Street Journal, 04/30/2014|
MarketMinder's View: Spain hasn’t fully healed by any means, but 0.4% (0.6% annualized) growth in Q1 is quite an accomplishment for a country many worried would implode about a year ago. Looking ahead, Spain still faces headwinds, but in our view deflation and unemployment aren’t among them. Unemployment is a late, lagging indicator, and deflation doesn’t cause recession—the widely discussed “vicious circle” of falling prices and stalled consumption is largely a myth. Countries have experienced occasionally falling prices during expansions plenty of times.
|By Toru Fujioka and Masahiro Hidaka, Bloomberg, 04/30/2014|
MarketMinder's View: We don’t think Japan needs more quantitative easing (QE) either, but the reasoning here is off. Prices aren’t up because QE has worked so far. They’re up because energy costs went through the roof (thanks to the weaker yen). April’s sales tax hike probably boosts prices even more in the near term, judging from advance inflation data from Tokyo. But the data showed that, if you strip out the tax and energy, price gains are stalling. The fix there isn’t more QE—it’s economic reform to address Japan’s many structural issues.
|By Staff, EUBusiness, 04/30/2014|
MarketMinder's View: The decision doesn’t mean the tax is here to stay. Rather, the courts pointed out they can’t technically hear a case against a law that doesn’t technically exist yet. They left the door open to further legal challenges once the tax becomes reality. If and when that happens, the UK likely has a very strong case against the tax’s cross-border reach.
|By Staff, Associated Press, 04/30/2014|
MarketMinder's View: With good reason—the Purchasing Power Parity measure of GDP per capita (the statistic in question) isn’t an actual indicator of a country’s size, output or overall clout. It’s a heavily massaged, mined statistic used by development agencies to gauge how well off citizens are at home. It isn’t at all a sign China will eclipse the US in size, soon or ever.
|By Ruth Mantell, Market Watch, 04/30/2014|
MarketMinder's View: No surprise here: The private sector—the economy’s growth engine—continues adding jobs in the wake of economic expansion. Employment is a late-lagging indicator. As the US keeps growing, we expect this trend to continue.
|By Ben Chu, The Independent, 04/29/2014|
MarketMinder's View: The BoE released the “extreme” scenario for its upcoming stress tests—giving banks an idea of what to expect before the tests begin this summer. As usual, these tests are just too arbitrary to actually tell if banks can weather future economic crises—there is no telling what the next downturn will look like. Even the BoE admits the conditions are “extreme” and “highly unlikely to occur.” So, then, why should failing this arbitrary, unrealistic exercise force banks to raise capital?
|By Jeff Kearns, Bloomberg, 04/29/2014|
MarketMinder's View: Communicating clearly shouldn’t be the Fed’s goal—it invites investors to try to front-run the next move, which officials don’t want. They need wiggle room. Otherwise, if they do something radically different from what their guidance suggests, they lose credibility—a big no-no for central bankers.
|By Stefan Riecher and Brian Parkin, Bloomberg, 04/29/2014|
MarketMinder's View: A welcome sign—quantitative easing (QE) would likely only cause the problem they all want to solve. In the US and UK, QE hurt bank lending and caused broad money supply to fall. If that occurred in the eurozone while banks continued hoarding cash and deleveraging ahead of stress tests, the risk of deflation would increase markedly.
|By Szu Ping Chan, The Telegraph, 04/29/2014|
MarketMinder's View: Despite poor weather in January and February, the UK economy still accelerated. The UK’s Q1 2014 GDP, +0.8% q/q, hit its fifth consecutive quarter of expansion and its annualized reading, +3.1%, reached its strongest rate of growth since Q4 2007—speaking to the country’s ongoing recovery.
|By Kathleen Madigan, The Wall Street Journal, 04/29/2014|
MarketMinder's View: While consumer confidence surveys can speak to sentiment—still not euphoric—they don’t predict the economy or even consumer behavior. They reflect how folks feel at the time they take the survey, which doesn’t always match what people actually do.
|By Joshua M. Brown, The Reformed Broker, 04/29/2014|
MarketMinder's View: From “There is no return without risk” to “Be Transparent” to “Seek expertise” to “Show discipline”—here is a sensible list of guidelines for investors to consider.
|By Staff, Associated Press, 04/29/2014|
MarketMinder's View: Though beneficial for Ukraine, which is being gouged by Russian state-run Energy giant Gazprom, it’s really just window-dressing for the broader EU—it doesn’t much change the overall energy supply picture.
|By Christine Benz, MorningStar, 04/28/2014|
MarketMinder's View: Here is a timely discussion on the dangers of heat chasing. While we don’t agree with everything here—past performance shouldn’t guide investment decisions, period—it does show why the optimal portfolios aren’t necessarily those with a green up-arrow by every holding. High returns across the board without variability may indicate investors aren’t adequately diversified. Often, down stocks are a necessary byproduct of having just-in-case exposure to countertrends in less hot sectors and countries. What matters more than the direction of every stock is how the totality of your portfolio does. Overall, we agree: Diversification within underlying asset returns may be “a sign that you’re doing something right.”
|By E.S. Browning, The Wall Street Journal, 04/28/2014|
MarketMinder's View: First, volatility is normal—period. Beyond that, we’re rather perplexed by the notion hedge funds, short-term traders and corporate share buybacks alone have driven stocks in recent years while individuals, mutual funds and pension funds have stood pat. That suggestion ignores this basic truth: Supply and demand move markets (and for every seller, there is a buyer). Aggregate equity demand growth has outstripped supply growth throughout this bull market and still does today.
|By Andrew Critchlow, The Telegraph, 04/28/2014|
MarketMinder's View: While the latest sanctions are a bit more high profile, they don’t much change the ultimate impact—minimal. The impacted individuals and firms have had ample time and warning to repatriate assets (or move them to some other offshore location). Short of large-scale and global military action, global market impact is likely minimal in the mid to longer term.
|By Stanley White, Reuters, 04/28/2014|
MarketMinder's View: No surprise here—most consumers were likely cramming last-minute, big-ticket purchases ahead of the April 1 sales tax hike. What will be more telling for Japan’s economy is where retail sales and other indicators go in the next few months. Some continue speculating over the likelihood of further stimulus, but in our view, that’s a patchwork fix at best.
|By Jonah Jakab, The Wall Street Journal, 04/28/2014|
MarketMinder's View: The takeaway here is universal: Time horizons matter. Those who take a long term approach, focused on reaching their goals over the entire time they need their assets to work for them—and don’t get blinded by flashy short-term tricks—have a better chance of meeting their long-term financial goals.
|By Staff, Reuters, 04/28/2014|
MarketMinder's View: Though it’s just one month, March’s better-than-expected rise in pending home sales likely eases some folks’ fears the housing recovery is losing steam. Demand seems firm, and the past few years’ rising prices seems to have started encouraging modest supply growth. While housing is only a small portion of the US economy, it should remain a small tailwind looking forward.
|By Stefan Riecher and Alessandro Speciale, Bloomberg, 04/28/2014|
MarketMinder's View: We’d suggest falling eurozone inflation is largely due to the impending ECB stress tests: Because failure could mean anything from capital raises to forced closures, banks are deleveraging and hoarding cash. Lending is down, and so is broad money velocity. Money supply, however, is rising—you generally don’t get outright deflation when money supply is up. But quantitative easing (QE) could cause the very problem the ECB wants to solve. QE weighed on lending and coincided with (and, in our view, caused) falling broad money supply in the US and UK.
|By Rachel F. Elson, Financial Planning, 04/25/2014|
MarketMinder's View: As this shows, many financial professionals fall prey to the same traps as the investors they try to serve—in this case, short-term focus and fear-based decision making. The advisers who add the biggest value are not only those with the expertise and wisdom to interpret events correctly more often than not, but the long-term focus and counseling necessary to help keep their clients on track.
|By Staff, BBC News, 04/25/2014|
MarketMinder's View: In perhaps the least surprising and most backward-looking ratings agency move ever, Standard & Poor’s has slashed Russia’s rating to BBB-, just one notch above junk. The rationale: “In our view, the tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy.” Considering capital has been fleeing Russia for nearly a year and conflict has raged for months, our only question is this: What took them so long?
|By Jeremy Warner, The Telegraph, 04/25/2014|
MarketMinder's View: Let’s be clear: Any unconventional policy the ECB might use to fight the specter of deflation in the eurozone is likely a solution in search of a problem. The region broadly isn’t in deflation—prices are just rising more slowly, and M3 money supply is rising. If they try quantitative easing (QE) to “fix” matters, then the risk of deflation probably rises—in the US and UK, QE hurt bank lending and caused broad money supply to fall. Eurozone bank lending is already down due to upcoming stress tests—banks are deleveraging and hoarding cash so they don’t fail. Add QE to the mix, lending probably falls further. Doing nothing, in our view, would be the most beneficial move.
|By Zhao Yinan, China Daily, 04/25/2014|
MarketMinder's View: Following the pattern established in 2012 and 2013, Chinese officials have responded to slower Q1 GDP growth by accelerating dozens of infrastructure projects—mini fiscal stimulus. Will this restore China to its glory days of double-digit growth? Probably not. But it does underscore the government’s commitment to maintaining a steady growth rate while they continue shifting toward a more market-driven and consumption-based economy.
|By Mohamed A. El-Erian, Bloomberg, 04/25/2014|
MarketMinder's View: This “tug-of-war” is just the same old mix of positive fundamentals (earnings, economic growth) and persistent fears (Ukraine) that feature during bull markets. It’s nothing new, so we aren’t sure why the majority of fund managers would start changing their tactical approaches because of it. Even if they do, as hypothesized here, it doesn’t mean much for broader markets. Markets move on supply and demand—simple as that. As long as investors overall are willing to bid up prices, regardless of what the pros do, the bull should continue.
|By Howard Gold, MarketWatch, 04/25/2014|
MarketMinder's View: The U-shaped asset allocation model described here—reducing equity exposure as you near retirement, keeping it low for a few years, then ratcheting it up as you age—is based on a number of fallacies, conflates long-term strategy with tactical positioning, and ignores the time value of money. Investors’ strategies should target their financial goals and objectives over their entire time horizon (and, contrary to this article’s parting words, probably shouldn’t include an annuity). For more, see our 03/27/2014 commentary, “Shaped for U?”
|By Selina Williams, The Wall Street Journal, 04/25/2014|
MarketMinder's View: Even if Ukraine can’t pay its growing overdue bill, Gazprom’s CEO claims he won’t turn out the lights. Time will tell whether he makes good on his word, but for now, it seems one key economic concern about the tensions in Ukraine—the potential for Russia to cut off gas flows through the country, which supplies about 15% of Europe’s natural gas—is eased.
|By Staff, The Yomiuri Shimbun, 04/25/2014|
MarketMinder's View: The agreement in question—tariff reductions on key Japanese agricultural products over the next 20 years—aren’t exactly a ticket to an open Japanese economy and lasting growth. But they do indicate one of the key stumbling blocks in multi-nation Trans Pacific Partnership negotiations is fading. This could accelerate the agreement’s completion, which would be a big positive for global trade over time.
|By Erik Assadourian, The Guardian, 04/25/2014|
MarketMinder's View: If the last few centuries are any guide, we’re fairly certain the human race’s well-proven ability to develop technology allowing us to produce more food and use limited resources more efficiently will abate the supposed need to save the world by forcing animal lovers to use a “time share” model for pet ownership. The magic of capitalism and innovation will let you keep Fido, Fluffy, Furball and Tweetie. They aren’t taking food from anyone.
|By Staff, Reuters, 04/25/2014|
MarketMinder's View: Economists expected a 0.4% drop, but sales surprised with a 0.1% m/m rise. Not gangbusters, but the latest in a string of positive data and yet another sign the UK recovery continues.
|By Masaki Iwamoto and Chikako Mogi, Bloomberg, 04/25/2014|
MarketMinder's View: Let’s not get carried away. Tokyo prices might be a leading indicator of national inflation, but the fact remains most of the increase in prices came from the April 1 tax hike. Rising energy prices drove much of the remainder. This isn’t evidence Japan is moving further past deflation. If anything, it appears progress is stalling out, and the weak yen still isn’t bringing a net benefit.
|By Christian Reiermann and Anne Seith, Der Spiegel, 04/24/2014|
MarketMinder's View: In our view, this “specter of deflation” looming over the eurozone is overwrought—meager bank lending, caused by regulatory uncertainty, has been a primary culprit for the disinflationary environment. But as the money supply increases and the eurozone’s broadening recovery continues, the angst for measures like quantitative easing or negative deposit rates will likely decrease—a positive, since they may cause unnecessary headwinds to bank lending. On the flipside, if the ECB decided to pursue quantitative easing (QE), then deflation would become a risk—QE caused the broad money supply to shrink in the US and UK.
|By Christopher Coats, Forbes, 04/24/2014|
MarketMinder's View: Here is a sensible take on the future prospects of shale in Europe—though the benefits are well-known, many hurdles stand in the way before the Continent can experience anything like what’s happening in the US. For investors, Europe probably won’t reap much benefit from shale until the far-off future (if at all), so trying to game it now would likely be a fruitless endeavor. For more, see our 3/7/2014 commentary, “Crimea River of Natural Gas.”
|By Ambrose Evans-Pritchard, The Telegraph, 04/24/2014|
MarketMinder's View: While this does present some oft-overlooked evidence of the US’s recent economic growth, in our view, it all underlies a faulty premise: that the US ever faced some sort of “debt crisis.” That’s news to us—the US isn’t and never was, say, Greece (or Ireland, Portugal, Ukraine, Argentina, etc.). While debt is up and deficits were high for a while, that isn’t a debt crisis. Debt crises happen when countries can’t pay their debt. The US’s debt service burden relative to GDP and tax revenues at the height of this supposed crisis was well below levels seen in the 1980s, which were perfectly fine for the economy. They’re even lower today. For more, see our infographic, “4 Reasons US Debt is Affordable.”
|By Martin Crutsinger, Associated Press, 04/24/2014|
MarketMinder's View: And orders for core capital goods—widely considered an early read on business investment—rebounded from February’s slide with a 2.2% gain. While we’d caution investors from reading too much into any one month, this is further evidence the US economy is bouncing back fine from a chilly winter.
|By Kim Rahn, The Korea Times, 04/24/2014|
MarketMinder's View: When folks fret Emerging Markets, they’re usually thinking of the big countries making headlines—China, Brazil and Turkey, to name a few. But Emerging Markets are a diverse bloc of economies of varying strengths and weaknesses. One of the stronger members: South Korea, which just registered its fastest growth in three years.
|By David M. Katz, CFO, 04/24/2014|
MarketMinder's View: Though we’d quibble with several points here (e.g., taking data from 2013 as a sign of future prospects), our main gripe is using one type of metric—capital expenditures as a percentage of revenue of 3,000 publicly traded companies—as evidence companies aren’t investing. Plenty of other data suggest otherwise: Total business investment, adjusted for inflation, finally passed its pre-recession peak in Q4 2013. Investment in equipment and intellectual property (including software and R&D) has been hitting new highs for several quarters. That kind of spending doesn’t suggest companies are still dour on future prospects.
|By Staff, Associated Press, 04/24/2014|
MarketMinder's View: While this is a provisional estimate, it still speaks to the broadening nature of the eurozone’s recovery: Spanish growth appears to have accelerated in Q1 2014, furthering a streak that began in Q3 2013.
|By Staff, Reuters, 04/23/2014|
MarketMinder's View: US new home sales fell -14.5% m/m (-13.3% y/y) in March—not pretty, but not necessarily a sign of deep-seeded weakness. January and February’s harsh weather may have helped chill March’s data, and rising home prices from depressed, post-housing bubble figures are actually a positive—rising prices, coupled with rising demand, encourage more construction.
|By Dunstan Prial, Fox Business, 04/23/2014|
MarketMinder's View: Whether through near-zero short rates or quantitative easing bond buying, data show the Fed isn’t blowing any bubbles. Looking ahead, we see little likelihood Fed pledges to keep short rates ultra-low cause bubbles to inflate. This piece tries to argue low rates encouraged the Tech and housing bubbles, but that’s a bridge too far. Many, many, many other factors were at work.
|By Andrew Walker, BBC, 04/23/2014|
MarketMinder's View: A shrinking deficit—to 3% of GDP, in line with the Maastricht Treaty—shows how far the eurozone has come. True, not all countries reduced deficits at the same rate, but regional sovereign yields are also shrinking, suggesting debt service is increasingly affordable. What matters most for stocks, though, is the eurozone keeps beating dour expectations like this.
|By Bill Conerly, Forbes, 04/23/2014|
MarketMinder's View: The various data politicians, economists and others use to measure whether we’re better off now than in past decades often overlook many harder-to-measure, life-improving developments. For example, CPI tends to ignore new gadgets and pharmaceuticals until they become mature—and usually cheaper. In doing so, they ignore huge progress toward a better quality of life over time.
|By Staff, Bloomberg, 04/23/2014|
MarketMinder's View: China’s HSBC manufacturing index—the unofficial measure including small, private firms—improved in April but remained in contraction at 48.3, and unsurprisingly, hard-landing fears and calls for stimulus followed. To us, manufacturing’s fall isn’t alarming, though: It has been softening a while, and service sector growth is offsetting it. China can still contribute greatly to global GDP. Plus, more targeted mini-stimulus is always possible. Officials are incentivized to keep growth going.
|By Richard Dyson, The Telegraph, 04/23/2014|
MarketMinder's View: It appears not—this just measures the FTSE, but global markets have similar results: “If investors chose to sell in May and stay away, their average annualised market returns would have been better in only nine of the 25 years,” lowering investors’ average returns and raising opportunity cost—all over an outdated, British investing adage about summer’s many sporting events.
|By Matt Clinch, CNBC, 04/23/2014|
MarketMinder's View: Markit’s flash composite Purchasing Managers’ Index rose to 54.0 (50 indicates expansion), showing private firms grew across the eurozone in April. Germany led the rise, the periphery exceeded expectations and even much-fretted France kept growing—if a little slower. The eurozone recovery continues.
|By Adela Lin, Bloomberg, 04/23/2014|
MarketMinder's View: A potential cross-border equity trading platform between Taiwan and Singapore is a relatively small story, but it would be an incremental positive for global investors: “The cross-border platform can provide more choices and help reduce costs for investors, particularly for individuals”—both local and foreign.
|By Editorial Staff, The New York Times, 04/22/2014|
MarketMinder's View: Economix, the Times’ pure economics blog, was created in September 2008 amid the financial crisis—a time of deep economic concern. It will be replaced by a new blog covering politics, policy, business, economics and more. Whatever you think of the reporting, the shift from pure-Econ to a wider focus illustrates to us sentiment’s continued, gradual melt-up—the Times seems likely to be shifting with changes in media consumption. Media can both influence and reflect sentiment.
|By Don Stammer, The Australian, 04/22/2014|
MarketMinder's View: A great article discussing a core reason to invest—the power of compound growth. “A potential shortcoming of compounding is that, by the time investors are old enough to have learnt for themselves the magic of compounding, it’s generally too late to make full use of it. The way around this problem is straightforward: learn from your elders!” In our view, this is a good lesson for investors of all ages.
|By Robert Powell, MarketWatch, 04/22/2014|
MarketMinder's View: Sure, more transparency might help investors make better investing decisions when it comes to holding target-date funds (a fund investing in a combination of stocks and bonds that gradually increases allocation to bonds as the target date—retirement year, typically—nears). However, that still doesn’t fix the fund’s inherent flaws: assuming an investor’s time horizon ends when retirement starts and not accounting for personal circumstances, needs and long-term goals.
|By Lucia Mutikani, Reuters, 04/22/2014|
MarketMinder's View: One weaker month of home sales shouldn’t distract folks from housing’s ongoing recovery—it’s normal for recoveries to be uneven at times. And housing is still just one part of the economy—many other parts are contributing strongly to economic growth.
|By Chikako Mogi and Kyoko Shimodoi, Bloomberg, 04/22/2014|
MarketMinder's View: Cutting corporate taxes would be an incremental plus for Japanese firms, but for now it’s just talk. And Japan still has plenty more issues to address—protectionism in foreign trade, the Energy sector, labor market reforms and keiretsu reform—to boost competitiveness. Lowering one of the world’s highest corporate tax rates would be a plus, but it’s no panacea.
|By Mitsuru Obe, The Wall Street Journal, 04/22/2014|
MarketMinder's View: We’re mighty skeptical this deal gets done. Big, sweeping deals like the multilateral Trans-Pacific Partnership usually face major hurdles to completion. This one is no exception, as support in Congress seems shaky and we doubt whether Abe has the clout or willingness to try to ram through contentious reductions to protectionist measures. Maybe this deal does happen—and freer trade is generally better. But we believe more rational expectations are it doesn’t, and the TPP talks devolve into side talks of a smaller, easier-to-execute nature.
|By Ralph Atkins and Martin Roberts, Financial Times, 04/22/2014|
MarketMinder's View: A testament to the eurozone’s ongoing recovery—foreign holdings of Spain’s debt have increased to €182 billion over the last couple years and its yields on 10-year sovereign bonds have fallen below 3.1%. Other periphery countries—Greece, Portugal and Ireland—have seen higher demand and lower yields on government debt, which speaks to major improvement in sentiment toward European peripheral nations.
|By Alan S. Blinder, The Wall Street Journal, 04/21/2014|
MarketMinder's View: The aspects critiquing the ratings agencies—particularly their issuer-pays business model—are spot on, but in our view, a more beneficial, straightforward solution would be to eliminate their status as nationally recognized statistical ratings organizations. By gutting the law that gives the big-three ratings agencies special status, the government would allow for more competition and reduce the influence of agencies who base their decisions on flawed opinions and backward-looking factors. If equity markets can function fine without an official, quasi-government sanctioned rating for every publicly traded stock, it’s pretty likely fixed income markets can, too.
|By Andrew Lilico, The Telegraph, 04/21/2014|
MarketMinder's View: Yes, the so-called austerity program probably weighed on UK growth some from 2010 through 2012—even though government spending kept rising, tax hikes hurt. However, this doesn’t explain the arguably larger headwind: The fact lending steadily declined from March 2009 on. This happened because of quantitative easing (QE), in our view. The article cites QE as a positive, but by reducing the spread between long- and short-term rates—banks’ net interest margins (profits)—it discouraged lending. As did the big regulatory overhaul. It’s no coincidence that the UK economy accelerated markedly after QE ended in November 2012.
|By Tetsushi Kajimoto, Reuters, 04/21/2014|
MarketMinder's View: Here’s an example of why a weakening currency isn’t a panacea for a slowing economy: While export values popped in early 2013, as Japan reaped the immediate fruit of the weaker yen, growth is starting to wane (and export volumes never really took off). With exports leveling and a recent sales tax hike weighing on consumption, many seem to be anticipating more monetary stimulus—but stimulus can’t fix the structural issues that have held Japan back for 17 years now.
|By Staff, RTT News, 04/21/2014|
MarketMinder's View: Driving the increase: a wide yield spread, which over a century of economic theory and evidence suggest supports higher growth. Slow-growth jitters persist, but it would be exceedingly unusual for the economy to stall while LEI is high and rising.
|By Kevin McCoy, USA Today, 04/21/2014|
MarketMinder's View: Considering other data show well over half of Americans own stocks, we find this survey a touch suspect. That said, it is a good sign sentiment remains far from the euphoria typical of most bull market peaks.
|By Christopher Emsden, The Wall Street Journal, 04/21/2014|
MarketMinder's View: The €10 billion-per-year tax cut should be a modest tailwind for Italy, though it isn’t a panacea. Prime Minister Matteo Renzi says more tax cuts, reforms and spending cuts are in store, but only time will tell whether he has the political clout to pull off more sweeping change—the tax cut was low-hanging fruit, especially with politicians eager to curry favor ahead of May’s European Parliamentary elections. For more on Italy, see our 04/10/2014 commentary, “Euro Politicos.”
|By Staff, Xinhua, 04/21/2014|
MarketMinder's View: China’s shadow banking crackdown continues as regulators write more rules governing entrusted loans. Formally putting shareholders on the hook should send a strong signal to markets that these and other “wealth management” products don’t have a government guarantee, which should in turn foster more judicious lending decisions.
|By Ambrose Evans-Pritchard, The Telegraph, 04/17/2014|
MarketMinder's View: While some of the actions theorized here are plausible, this thesis seems to take them to the extreme—there isn’t much (if any) evidence reality matches. Sanctions likely do have some economic impact, but the outcome imagined here seems exceedingly unlikely. For more, see our 3/17/2014 cover story, “Don't Go Russian to Conclusions About Sanctions.”
|By Craig Torres, Bloomberg, 04/17/2014|
MarketMinder's View: While the obsession with Janet Yellen’s comments and the Fed’s future plans continues, in our view, trying to game the next move is a fool’s errand. Fed jawboning is supposed to be vague, and their moves are unpredictable. Investors can only judge their actions after the fact.
|By Staff, Xinhua, 04/17/2014|
MarketMinder's View: While cutting the reserve requirement ratio for some rural banks and expanding some tax breaks are small moves, they’re all in line with China’s recent efforts to shore up growth and the ongoing restructuring—and evidence of officials’ commitment to maintaining a robust growth rate in 2014 (read: no hard landing).
|By Tim Clift, Market Watch, 04/17/2014|
MarketMinder's View: While we agree the outlook for stocks is bright, it’s not because the recent pullback eliminated some “froth.” Volatility does help keep sentiment in check, but broader markets weren’t in bubble territory when the year began and aren’t now. Sentiment was already far from the euphoric heights typical of bull market peaks. For more, see our 4/15/2014 cover story, “A Q&A on Recent Volatility.”
|By Michael P. Regan, Bloomberg, 04/17/2014|
MarketMinder's View: The measure referred to is the “Rule of 20”—if the sum of a price-to-earnings ratio and the rate of inflation equals 20, valuations are fairly priced. Anything above or below 20, then, suggests stocks are either over or undervalued. But bizarre and arbitrary methodology aside—why not 19 or 25?—valuations don’t predict future returns. They use backward-looking data. They can illustrate sentiment, but that’s about it. Stocks are forward-looking and have plenty of fundamental reasons to keep marching higher.
|By Brendan Conway, Barron’s, 04/17/2014|
MarketMinder's View: While we’ll leave the fraud debate to legal minds, this study illustrates a key point about many newfangled Exchange Traded Funds (ETF). They’re based on new, manually constructed indexes, with stocks weighted according to their book value, trailing earnings, sales or any number of quantitative characteristics. Then, their performance is “backtested” using historical return data. Problem is, the past doesn’t dictate the future, and many tests are tweaked until they yield the desired result—which probably doesn’t mirror the real world.
|By Bill Conerly, Forbes, 04/16/2014|
MarketMinder's View: “High frequency trading [HFT] is secretive and mysterious, but not at all evil.” Reading other HFT articles these days may tempt investors to think differently, but this article explains HFT’s often overlooked benefits well: By buying frequently, quickly and in large quantities, HFT makes markets more efficient and liquid—better and more quickly evening out price changes large institutional investors can cause when trading huge sums and narrowing the bid/ask spread. For long-term investors, that matters most.
|By Staff, EUBusiness, 04/16/2014|
MarketMinder's View: Extending the Markets in Financial Instrument Directive (MiFID II) post Europe’s financial crisis is well-intended—and the ideals behind it, like increasing transparency, seem noble. But the notion more regulation makes markets less “crisis prone” disregards history, both in the distant past and present. In regulating, often times politicians address nonexistent issues. MiFID II’s high-frequency trading restrictions seem like a benign example. While the near-term impact seems limited, it’s key to understand the regulation to see issues connected to other potential changes down the line.
|By Linda Yueh, BBC, 04/16/2014|
MarketMinder's View: China growing in the 7%-8% range is perfectly fine with global growth, and that is where they were in Q1. Yes, it’s a slower rate than Q4 2013’s, but the underlying data were largely healthy, and nothing fundamental suggests that will change. The services sector’s growth is a plus, as it alludes to China’s economic growth may be broadening, a sign of its ongoing development. For more, see our 04/11/2014 commentary, “When the Growing Gets Tough.”
|By Shobhana Chandra, Bloomberg, 04/16/2014|
MarketMinder's View: In added confirmation the US economy’s cooling during January’s winter weather was temporary and not sign of a bigger trend: Industrial production beat expectations, rising 0.7% m/m. Manufacturing led the rise (+0.5% m/m), but most other sub-indexes grew, too—suggesting broad fundamental strength underlies the US expansion.
|By Laura Noonan, The Independent, 04/16/2014|
MarketMinder's View: This is a great illustration of the “damned if you do, damned if you don’t” nature of bank stress tests. The whole concept: Test how the capital banks hold would fare in a hypothetical crisis, all with the notion of encouraging increased (quality) capital in the banking system. So they boost capital, but that implies they might all pass—which some fear might imply test standards weren’t rigorous enough. All in all, this is an exercise we wish would just flat out go away, as it is feckless at best and problematic at worst (if the ECB shuts a bank for failing, for example).
|By Frank Jordans, Associated Press, 04/16/2014|
MarketMinder's View: This is a notable development. In the short term, Ukraine likely benefits from greater access to natural gas as it faces cut-off threats from Russia’s energy giant Gazprom. Long term, though, this and other potential gas re-selling plans could increase and improve EU natural gas infrastructure and alleviate the dependence on Russian gas. This is a potential long-term positive coming out of a short-term negative, Russian/Ukrainian tensions.
|By Jim Puzzanghera, Los Angeles Times, 04/15/2014|
MarketMinder's View: For now, this is all talk—without firm plans or comments on specific proposed measures, speculation over what the Fed does and how Financials react is futile. That said, we aren’t sure how tougher capital rules would make credit more free-flowing during a financial crisis. If anything, they’d encourage banks to hoard more cash, not lend to each other. While there is no counterfactual, we suspect having bigger capital buffers in 2008 would have only delayed the inevitable for Bear Stearns and Lehman Brothers—as long as creditors had no faith in the value of the collateral Bear and Lehman posted, they probably wouldn’t lend, forcing these firms to draw down capital buffers and eventually declare insolvency once liquidity dried up. Regulators have already addressed the underlying issue here (the misapplication of fair-value accounting to illiquid, held-to-maturity assets).
|By Michael Hayman, The Telegraph, 04/15/2014|
MarketMinder's View: While this piece in some ways looks too long term, this is a key point: “Far from championing the extraordinary progress and momentum of the [tech] sector, observers are jumping on the ultimate red herring: the post-float price. Rather than acknowledging that short-term share setbacks are often the worst possible indicator of long-term trajectory, experts have piled in to pronounce the second coming of the dotcom bubble.” And, we’d agree, tech sector’s short-term volatility isn’t a gauge of its overall viability—in our view, tech’s prospects in the foreseeable future still appear strong. For more, see our 4/9/2014 cover, “Popping Tech Bubble Fears.”
|By Jim Brunsden, Bloomberg, 04/15/2014|
MarketMinder's View: We’re just not quite sure what this will achieve—limiting fund managers’ bonuses won’t prevent another Bernie Madoff-style Ponzi scheme—but it does discourage fund managers from operating in the EU. That doesn’t mean the industry disappears—investor demand is too great—but it could very well cause some managers to leave the market, reducing competition and investors’ choices.
|By Cotten Timberlake and Matt Townsend, Bloomberg, 04/15/2014|
MarketMinder's View: March’s retail sales experienced a solid jump (+1.1% m/m), but people are still focusing on the past (i.e., January and February). Sure, retail didn’t have the best couple of months due to chilly weather, but those were just two months—they have no bearing on future results.
|By Li Yang, China Daily, 04/15/2014|
MarketMinder's View: This piece from China’s state-run news agency likely provides a glimpse into policymakers’ mindset. Not only does it underscore the unlikeliness of sweeping stimulus, it also strongly suggests the ongoing slowdown is at least partly engineered—a byproduct of efforts to battle industrial supply gluts and shaky shadow banking. Officials seem to believe the underlying economy is strong enough to weather these efforts, and we agree—China probably slows further, but the oft-feared hard landing should remain a myth.
|By Staff, Independent.ie, 04/15/2014|
MarketMinder's View: This is largely a rubber-stamping of what markets have long known—the ECB will regulate the region’s largest banks, creditors and depositors likely have to take losses when banks fail, and insured deposits (€100,000 or under) are backstopped by a €55 billion fund, paid for by bank levies. This might help bolster investors’ confidence in the euro’s long-term viability, but it isn’t a panacea for eurozone banking, and key questions remain.
|By Josh Boak, Associated Press, 04/15/2014|
MarketMinder's View: Inflation is running at a very tame 1.5% year-over-year—below the Fed’s target, but that’s not a risk to economic growth. Slow inflation isn’t deflation—it’s just a side effect of weak lending and anemic money supply growth. Which, perversely, is the result of quantitative easing bond buying—while this piece and the Fed say it’s stimulus, it really saps growth by flattening the yield curve and weighing on the quantity of money.
|By Volodrymyr Verbyany and Sangwon Yoon, Bloomberg, 04/14/2014|
MarketMinder's View: Yes, the drama continues in Crimea, with increasing violence along the Russia-Ukraine border. In our view, it’s likely this hotspot continues garnering headlines for some time. However, regional conflicts have little to no history of impacting market direction materially. The former Yugoslavia in the 1990s, the Iraq and Afghanistan Wars in the 2000s and the Middle East pretty much since always are just a few examples. Barring huge and surprising events approaching World War proportions, global market impacts from the conflict are likely minimal.
|By Staff, Reuters, 04/14/2014|
MarketMinder's View: March retail sales rose +1.1% m/m (+3.7% y/y), the biggest monthly gain since 2012. This puts headline retail sales growth for Q1 2014 at +2.5% versus the same period a year earlier, which should go a long way toward dispelling fears the polar vortex would chill American economic growth. Rather, it appears consumers behaved as one might expect: Frigid January saw declining month-over-month sales, but the dip was a temporary blip—which reversed itself as warmer temps (finally) arrived in the Northeast and Midwest.
|By Emanuel Jarry, Reuters, 04/14/2014|
MarketMinder's View: On the heels of new Prime Minster Manuel Valls’ proposed tax cuts and labor reforms last week, President François Hollande announced more plans to reduce the weight on corporations and boost growth. While we laud Mr. Hollande’s efforts, the bigger takeaway here is that he’s besting investors’ expectations—implementing business-friendly reforms rather than the more traditionally Socialist platform he ran on in 2012. French politics seem to be shaping up more and more as a tailwind for stocks, not the headwind some feared upon Hollande’s election. For more on France, see our 4/10/2014 cover story, “Euro Politicos.”
|By Michael P. Regan, Bloomberg, 04/14/2014|
MarketMinder's View: There isn’t anything special about the 200-day moving average. Since this bull market began on March 9, 2009, it touched the 200-day moving average in July 2009, was under it during 2010, 2011 and 2012’s corrections, and even blipped below it during November 2012’s post-election dip. In retrospect, all those seem like pretty good points to be a buyer, not a seller. No matter how you smooth recent returns, past performance is not predictive. What matters are sentiment and fundamentals, and in our view, positive fundamentals are poised to provide more bull market fuel.
|By Danielle Demetriou, The Telegraph, 04/14/2014|
MarketMinder's View: To clarify, the sales tax increase wasn’t “masterminded” by PM Shinzo Abe. It was approved by Parliament under Abe’s predecessor, Yoshihiko Noda, in June 2012. Abe’s administration merely determined whether and when to push ahead with the planned implementation. Either way, and as we expected, the tax increase is seemingly already having an impact on consumer behavior. While it’s too early to tell how things will play out in the long run, in our view, it likely presents a headwind for Japan’s fragile economy, long plagued by other protectionism, labor force rigidity and structural woes hampering competition.
|By Michael Yoshikami, CNBC, 04/14/2014|
MarketMinder's View: Whether policymakers outright say it or not, it’s a long well-known fact in the professional investment community that global currency movements tend to correlate with differences in interest rates. But the effect of this isn’t as stimulative as presumed here. Look no further than Japan, where BoJ head Haruhiko Kuroda engaged in massive easing with the explicit aim of weakening the yen—which happened—yet the economic benefit seems to have come and gone quite quickly. A weak currency attempts to pick exporters to win, “stimulating” growth. Yet imports are very often the lifeblood of an economy: fuel, raw material, intermediate goods. Making those more expensive is likely poor policy. For more, see our 4/1/2014 cover story, “Abenomics and Other April Fools.”
|By Simon Kennedy, Bloomberg, 04/14/2014|
MarketMinder's View: The idea the economy is regulated by growth of the labor force and worker productivity (output per hour worked) is a bit one-sided—what about innovation and technology? Worker productivity is the after-effect of such innovations. Moreover, the whole concept—that there is a structural ceiling to a growth rate—isn’t supported by history. That’s why the rate of “potential GDP” has been revised quite a few times over the years. And why it is generally only referred to in very academic settings, not in markets. Finally, nothing—and we mean nothing—“pressures central bankers to raise interest rates sooner than they might otherwise want.” Especially a made-up measure of long-term growth rates.
|By Katie Allen, The Guardian, 04/14/2014|
MarketMinder's View: As this piece points out, UK consumer spending has grown despite wage growth that hasn’t outpaced inflation. As is fairly typical, factors like wage growth are connected loosely to the health of the labor market. Growth creates jobs and higher wages. Looking forward, it’s nice that real wages are starting to see a boost—potentially, an additional tailwind for the UK’s already strong expansion—but we wouldn’t hold this data release out to be a watershed moment.
|By Jeremy Warner, The Telegraph, 04/11/2014|
MarketMinder's View: Why? Apparently, because the only thing keeping the globe from crashing is low long-term rates. But we think the opposite: Low long rates are why growth is sluggish. By buying up over $2 trillion in US banking assets, the Fed flattened the US yield curve—and since long-term rates globally correlate with US Treasurys, the Fed basically flattened the world. This defied over a century of evidence confirming steeper yield curves boost growth. End quantitative easing, let long rates normalize, and faster growth should follow.
|By Henny Sender, Financial Times, 04/11/2014|
MarketMinder's View: The fact quantitative easing (QE) has occurred alongside slow economic growth and a raging bull market doesn’t mean QE has driven stocks higher than they should be. It means QE has created nothing but excess bank reserves, robbing our capitalist economy of the capital it needs to grow, but businesses have managed to grow and profit anyway. That last bit is why stocks have done well, and looking ahead, the fundamentals supporting private sector growth remain intact.
|By Floyd Norris, The New York Times, 04/11/2014|
MarketMinder's View: Fact: The stock market isn’t a Rube Goldberg trap, and it’s still a really big auction. It’s just an even bigger auction with many, many more players and faster, more efficient pricing. That’s a net benefit for retail and institutional investors alike, and it’s largely because of all the technological developments derided here. High frequency trading and its ilk have democratized markets, not broken them.
|By Aaron Back, The Wall Street Journal, 04/11/2014|
MarketMinder's View: By allowing Hong Kong-listed companies to trade on mainland exchanges—and vice versa—Chinese regulators give domestic retail investors much broader, freer access to stocks. Before, Hong Kong-listed shares—including many of mainland China’s biggest, most profitable private firms—were largely available only to institutional investors and were subject to strict foreign investment quotas. This change illustrates officials’ commitments to pursuing meaningful financial reforms.
|By Takashi Nakamichi and Eleanor Warnock, The Wall Street Journal, 04/11/2014|
MarketMinder's View: And rumors of increased quantitative easing (QE) will likely dog them every step. Hopes seem high for even more aggressive moves, but more QE isn’t what Japan needs. It might give folks a quick sentiment boost, but without sweeping structural reform to address the many inefficiencies and restrictions holding Japan back, the country likely won’t re-emerge as a global economic force.
|By Peter Dominiczak and Ben Riley-Smith, The Telegraph, 04/11/2014|
MarketMinder's View: Fitch claims an independent Scotland would trigger a “debt shock” and wreak havoc with the UK economy. While it’s certainly notable that a ratings agency is looking forward for once, in this case, it’s looking too far forward. Even if Scotland votes yes, that just gives its government a mandate to negotiate an independence agreement with the rest of the UK. That process could take ages, giving markets significant time to discover the winners, losers and economic consequences. For now, no one knows what the arrangement will look like or how debt markets will react, making it far too soon to render judgment (though it’s worth noting UK yields haven’t budged even as the “yes” side has gained in recent polls).
|By Staff, Xinhua, 04/11/2014|
MarketMinder's View: Another step forward in the yuan’s internationalization and China’s move toward a more market-oriented financial system—both are positive for China and capital markets globally.
|By Reiji Yoshida, The Japan Times, 04/11/2014|
MarketMinder's View: A nuclear restart is pretty critical to Japan’s economic future, but it’s exceedingly unpopular with voters. So it’s noteworthy that Prime Minister Shinzo Abe and his cabinet would approve an energy plan that won’t win them many favors at the next election—Abe will have to make many similarly tough decisions in order to complete his pledged economic reforms—but time will tell if these rough long-term plans become reality.
|By Angela Monaghan, The Guardian, 04/11/2014|
MarketMinder's View: Considering England had its wettest winter since 1776 and the Thames breeched its banks, it was pretty much a given construction would fall. February’s 2.8% drop should be a blip as its longer-term growth trend continues.
|By Ambrose Evans-Pritchard, The Telegraph, 04/11/2014|
MarketMinder's View: Scientific advancement there may be, but that doesn’t make solar a surefire investment. Right now, the technology’s market is largely driven by government tax breaks and subsidies—not actual, organic demand. Solar’s time might come, but for now, the technology just isn’t that profitable.
|By Staff, EUbusiness, 04/11/2014|
MarketMinder's View: Restarting securitization would do far more to help kickstart eurozone lending than quantitative easing, negative deposit rates or any of the other ineffective gimmicks most pundits keep lobbying for. It wrongly got a bad rap during the financial crisis, when the toxic mark-to-market accounting rule made pooled debt securities look more toxic than they really were, but it’s actually a useful tool that gives banks more balance sheet flexibility.
|By Elena Becatoros and Nicholas Paphitis, Associated Press , 04/10/2014|
MarketMinder's View: Not only did Greece raise more than expected (€3 billion in 5-year bonds at 4.75%), but demand was robust—bids totaled €20 billion. Quite a turnaround for a country with two bailouts and two defaults since 2010! Overall, Greece’s strong return to international debt markets shows just how far the much-maligned periphery has come since fears of a euro collapse started.
|By Tom Stevenson, The Telegraph, 04/10/2014|
MarketMinder's View: While it’s tempting to compare the 2000 tech scene with today’s, there are more differences than similarities. Yes, there may be more IPOs now than there have been since 2000—but investors haven’t been bidding them to the moon. Yes, Tech has pulled back a bit—but it’s not unusual for any sector to go through negative volatility during a bull market. For more, see our 4/9/2014 cover story, “Popping Tech Bubble Fears.”
|By Richard Silk and Mark Magnier, The Wall Street Journal, 04/10/2014|
MarketMinder's View: Hinting a lower than expected growth rate doesn’t mean China’s often-feared “hard landing” is imminent—it simply means officials are telegraphing expectations. Whether China grows 7.5%, 7.2% or even lower doesn’t change the fact the world’s second-largest economy will still contribute hugely to overall global growth.
|By Phillip Inman, The Guardian, 04/10/2014|
MarketMinder's View: If the biggest threat to global stability is a banking system that’s better capitalized and whose biggest headwind is its own regulators, then the world has it pretty good. Will a €55 billion bank rescue fund suffice if Europe has multiple failures? Probably not—but using it was never the intent anyway, considering regulators intend for shareholders, creditors and large depositors to do all the dirty work (which isn’t ideal, for other reasons). As for US rate hikes, it’s grossly exaggerated to say low US short-term rates are propping up the entire world.
|By Staff, The Chosunilbo, 04/10/2014|
MarketMinder's View: Another step forward in the race toward zero protectionism! Even though some tariffs will phase out at a glacial pace, that’s the typical price markets have to pay for freer trade overall. What matters more than the implementation timeframe is that on balance, trade is getting freer—good for markets.
|By Alen Mattich, The Wall Street Journal, 04/10/2014|
MarketMinder's View: What do you get when you add a late-lagging indicator with a modified gauge of prices, call the sum a measurement of how people feel at the time and then chart it? Ladies and gentlemen, the Misery Index—an indicator that tells you nothing forward-looking (or even interesting) about markets or economies.
|By Denise Roland, The Telegraph, 04/10/2014|
MarketMinder's View: Apparently the US and UK are playing chicken over who hikes short rates first—and whichever central bank acts first will hurt its own economy. Yet rising rates don’t spell doom for economic growth—currencies don’t automatically strengthen and kill exports, and markets don’t automatically tank. Reality can be quite good, even! And more importantly, trying to game future movements based on what central bankers say is a futile exercise—they can always change their mind!
|By Paula Pant, Daily Finance, 04/10/2014|
MarketMinder's View: When was it ever? Rather than trying to hit a particular number by the time you clock out, we suggest investors focus their long-term goals for their entire life (and perhaps beyond). Is it a comfortable retirement for you and your spouse? A gift for family or an organization? Extensive travel around the world? Whatever the goal, you’ll likely need the returns generated in the long-term by equity markets—reaching a number doesn’t guarantee your future needs will be met over your entire investment time horizon.
|By Matthew Heimer, Market Watch, 04/09/2014|
MarketMinder's View: Compound interest is indeed powerful, and the sooner you save the better. But this is too simplistic. One, as this piece points out, markets don’t move in straight lines, and using straight-line projections to plan your retirement savings (or any other investment plan) is usually folly. Two, no matter when you start, what you invest in makes a big difference, too—risk is a tradeoff for long-term growth. Plus, it’s never too late to start saving for retirement. Depending on your time horizon, asset allocation and investing discipline, it’s possible to save a nice nest egg later in your working years, too.
|By Paul Vigna, The Wall Street Journal, 04/09/2014|
MarketMinder's View: Where stocks are now or where they were 21 days, a few hours or longer ago isn’t meaningful for where they head next. Nor is a trend line drawn through the bottom of each of this bull market’s pullbacks a floor for future returns. Past performance doesn’t dictate future returns, and long-term fundamentals drive markets even if sentiment can sway them in the meantime. Plus, corrections can come at any time—neither market levels nor time has any bearing on them. They’re swift, steep and unpredictable.
|By Peter Eavis, The New York Times, 04/09/2014|
MarketMinder's View: While this seems a solution in search of a problem, we doubt it poses much of a headwind on banks and lending. Higher leverage ratios were a long time coming (Basel III discussions included them for years), the surcharge for big banks was telegraphed last July, and they won’t be in effect until 2018. The few financial firms that don’t already meet 5% leverage ratios have plenty of time to prepare, and the estimated $68 billion shortfall is likely small enough to fill simply by retaining earnings.
|By Christopher Emsden, The Wall Street Journal, 04/09/2014|
MarketMinder's View: New Prime Minister Matteo Renzi’s economic plan includes tax cuts, more flexible labor contracts, raising some lenders’ capital levies and increasing jobless benefits. He claims the changes will restrict growth in the short term but promote more down the road—and comply with EU budget requirements. Whether it does all he claims remains to be seen (and if it passes—clearing the Cabinet was only one hurdle, and Renzi’s ongoing battles with Silvio Berlusconi over electoral reform might throw a wrench in things). But it’s notable structural changes are gaining ground in Italy, where gridlock prevented much change over the last several years.
|By Francesco Guerrera, The Wall Street Journal, 04/09/2014|
MarketMinder's View: The eurozone overall is incrementally improving—and that’s certainly a positive. But investors’ expectations for eurozone banks may outpace reality. Eurozone banks have rallied recently, but they still face a number of regulatory headwinds—including potential shutdowns should they fail to meet still-undefined criteria for solvency and restructuring if they fail this autumn’s stress tests. So they keep deleveraging, which weighs on revenues and earnings.
|By Denise Roland, The Telegraph, 04/09/2014|
MarketMinder's View: Like most everyone else, the IMF appears to be giving US’s quantitative easing (QE) too much credit. Let’s be clear, QE didn’t: increase the global money supply (discouraging US banks from lending held back even domestic M4); encourage fund flows to or from “risky investments” or certain Emerging Markets, whose own structural issues inspire investors’ flight; or meaningfully boost growth in the US, UK or Japan. So QE’s end likely won’t have the opposite impact—though it should lead to widening yield spreads, a bullish factor for all global economies.
|By Staff, BBC, 04/09/2014|
MarketMinder's View: This proposal might be well-intentioned (and politically popular), but we suspect it misses the intended mark. Similar rules have been in place in the US since early 2011, and shareholders have approved the lion’s share of pay packages. Our guess is EU shareholders are similarly unlikely to limit executives’ income or bonuses much. They understand pay is a huge incentive to attracting and keeping top-talent execs, on whose shoulders firms’ overall success rests—which directly correlates with shareholders’ stakes.
|By Fergal O’Brien, Bloomberg, 04/09/2014|
MarketMinder's View: Trade pulled back in Britain—not great. However, it’s one reading, and other economic data are doing fine: Consumer spending is strong, and though many worry otherwise, business investment is growing, too. Manufacturing, services and construction are also all very healthy, and the Leading Economic Index is high and rising. Over time, trade should reflect broad-based economic recovery as well.
|By Ryan Tracy and Katy Burne, The Wall Street Journal, 04/08/2014|
MarketMinder's View: By giving banks an extra two years to comply with the Volcker Rule’s ban on Collateralized Loan Obligations, regulators are trying to address one of the rule’s unintended consequences: the forced liquidation of up to $130 billion in securities banks intended to hold till maturity—potentially at prices less than the going market value, resulting in realized losses and balance sheet hits. While the added flexibility is noteworthy, it doesn’t change the endgame—asset sales and potential haircuts—though potential losses are a tiny fraction of the roughly $14 trillion US banking system.
|By Katherine Rushton, The Telegraph, 04/08/2014|
MarketMinder's View: Maybe investors do have too-high expectations for some recent high-flying IPOs! But this potential issue is limited to a handful of companies. It isn’t indicative of sector-wide weakness or market-wide euphoria. Volatility could very well continue in the short term, but in the mid to longer term, Tech overall has plenty of fundamental support.
|By Alex Barker, Financial Times, 04/08/2014|
MarketMinder's View: At issue is whether a bank receiving aid from a central bank would trigger a bail in. Under the system agreed to in December, it would, but the UK is fighting it. How this is resolved could have a material impact on the European banking system. If receiving central bank aid does mean a bank has technically failed, forcing creditors and large depositors to take losses, the role of central bankers as lender of last resort will be fundamentally changed. This is worth watching—not that the impact is immediate, but it might eventually cause some unintended consequences when the financial system next sees stress (should this deal pass, that is).
|By Staff, Reuters, 04/08/2014|
MarketMinder's View: Easing restrictions on mergers and acquisitions in the insurance sector should help improve competition and attract foreign investment. It also pushes China a bit further to a freer financial system overall.
|By Staff, Reuters, 04/08/2014|
MarketMinder's View: China has upped the threshold for its small business tax breaks from an annual business income of 60,000 yuan to 100,000 yuan—an incremental but beneficial change. More businesses will have more capital to invest freely, likely helping to spur economic growth.
|By Ruth Mantell, Market Watch, 04/08/2014|
MarketMinder's View: February’s 299,000 m/m rise in job openings to a seasonally adjusted 4.17 million in February is the last data point in a long string of evidence businesses are hiring more—one more sign of a not-so-jobless recovery.
|By Ben Edwards, Alkman Granitsas and Emese Bartha, The Wall Street Journal, 04/08/2014|
MarketMinder's View: It’s hearsay at this point, but inside sources say Greece will make its long-awaited five-year bond sale on Wednesday—its first longer-term issue since its bailout. How the sale goes remains to be seen, but that the sale is even happening less than two years after Greece defaulted (twice), and investor anticipation seems high, is a testament to Greece’s progress. As is today’s Grecian short-term debt auction, which raised €1.3 billion at 3.01%—more than half a point lower than last month’s sale.
|By Rebecca Clancy, The Telegraph, 04/08/2014|
MarketMinder's View: Driven by manufacturing output (+1.0% m/m), UK industrial production (+0.9% m/m) exceeded expectations in February–more data pointing to a continuing UK expansion and countering the widely held notion of an “unbalanced” recovery.
|By Chuck Jaffe, MarketWatch, 04/07/2014|
MarketMinder's View: Well-intended as performance-based fees might seem, they aren’t a surefire benefit. They usually do one of two things—incentivize managers to take outsized risks (with big consequences if they’re wrong) or cut costs to the bone, reducing their available resources. Neither does much good for investors. For more on performance-based fees, see Elisabeth Dellinger’s 3/26/2014 column, “No Win, No Fee, No Free Lunch.”
|By Larry Elliott, The Guardian, 04/07/2014|
MarketMinder's View: It’s no illusion. Global growth has fundamental support. And in our view, growth should continue, even as some of these “warning signs” come to fruition over the next 12-18 months (a more reasonable period than the five years used in this piece). Exhibit A: normalizing monetary policy. As we see it, loose monetary policy, i.e., quantitative easing (QE), has weighed on growth by flattening the yield curve. Over a century of evidence shows steeper yield curves are good for growth, and “normal” policy should mean a steeper curve. As for the rest of the so-called threats, we see little-to-no evidence of any negative impacts for the global economic expansion or bull market.
|By Ben Rooney, CNN Money, 04/07/2014|
MarketMinder's View: Maybe earnings fall, maybe they don’t—consensus expectations aren’t a crystal-ball predictor. Either way, one quarter of falling earnings growth doesn’t mean the end for this bull. For more, see our 4/8/2014 cover story, “Beating the Earnings Blahs.”
|By Christopher Lawton and Geoffrey T. Smith, The Wall Street Journal, 04/07/2014|
MarketMinder's View: We agree: While eurozone inflation remains tepid, deflation fears are overwrought. For now, that the ECB is seemingly holding off on implementing its own quantitative easing (QE) program is welcome news, in our view. As in the US, QE would likely further hamstring eurozone bank lending, creating headwinds against the region’s recovery. It’s also noteworthy ECB officials are increasingly warm to the prospect of easing regulatory headwinds against securitization. Restarting this practice would likely free up significant lending capacity.
|By Kevin Yao, Reuters, 04/07/2014|
MarketMinder's View: Whether or not Chinese officials decide to loosen monetary policy some, growth probably slows—officials have already warned the world to expect it. But after three-plus years of investors fearing a hard landing in China, slower growth has little to no power to surprise markets. What matters more for stocks globally is that even at slower growth rates, China’s contribution to global GDP keeps rising steadily. For more on China, see our 3/14/2014 cover story, “China’s Great Wall of Worry.”
|By Noémie Bisserbe and Jeannette Neumann, The Wall Street Journal, 04/07/2014|
MarketMinder's View: While bank lending to small businesses is down throughout Europe, some innovative US firms are trying to fill the shortfall. These “direct lending” funds won’t fix all that ails European businesses, but they do at least provide a small lifeline while eurozone banks deleverage, and they illustrate the benefits of free cross-border capital movement.
|By Ian Wishart, Bloomberg, 04/07/2014|
MarketMinder's View: The EU’s arbitrary budget limits strike again. EU officials have a long, proud history of drawing and redrawing lines in the sand, just as they’ve done with France for years. Whether or not France’s annual deficit is above the EU’s target of 3% doesn’t much matter—what’s more important is that public finances aren’t anywhere near problem levels as debt servicing costs become increasingly affordable. For more, see our 1/16/2014 cover story, “Reign of (Debt) Terror.”
|By Harry Wilson, The Telegraph, 04/04/2014|
MarketMinder's View: According to the Bank of England’s financial stability watchdog, the potential for a “run” on a big mutual fund increases “Black Swan” risk in capital markets. Setting aside the misapplication of the phrase coined by Nassim Nicholas Taleb, this quite misses the mark. So what if a big fund manager loses investors or an asset manager loses a flood of clients, forcing them to sell their holdings en masse? For every buyer, there is a seller. You might see some volatility, but absent broad, underappreciated fundamental risks, markets would likely bounce. And in a bear market, pressure comes from retail and professional investors alike.
|By John Fullerton, The Guardian, 04/04/2014|
MarketMinder's View: We can’t decide which is more misperceived: the notion of high-frequency trading (HFT) as a massive financial and societal ill or the claim a tax on financial transactions is a solution. Yes, some HFT is predatory, but most isn’t. Nor does it provide “faux” liquidity—HFT means there is near-always a buyer or seller for every exchange-listed security. Even in times of panic—those HFT “speculators” try to profit when markets are falling, too. Slapping a tax on all of these transactions would only dry up liquidity, exacerbating the assumed “problem.”
|By Michael J. de la Merced, The New York Times, 04/04/2014|
MarketMinder's View: The definition of “full speed” is important—it doesn’t mean IPOs are flying high out of the gate. Early returns are still nowhere near the lofty levels of 1999 and 2000, signaling euphoria remains a long way off. The amount of new issuances is way up, but it still lags Tech Bubble heights, and as this piece shows, many newly public firms have strong revenues. We haven’t yet reached the stage where investment bankers dress up slop with lousy business models by arguing clicks are the new profits or some other nonsense.
|By Ben Carlson, A Wealth of Common Sense , 04/04/2014|
MarketMinder's View: As shown here in significant detail, the answer is no. “The problem I have with commodities as a long-term asset class is the fact that they don’t generate any earnings or pay dividends like stocks. They don’t make periodic interest income payments like bonds. Really, they don’t build long-term value in a business sense. They are a function of cost and need.”
|By Ylan Q. Mui, The Washington Post, 04/04/2014|
MarketMinder's View: Private-sector employment is now back to all-time highs—just another point showing how far the US economy has come since the depths of recession five years ago. But that’s all the jobs report is—a late-lagging confirmation of growth, not a forward-looking indicator.
|By John Cassidy, The New Yorker, 04/04/2014|
MarketMinder's View: If, by “the next Lehman,” you mean an entity that’s fundamentally solvent (assets exceeding liabilities) but squeezed by a cash crunch, then maybe—China might yet mismanage liquidity and shoot itself in the foot despite its flush reserves. It’s darned unlikely, but not impossible. However, if you interpret “the next Lehman” as a house of cards that could bring down the entire world in a heap of panic (a fallacy), well, no. With over $3 trillion in foreign exchange reserves, dollar-denominated debt that’s about only 10% of GDP and a big, growing economy, China is well-equipped to handle whatever credit issues comes its way.
|By Staff, Insurance News Net, 04/04/2014|
MarketMinder's View: This is one long-term forecast we sure hope doesn’t come true. For most investors, target-date funds are bad news. They ratchet down equity exposure as you near the fund’s target date—typically your retirement date—reducing compound growth potential and, potentially, putting your portfolio at risk of depletion later in life. For more, see our 11/01/2013 commentary, “Trade-Offs of Target-Date Funds.”
|By Grace Zhu, The Wall Street Journal, 04/04/2014|
MarketMinder's View: Following Chaori Solar’s recent default—the first for a publicly traded onshore corporate debt issue in China—construction firm Xuzhou Zhongsen’s default is China’s first defaulting private placement. Once again a bailout isn’t forthcoming—officials seem to remain dedicated to letting markets be markets. This is another noteworthy step toward financial liberalization. For more, see our 3/6/2014 commentary, “China’s Path to Free-Market Reforms: Default?”
|By Jeremy Warner, The Telegraph, 04/04/2014|
MarketMinder's View: Blame it on demographics and—in many cases—government intervention. Folks usually earn less fresh out of school, more as they progress through their careers, and peak as they near retirement. Ditto for wealth—the longer you work, the more you accumulate. Add in some misaligned incentives in the developed world and the rampant corruption that drives huge gaps in many developing countries, and the divide is just natural. Fixing the actual problems, rather than papering over them with a “global wealth tax,” would be the most tactic for dealing with this sociological issue.
|By Dinny McMahon, The Wall Street Journal, 04/04/2014|
MarketMinder's View: Here’s one reason China is slowing: Strict loan quotas prevent banks from creating enough money to fuel the real economy, forcing some businesses to pay each other in bank IOUs. While this doesn’t necessarily mean China is knee-deep in a credit crunch, it illustrates the inefficiencies of officials’ monetary policy tactics—one of many challenges China will have to overcome to ascend as a global market force.
|By Mitsuru Obe, The Wall Street Journal, 04/04/2014|
MarketMinder's View: Australia is pushing Japan to slash its 38.5% tariff on Aussie beef, and cattle farmers aren’t happy. This is another test of Prime Minister Shinzo Abe and his (stalled) efforts to reform Japan’s economy. Agriculture is the bedrock of his party’s support, but he’ll likely have to reduce these and other sensitive tariffs to ink the free trade deal with Australia and the Trans-Pacific Partnership—deals he’s depending on to open Japan’s economy.
|By Chen Jia, China Daily, 04/04/2014|
MarketMinder's View: China’s manufacturing gauges hog most of the attention, but the service sector is actually the biggest piece of China’s economy. Growth there accelerated once again in March, providing more evidence lingering hard-landing fears are overwrought.
|By Rebecca Clancy, The Telegraph, 04/03/2014|
MarketMinder's View: As impressive as Ireland’s latest PMI data were—tops in the eurozone in March with a reading of 59—consider the other members of the top five: Germany, Spain, France and Italy. Three long-suffering peripheral eurozone countries are leading the bloc’s growth, another sign of the region’s broadening recovery.
|By John Carney, The Wall Street Journal, 04/03/2014|
MarketMinder's View: And it’s starting to bloom not because of warmer weather, but because of the winding down of quantitative easing (QE)! QE shrank the spread between short- and long-term interest rates, giving banks little incentive to lend to anyone but the most creditworthy. Since the Fed first discussed scaling back QE last May, the spread has started widening, making it worthwhile for banks to lend to more businesses and households. Lending won’t jump overnight, but as it gains pace over time, it should lead to more capital circulating through the economy.
|By Wallace Witkowski, Market Watch, 04/03/2014|
MarketMinder's View: No, it isn’t—past performance isn’t indicative of future results, no matter how it’s sliced, diced and beaten into shape. Anyone can find “fascinating” connections between now and the past, depending how you present the information. But for investors, basing an investment decision on an interesting observation can be detrimental to one’s long-term financial goals.
|By Christopher S. Rugaber, Associated Press, 04/03/2014|
MarketMinder's View: Further evidence weather didn’t slam businesses as hard as many feared, as the ISM’s service-sector index rose to 53.1 in March, another month of expansion. Rising new orders bodes well for continued economic growth as companies ramp up to meet consumer demand—a nice backdrop for the bull to run.
|By Angela Monaghan, The Guardian, 04/03/2014|
MarketMinder's View: Apparently, after three-plus quarters of growth, the eurozone is “finally” in recovery. Hot dog! While we certainly appreciate the (extremely tempered) optimism, this is simply evidence investors waiting for media to confirm good news likely miss big opportunities.
|By Staff, Reuters, 04/03/2014|
MarketMinder's View: It’s easy to get lost in the headlines of specific localized events: Turkish currency troubles, Russia’s forays into the Ukraine, US winter chill. But through it all, the global economy as a whole continues to chug along, benefiting investors with a global focus.
|By Rob Wood, The Telegraph, 04/03/2014|
MarketMinder's View: Doesn’t seem like much of a puzzle to us. Usually, producing more with the same amount of workers requires technological improvements. With business lending—particularly small business lending—contracting since March 2009, near the recession’s bottom, firms haven’t had the capital they need to upgrade equipment and software. Looking ahead, with many of the headwinds against lending fading, firms appear much better-positioned to invest, upgrade and get more efficient.
|By Staff, Reuters, 04/03/2014|
MarketMinder's View: While falling exports isn’t great news, we wouldn’t draw too much about the health of US trade based on any one month (good or bad). And the primary concern of this piece—the widening trade deficit—is misplaced. Imports count as a negative input on the trade balance, even though they are a sign of healthy domestic demand.
|By Clifford S. Asness and Michal Mendelson, The Wall Street Journal, 04/02/2014|
MarketMinder's View: Here is a sensible take on high frequency trading (HFT), what it actually does, why it’s broadly good for all investors and why some don’t like it. True, like all new technologies in all sectors, some may try to use HFT to an unfair advantage—but the technology itself isn’t inherently bad, and how the majority of the industry uses it can make trading cheaper, faster and easier. Those who loudly declare otherwise usually have a strong opinion they’re looking to sell, or they’re industry folk losing their competitive edge as HFT advances and looking to squash the switchover for personal gain.
|By Lorraine Wollert, Bloomberg, 04/02/2014|
MarketMinder's View: And many celebrated a rebound from January and February’s weaker data, but while a positive, we doubt it’s a weather-related rebound. Firms plan for months when they’re looking to hire—one of the reasons employment is a late-lagging indicator.
|By Michael P. Regan, Bloomberg, 04/02/2014|
MarketMinder's View: It’s odd to think strong growth in industrials and transportation alone would be the signal of more bull market strength ahead—they’re just two parts of the US (not even the global) economy, which is considerably more services-based than it was in 1899 when this theory was created. Moreover, to the extent Dow Theory ever worked, it is simply too widely known and discussed to have much (if any) predictive power. Markets are already aware of its implications. Were it otherwise, those trading on Dow Theory would win every time, and everyone would do it!
|By Staff, Reuters, 04/02/2014|
MarketMinder's View: Officials plan to cut taxes for small businesses and accelerate railway construction. Letting small (usually private) Chinese businesses keep more than half of their income likely proves positive—more yuan in their pockets is more yuan freely circulating in the broader economy (or at least trying to). As for the railroads, boosting public and private investment might provide something of a near-term shot in the arm, but how well it works likely depends on officials’ success in rooting out corruption in the industry.
|By Staff, Bloomberg, 04/02/2014|
MarketMinder's View: Solutions suggested here, like quantitative easing (QE) and negative interest rates won’t help stoke eurozone inflation. But they would create more headwinds for European banks—the real culprit behind the area’s low inflation. Regulatory uncertainty and potential shutdowns should they fail upcoming (unclear) Asset Quality Reviews incentivize banks to deleverage, weighing on lending, which weighs on money’s creation and circulation—the formula for disinflation. Adding QE, for example, would only flatten the yield curve and limit banks’ profit margins on loans, discouraging lending (and thereby inflation) further.
|By JD Harrison, The Washington Post, 04/02/2014|
MarketMinder's View: While we don’t expect material changes any time soon, and any legislation that passes isn’t guaranteed to be a huge net positive, it’s notable lawmakers are eyeing regulations to promote angel investing—individuals investing in startups or innovation otherwise lacking funding. Incentives matter: If investing in small businesses is too risky, expensive or wrapped-up in red tape, “angels” won’t invest. Not convinced? Look at IPOs’ increase since the JOBS Act made going public easier for small businesses previously held back by Sarbanes-Oxley’s onerous restrictions.
|By Toru Fujioka and Keiko Ujikane, Bloomberg, 04/02/2014|
MarketMinder's View: This gives Abenomics too much credit. Let’s be clear: Expectations inflation will rise moving forward are only that. They aren’t proof the Bank of Japan’s huge monetary stimulus is successful—stimulus can only do so much. Plus, the BOJ only meets its goal if inflation is part of a virtuous cycle of growth, complete with rising wages that prevent higher prices. Right now, with growth fizzling, wages largely stagnant and households squeezed by high energy costs, it’s tough to see much success.
|By Staff, BBC, 04/02/2014|
MarketMinder's View: This is an interesting political development—a sign of relative harmony in Germany’s ruling coalition—but doesn’t mean much for markets. Minimum wages create winners and losers and, typically, the impact on total consumer spending is negligible at best.
|By Matina Stevis, The Wall Street Journal, 04/01/2014|
MarketMinder's View: Two years ago, Greece was defaulting (twice) on long-term debt. Now, officials are planning the first new issue in years. Time will tell how the auction goes, but this is a noteworthy step in Greece’s (likely long) journey back from the brink.
|By Yuki Yamaguchi, Bloomberg , 04/01/2014|
MarketMinder's View: Today, Japan hiked its sales tax from 5% to 8%. While Q1 GDP likely gets a boost from the many folks who stocked up in advance, looking ahead, consumption likely falls. This also speaks to the trouble with relying on the weak yen alone to boost growth and inflation. Households are already squeezed from prices rising while wages largely stay stagnant (which is largely due to the lack of reform), and a higher sales tax will only make it worse. For more, see our 4/1/2014 cover, “Abenomics and Other April Fools.”
|By Staff, BBC, 04/01/2014|
MarketMinder's View: Like any investment platform, product or other innovation, high frequency trading (HFT) can be abused by non-law-abiding folk—it isn’t unique in that regard. But despite the investigation cited here (which amounts to nothing more than the FBI asking HFT users for evidence of front-running), HFT isn’t inherently squirrely, and it doesn’t automatically put investors at a disadvantage. It has actually introduced many benefits, like a more liquid and efficient marketplace.
|By ES Browning, The Wall Street Journal, 04/01/2014|
MarketMinder's View: We’re not sure why it should surprise anyone that long-term interest rates fell after the Fed started reducing monthly bond purchases. Markets are forward-looking. Interest rates started rising after Ben Bernanke first spoke of “tapering” bond purchases last May. By the time the Fed actually made a move, markets had long since digested it.
|By Denise Roland, The Telegraph, 04/01/2014|
MarketMinder's View: Sure, domestic demand is a large driver of growth, but exports, +0.4% q/q in Q4 2013, are also contributing. Slower growth in one survey’s monthly estimate of new export orders doesn’t indicate an “unbalanced economy.” Besides, it’s normal for different components of any country’s economy to diverge at times.
|By Staff, EUbusiness, 04/01/2014|
MarketMinder's View: The composite eurozone PMI ticked down a hair in March, but as usual, country-specific results varied. Germany cooled a bit from February’s strong read, but France returned to growth and Spain and Italy grew, too.
|By Michelle Jamrisko, Bloomberg, 04/01/2014|
MarketMinder's View: Yes, the ISM manufacturing PMI ticked up to 53.7 in March as production grew to 55.9 and forward-looking new orders rose to 55.1. And that does suggest growth continues. But it doesn’t mean growth is now more “sustainable” or the economy is “building momentum.” That implies growth must reach some arbitrary escape velocity to continue—but that isn’t how economies work.
|By Bernie Woodall and Deepa Seetharaman, Reuters, 04/01/2014|
MarketMinder's View: After getting hit by frigid weather early this year, auto sales ticked in March—another sign demand for big-ticket items is plenty strong.