|By Andrew Oxlade, The Telegraph, 05/30/2014|
MarketMinder's View: Robo-advisors aren’t the solution to either of the problems UK regulators are trying to solve. Mis-selling? Computers themselves might not earn commission from selling products, but their algorithms are designed by people who do—machines programmed by humans aren’t above reproach. As for the “advice gap”—the direct consequence of the Retail Distribution Review rule change, which made it too costly for many advisers to serve low-net-worth clients—robots can’t provide advice. Robots can’t know their clients. Machines can’t help you identify your financial goals, determine your investment time horizon or help you battle bias and emotion. This is one industry where the human element remains vital.
|By Joe Light and Annamaria Andriotis, The Wall Street Journal, 05/30/2014|
MarketMinder's View: Leaving aside perceptions about the alleged economic impact (good or bad) of home equity lines of credit, this seems a good snapshot of credit availability—thawing more, but not off the charts. About what we’d expect a year after the yield curve started shrinking, considering monetary policy changes typically flow through to the broader economy at a lag. For more, see our 05/23/2014 commentary, “Happy Anniversary, Taper Talk!”
|By Mohamed A. El-Erian, Bloomberg, 05/30/2014|
MarketMinder's View: We’re always skeptical of new normals and paradigms—iterations of those dangerous words, “It’s different this time.” Markets more volatile because banks are less willing to act as market makers when prices fall? In our broad, modern, democratized financial system, plenty other intermediaries fill the void, and markets will still swing hard on emotion—it’s just what markets do. Plus, the episode used as evidence—last summer’s mini pullback as folks feared the impact of reduced Fed bond buying—is puzzling. Stocks never even officially corrected. Seems to us that shows less volatility, not more, thus disproving the thesis it claims to support.
|By Floyd Norris, The New York Times, 05/30/2014|
MarketMinder's View: While we wouldn’t go so far as to say the proportion of houses sold by banks relative to those sold by developers is a hard, fast indicator of the market’s health, the data here are pretty encouraging—they indicate supply is normalizing. Rising prices have helped banks work through more of their inventory backlog, and they’re simultaneously incentivizing more construction. As this keeps playing out, it should help supply move further past the severe shortage of recent years. With demand firm, that should translate to rising sales looking forward.
|By Ambrose Evans-Pritchard, The Telegraph, 05/30/2014|
MarketMinder's View: This seems an awfully dour interpretation of US GDP’s Q1 contraction. Maybe tax uncertainty did pull some business demand forward—but if expiring tax breaks are really such a huge driver, why did R&D spending jump at a 10% annualized rate in Q1, right after the tax break on R&D spending expired? If tapering were so bad for money markets, why did loan growth accelerate as the Fed wound down? Yes, M4 money supply growth is slowing some, but it’s still growing faster than in 2011 and early 2012—and actually growing, unlike 2010. For more on Q1 wobbles, see today’s cover story, “GDP Goes Up in Smoke?”
|By William Pesek, Bloomberg, 05/30/2014|
MarketMinder's View: Yes, it seems a fair assumption the one-party crony-communist government in China is saying one thing and doing another. That’s just what politicians—elected or unelected—do. Leaders were never going to let GDP growth fall much below the target if they could help it. Their continued employment depends on the economy growing enough to keep the masses calm. That said, the targeted stimulus announced so far seems consistent with the advertised economic rebalancing. Tax breaks target capital-starved small businesses. Railway investment plans rest on private capital. Even with accelerated infrastructure spending, official investment is slowing.
|By Spencer Jakab, The Wall Street Journal, 05/30/2014|
MarketMinder's View: One: Considering consumer spending has been at all-time highs and rising since Q4 2010, they didn’t just find their lost wallets. Two: Spending isn’t up because of low interest rates or the wealth effect—it’s because incomes are up (and new data Friday showed real disposable income rose another 0.2% m/m in April). Three: The savings rate doesn’t measure anything close to actual savings—it includes phantom charges like owner imputed rent and doesn’t count retirement savings or investments.
|By Staff, Jiji Press, 05/30/2014|
MarketMinder's View: But do a rude calculation to strip out the tax hike, and CPI ex-food and energy rose only 0.8% y/y, barely budging from March. What’s more, core Tokyo prices, released a month ahead of the national gauge, slowed to +0.4% y/y if you strip out the tax hike. Altogether, it’s more evidence monetary stimulus alone can’t shake Japan out of its nearly 17-year funk. For more, see our 5/28/2014 commentary, “The Mythical Third Arrow.”
|By Staff, EUbusiness, 05/30/2014|
MarketMinder's View: While Moody’s isn’t saying anything new (they are, after all, a ratings agency), they do point out something many miss: The EU’s forthcoming Single Resolution Mechanism—the EU-wide system for winding down failing banks—likely makes banks more of a credit risk, not less. Why? Because of “the explicit inclusion of burden-sharing with unsecured creditors as a means of reducing the public cost of bank resolutions.” All the more glaring when you consider that the rules, in their present form, imply simply failing a stress test could trigger this process.
|By Staff, Xinhua, 05/30/2014|
MarketMinder's View: To most American readers, it probably seems bizarre that Chinese economists would closely watch the ratio of hog to corn prices as a leading indicator of inflation, but it isn’t much different than those claiming rising food prices signal rising inflation here at home. Both are quite wide of the mark: Inflation is a monetary phenomenon, a broad increase in prices as money supply grows faster than output. Inflation isn’t price changes in one good or service—those are driven by supply and demand fundamentals for that item, which often don’t bleed into the broader economy. Hog-push inflation isn’t any more real than cost-push.
|By Szu Ping Chan, The Telegraph, 05/30/2014|
MarketMinder's View: The plan—a joint effort with the ECB—would kickstart securitization, the wrongly scapegoated bogeyman in 2008. Securitizing loans isn’t an instant fix for UK or EU money markets. It would, however, help banks free up significant capital, and small businesses would likely be the prime beneficiaries. That would give the UK a capital lifeline it has largely lacked in recent years.
|By Matt Day, Jake Maxwell Watts and Chiara Albanese, The Wall Street Journal, 05/29/2014|
MarketMinder's View: Yes, Emerging Markets (EM) stocks are bouncing, but the causal factors cited here for the dip (namely, quantitative easing or QE “tapering”) are fundamentally wrong. The year’s early dip was an emotion-driven selloff based on taper terror in EM nations that weren’t much affected by either QE or its unwinding. Nor is confidence in a gradual taper the reason they’ve outperformed—or a reason they’ll keep outperforming. QE isn’t a fundamental driver for EM stocks. As for the notion of a search for yield, if that’s true, then why is it a driver of excess returns now? EM underperformed since 2011, yet their yields exceeded US yields by an even wider margin then.
|By Keiko Ujikane and Chikako Mogi, Bloomberg, 05/29/2014|
MarketMinder's View: While much of the 13.7% m/m drop is attributable to demand being pulled forward ahead of the April 1 sales tax hike, the higher tax likely does remain a drag on spending looking forward. The government has already announced plans to partially offset this with fiscal stimulus, but it’s pretty clear Japan has about squeezed all it can squeeze from easy fixes. Structural reforms remain key to long-term progress—and remain stalled. For more, see our 05/28/2014 commentary, “The Mythical Third Arrow.”
|By Ambrose Evans-Pritchard, The Telegraph, 05/29/2014|
MarketMinder's View: Though the EU does have its share of problems to work through, the rise of euroskepticism shouldn’t resurrect the risk of a disorderly euro collapse. While euroskeptic parties notched big gains in the European Parliament, that doesn’t set a blueprint for national elections, which usually see far higher turnout—particularly among supporters of mainstream parties. France’s National Front might have won 73 of 100 electoral districts in the EP vote, but that means nothing for a Presidential election still three years away. The endgames hypothesized here just seem too speculative and far-fetched—worth considering from an academic perspective, but not actionable for investors. For more, see Research Analyst Scott Botterman’s analysis, “European Parliament Elections—Setting Expectations.”
|By Martin Crutsinger, Associated Press, 05/29/2014|
MarketMinder's View: The revision from +0.1% to -1.0% is mostly due to a downward revision to private inventories and higher imports—neither is a sign of fundamental weakness. Most folks seemed to take it in stride, expecting this to just be a temporary blip, and many other recent data support their view. Overall, in our view, this release shows GDP’s limitations. Not only is it backward-looking and subject to chronic revision—sometimes decades later—but the calculation is a bit wonky too. For example, that upward revision to imports slightly detracted from total GDP, yet higher imports indicate higher domestic demand. For more, see our commentary, “GDP Goes Up in Smoke?”
|By Staff, Independent.ie, 05/29/2014|
MarketMinder's View: Another impressive tidbit: Domestic demand made its first positive contribution in 14 quarters. Though growth may remain uneven throughout the region, encouraging news from peripheral countries like Spain show just how broad-based the eurozone’s rebound has become.
|By Rob Wood, The Telegraph, 05/29/2014|
MarketMinder's View: While likening an earlier-than-expected rate hike to taking an extra banana on a road trip seems a bit, well, bananas, the broader point that rate hikes aren’t automatically bad is worth bearing in mind. That said, the discussion of whether a rate hike before year-end is appropriate seems premature—no one knows what specific economic and monetary conditions will be then. Decisions like this can only be weighed after the fact.
|By Nikos Konstandaras, The New York Times, 05/28/2014|
MarketMinder's View: It’s a fallacy to assume the breakdown of Greek votes at last weekend’s European Parliamentary (EP) election foretells upcoming national votes in Greece or anywhere else. The European contest, widely seen as secondary, attracts lower turnout, inflating the influence of the euroskeptic voters (typically more reliable participants in these votes than their pro-union peers)—hence why euroskeptic parties usually have stronger showings in the EP than their national parliaments. When citizens are deciding who should govern their own country, it’s a very different game indeed.
|By Dennis Berman, The Wall Street Journal, 05/28/2014|
MarketMinder's View: “Most know what fracking has meant for oil and gas prices. But because much of the work hasn't started yet, few appreciate the true extent of the industrialization that's about to begin.” Indeed! We’re only just now starting to see some the secondary benefits, like the impact of abundant natural gas on production of plastics, fertilizers, paper and other chemical-related products.
|By Bob Veres, Financial Planning, 05/28/2014|
MarketMinder's View: No. Anyone arguing it is—and using the proliferation of mutual funds, high-frequency traders and other occasionally short-term shareholders as evidence—misses the elephant in the room. This and other trading action has increased liquidity and market efficiency, benefiting long-term investors tremendously. Ask yourself: If all the practices described here are so terrible, why have markets kept rising, over time, as they’ve gained prominence?
|By Floyd Norris, The New York Times, 05/28/2014|
MarketMinder's View: The new rules, which take effect here in 2017, aim to make revenue accounting more consistent across countries/industries—particularly as it pertains to when firms can recognize revenues from long-term contracts, add-ons and loyalty programs. The changes won’t fundamentally alter company performance—they’re window dressing. But they will monkey with reporting, skew earnings and revenue comps in 2017/2018, and perhaps force investors to pay a bit more attention to the footnotes on annual reports and earnings statements.
|By Mark Drajem, Bloomberg, 05/28/2014|
MarketMinder's View: One study predicts it’s a long-term job killer; another foresees a jobs and economic bonanza. Which is right? Who knows! Like all long-term forecasts, these studies rest on numerous arbitrary assumptions, extrapolate trends years into the future and don’t consider the many other changes and unknown variables that could arise. This is a big academic and political debate, but likely not a market driver over the next 12-18 months, which is where stocks focus the most.
|By Maarten Van Tartwijk, The Wall Street Journal, 05/28/2014|
MarketMinder's View: It’s encouraging to see a top eurozone official acknowledge cutting payroll tax burdens would aid growth and competitiveness—and urge countries to start a race to the bottom. Whether member-states take the bait, only time will tell, but if they do, it would likely be an incremental long-term positive—particularly for countries with the highest burdens, like France.
|By Chikako Mogi and Kyoko Shimodoi, Bloomberg, 05/28/2014|
MarketMinder's View: While the proposal cut Japan’s corporate tax rate—currently the developed world’s second highest—has more support from the ruling Liberal Democratic Party, that doesn’t guarantee it passes. Even if they follow through, it remains to be seen how much of a net benefit Japan receives—policymakers seem bent on trying to replace “lost revenue,” not realizing simple economic growth can achieve that over time, and the offsetting measures might counterbalance the impact of a tax cut.
|By Angeline Benoit, Bloomberg, 05/28/2014|
MarketMinder's View: Mortgage approvals rose 2% y/y, and total mortgage lending rose 16%—the first gains in four and seven years, respectively. While just one month, these are noteworthy signs of potential stabilization in one of the eurozone’s most distressed housing markets.
|By Wallace Witkowski, MarketWatch, 05/27/2014|
MarketMinder's View: This is a mish-mosh of backward-looking factors (like the upcoming revision to GDP that is unlikely to catch many professionals by surprise and either way is, well, over) and ones that are flat wrong (we can’t find a version of valuations that are presently at “record highs”). In our view, the simple-yet-inconvenient-for-headline-writers answer is that volatility is just variable.
|By Daniel Kruger, Liz Capo McCormick and Craig Torres, Bloomberg, 05/27/2014|
MarketMinder's View: All this takes Fed jawboning much too seriously and ascribes near-magical ability for bond markets to discount both market-driven long-term interest rates and the non-market-set fed-funds target rate. Besides, the Fed’s forecasts aren’t to be taken as gospel. All in all, we’d suggest these are just bond market wiggles, no more telling than equity market wiggles.
|By Angela Monaghan, The Guardian, 05/27/2014|
MarketMinder's View: Perhaps some bankers behaved badly during the financial crisis, but the major issues were regulator-driven—like FAS 157 and the schizophrenic bailout behavior. So to us, the better question here is: Why should we believe regulators have learned sufficient—or correct—lessons to head off a crisis in the future? Why should we trust their behavior will more accurately guide the country/world to good economic outcomes in the future? When we see comments from regulators that presume the global economy is a fixed pie where one person’s slice detracts from another’s, our skepticism grows.
|By Staff, EU Business, 05/27/2014|
MarketMinder's View: As we expected, euroskeptic parties won a sharply increased share of the seats in this weekend’s EU parliamentary elections. However, we’d suggest this is mostly a sideshow. The European Parliament has little actual power relative to national governments or the European Council. And while many presume this is a preview of national elections, we’d caution against that conclusion: Many, if not most, Europeans consider the EU elections second-tier (at best), and turnout is usually much lower than national contests.
|By Andrew Ackerman and Bradley Hope, The Wall Street Journal, 05/27/2014|
MarketMinder's View: Our $0.02? Intentionally increasing tick size to $0.05 or $0.10 probably will incent additional trading in illiquid securities, some by high-frequency traders. But none of this really helps individual or institutional investors, who likely actually see increased costs from what’s effectively a price floor.
|By Liz Moyer, The Wall Street Journal, 05/27/2014|
MarketMinder's View: Online retirement calculators should come with a warning label: Markets do not move in straight lines, yet most calculators presume they do. They can be educational about the power of compound interest—a modest plus—but one should beware hinging material financial decisions on their findings. Planning for retirement is just not as simple as this.
|By Steven M. Davidoff, The New York Times, 05/27/2014|
MarketMinder's View: Class-action lawsuits against public companies are commonplace, but they could be less so should firms implement rules now permitted by the Delaware Supreme Court. The Court ruled firms could write in a requirement that a lawsuit loser pays all legal costs. That means those suing a Delaware corporation (and over half of all publicly traded US firms are Delaware corporations) would face the risk of financial loss in filing suit. Now, it remains to be seen if a company will enact the provision—there is also the court of public opinion to consider. But it’s an interesting decision, particularly since the Supreme Court is also reviewing the fraud-on-the-market provision that underpins many class action plaintiffs’ certifications.
|By Kartik Goyal, Bloomberg, 05/27/2014|
MarketMinder's View: Wait—this is a “boost”? “The current-account deficit narrowed as the trade gap declined due to a faster drop in imports than exports (-12.3% y/y vs. -1.3%).” The current account is really just another measure of trade, and a gap is neither good nor bad. You have to look at the underlying factors which, as shown, were ugly. It’s all just one reading, but the take here is just plain backwards.
|By Donald Jay Korn, Financial Planning, 05/27/2014|
MarketMinder's View: Have you ever wondered how you can structure several inefficient, restrictive and complex financial products to hedge against the low interest-rate environment? No? Well, this provides an overly complicated solution to the question you never pondered. Look, we get it—if all you can invest in are annuities, then a means to guard against low payouts (which are tied to interest rates) may be necessary. But in the real world, you have other, far better choices than annuities to pick from. We’d suggest doing so.
|By Staff, China Daily, 05/27/2014|
MarketMinder's View: As the world’s largest importer and producer of gold, it would seem China has a pretty darn big impact on two primary determinants of gold prices, supply and demand. But it now appears they want another influence: They’d like to open an exchange on the ground in Shanghai, where China would “have more voice in gold prices.” If you needed another reason not to invest in gold, how does China monkeying with gold prices strike you?
|By Katy Burne and Min Zeng, The Wall Street Journal, 05/27/2014|
MarketMinder's View: Analyzing the nature of risk and reward based on long-term, zero-coupon Treasurys outperforming seems mostly like another example of the punditry searching for meaning in (non)bouncy times. The fact the year is about five months over and long-term Treasurys are up more than other types of bonds seems to us mostly just typical asset-price volatility. There is nothing magical about the bond market that makes its wiggles more meaningful than equity market wiggles.
|By Simon Kennedy, Bloomberg, 05/23/2014|
MarketMinder's View: More like what Geithner remembers the historical record shows is false. The “financial fires” he recounts weren’t spawned by overly complacent markets. As New York Fed President William Dudley observed early that year, it came from a vicious cycle of asset fire sales and write-downs as firms struggled to comply with new fair-value accounting requirements. As for now looking like 2007 before the trauma began, that’s a fine comparison. At that time, the economic, political and sentiment environment supported a longer-lasting bull market. If the imposition of fair-value accounting hadn’t truncated the bull in October, the good times could have lasted quite a while longer.
|By Tomi Kilgore, The Wall Street Journal, 05/23/2014|
MarketMinder's View: Stock investing isn’t a get-rich quick scheme. That includes penny stocks. If the very thought of instant penny-stock riches has you feeling like a cartoon character with dollar signs for eyeballs, we suggest taking a walk (or a cold shower) and regaining perspective. For most folks, reaching long-term financial goals means investing for market-like returns over your entire investment time horizon. Sorry for the cliché, but it’s a marathon, not a sprint.
|By Howard Gold, MarketWatch, 05/23/2014|
MarketMinder's View: Well, nobody’s perfect. Here are three takeaways from this article: One, hyperbole is a sales tool, not necessarily an actual market call. Two, be skeptical of long-range or super-bullish predictions. And three, be on the lookout for when articles like this run rampant—that’s often a sign of the top. We’re not there now, but there will come a day.
|By Joshua M. Brown, The Reformed Broker, 05/23/2014|
MarketMinder's View: Have you bought or are you considering buying a non-traded real-estate investment trust? If so, this is a must-read peek behind the curtain of how these high-commission generating products actually work. Ultimately, we too “have yet to hear a single credible explanation as to why a broker would recommend a non-traded REIT over a public REIT other than compensation.”
|By Floyd Norris, The New York Times, 05/23/2014|
MarketMinder's View: The only amnesia we can see is the repeated failure for regulators and politicians to acknowledge the role fair-value accounting played in 2008. AIG didn’t crater because it was undercapitalized. It was because it wrote a bunch of insurance contracts on the debt of a financial firm (Lehman) that had to declare bankruptcy because no one would accept its written-down assets as collateral for short-term funding. Lehman’s assets exceeded liabilities—it was only insolvent because it had to write previously held-to-maturity assets to the last bargain-basement price they fetched on the open market, killing its creditworthiness. None of this has anything to do with mutual funds and asset managers today. Nor do these entities really have balance sheet risk. If they lose clients, they sell securities, meet the redemptions, and that’s that. For more, see Elisabeth Dellinger’s 4/11/2014 commentary, “Too Big to Fail: Money Management Edition.”
|By Andrew Frye and Chiara Vassarri, Bloomberg, 05/23/2014|
MarketMinder's View: While the effort to include Italy’s gigantic black market and the various exploits of Silvio Berlusconi in GDP is certainly noteworthy, this just seems a touch bonkers. These … err … commercial endeavors are all, well, illegal. We rather doubt drug dealers, smugglers and ladies of the night keep detailed financial records that they’ll turn over to the statistical authorities. So we fail to see how Italy can accurately capture any of this, either looking forward or retroactively. We’d suggest not relying on this as a material driver of Italian growth or fiscal stability.
|By Ambrose Evans-Pritchard, The Telegraph, 05/23/2014|
MarketMinder's View: This is all just politics. Gazprom is an arm of the Russian state, and its chairman is one of Vladimir Putin’s key henchmen, so it pretty much goes without saying that he’d use his new China gas deal as a chance to bully Europe—it’s just the latest salvo in a months-long war of adverbs and finger jabs. It’s also flat wrong. The 38 billion cubic meters (BCM) Russia will ship to China annually from 2018 is less than one-fourth of the 162.7 BCM Gazprom shipped to the whole of Europe last year. As for the broader energy supply issues discussed, they’re all in the far future and very hypothetical—anything could change the outlook between now and then. For more, see our 5/22/2014 commentary, “Energy Game Changers?”
|By Mitsuru Obe, The Wall Street Journal, 05/23/2014|
MarketMinder's View: Maybe, but that might be a touch optimistic. Mega trade deals like the Trans-Pacific Partnership rarely come to fruition. The Doha Round at least ended in a basic framework for easier customs clearance. The TPP has fewer players but is much more ambitious in scope than Doha ever was, and it isn’t clear whether the 12 nations involved will be able to reach even a small agreement on broad tariff reductions. More likely, in our view, negotiations splinter and we get a handful of bi- or trilateral free trade agreements.
|By Michael P. Regan, Bloomberg, 05/23/2014|
MarketMinder's View: Yep—valuations are up a bit relative to recent past years. But hunting for “undervalued” stocks or using various valuation metrics as the be-all, end-all indicator of future market direction ignores history. There is no consistently predictive quality to valuations, and valuations tend to grow along with investor confidence as bull markets mature. For more, see our 05/20/2013 cover story, “P/Es: Still Not Predictive After All These Years.”
|By Paul Vigna, The Wall Street Journal, 05/23/2014|
MarketMinder's View: It seems quite a stretch to say a low reading on the St. Louis Fed’s “financial stress” index means nobody fears a bear market. Sentiment isn’t that high—not when bubble blather is everywhere, people think “sideways corrections” are a thing, folks say a dipping Russell 2000 is a leading indicator and fears of “over-heating stock markets” are all around.
|By Samantha Allen, Financial Planning, 05/23/2014|
MarketMinder's View: While markets are mostly efficient in the long run, in the short term they can be very irrational indeed—and those inefficiencies are opportunities active investors can exploit. Success isn’t a matter of mere chance. These trends are long and predictable enough, in our view, for investors to game them. Perfection is impossible, but active management isn’t automatically zero sum.
|By Staff, Xinhua, 05/23/2014|
MarketMinder's View: When China announced the Shanghai free trade zone would be a trial for free movement of capital in and out of China, it wasn’t clear how they’d get a controlled test and whether the movement would be truly free or incoming funds would be walled off at Shanghai’s city limits. Now, they’re writing the rules, which include easier movement between the trade zone and China proper. There are limits, but overall it appears to be another step toward freer markets, a key step in China’s ongoing emergence.
|By Alan Tovey, The Telegraph, 05/23/2014|
MarketMinder's View: Though this is just a survey, it gives insight into the UK economy that stats like GDP can’t quite capture. Companies, it seems, are stretched so thin they’re turning away new business! Demand is high, capacity is tight, and it all likely points to rising investment as businesses expand to keep up.
|By Emily Badger, The Washington Post, 05/22/2014|
MarketMinder's View: Government statistics have a tendency to lag new industries and innovations in the economy by a significant distance. Employment and business creation/destruction statistics involving decentralized firms like Etsy and UberX, while a nascent trend, are an interesting case-in-point. Maybe, as technology evolves, it will disrupt entrenched government number-crunchers and give a more accurate picture of America’s dynamic economy.
|By Clifford Asness, Aaron Brown, Michael Mendelson and Hitesh Mittal, RealClearMarkets, 05/22/2014|
MarketMinder's View: This is a deeply detailed and overall sensible breakdown of what many miss in the debate surrounding high-frequency trading (HFT). While there likely are some nefarious actors in the industry, HFT overall doesn’t hurt retail investors—it benefits them by adding significantly to liquidity and reducing some trading costs, like bid/ask spreads. For more on high frequency trading, see Elisabeth Dellinger’s book review of Michael Lewis’s Flash Boys.
|By Anuchit Nguyen and Chris Blake, Bloomberg, 05/22/2014|
MarketMinder's View: Political instability isn’t new in Thailand—this is the 12th military coup since 1932 and the government has been overthrown three times since 2006. While Thailand’s political situation probably remains in flux for some time, it likely lacks shock power to impact markets significantly. It also lacks size to materially affect the global economy: According to the World Bank, Thailand’s GDP is $366 billion (as of 2012)—for scale, the US imported more goods from China ($426 billion) the same year.
|By Patti Domm, CNBC, 05/22/2014|
MarketMinder's View: To be clear: Corrections are short, sharp, sentiment-driven negative moves of 10% or more. All this amounts to is searching for meaning in bouncy times. Neither the Russell 2000 nor bond market movements presage actions in other markets—they are, you know, other markets. Market corrections are not like buses—they don’t operate on timetables. Standing on the sidelines and waiting for one is an investing error.
|By Phillip Inman, The Guardian, 05/22/2014|
MarketMinder's View: The increases in business investment, manufacturing and construction are all evidence of the UK economy’s strong recovery, yet the bizarre notion the UK needs to “rebalance” and that “net (international) trade is doing nothing for growth” persists. Increased trade and investment aren’t prerequisites to sustainable growth, especially in a service- and consumer-based economy like the UK. Why some folks figure foreign private sector consumption is more “key to the economy’s long-term health” than domestic private sector construction is beyond us.
|By Catherine Bosley, Bloomberg, 05/22/2014|
MarketMinder's View: As debate of stimulus measures for the eurozone rages, the data show continued—albeit uneven—growth from the region. As shown here, eurozone services activity hit its highest level in nearly three years in May. In our view, the eurozone’s recovery doesn’t need any additional “help” from the ECB and such efforts risk stymieing, not boosting, growth.
|By James Longstreet, American Thinker, 05/22/2014|
MarketMinder's View: While it’s true central bankers tend to be more influenced by politics than the job description states and they are far from infallible, we’d suggest the rest of this thesis is wide of the mark—it’s mostly the same long-in-the-tooth hyperinflation concerns frequenting the media since 2008. Yes, if lending picks up markedly, that could be inflationary. But it would likely support faster economic growth all the same, mitigating the impact. Finally, the notion these reserves will explode into credit markets suddenly is a fallacy. Some may never reach the real economy, as they could be used to hedge against higher Basel-related capital requirements. Either way, this is a whole lot of fear of possibilities and not assessment of foreseeable probabilities over the next 12-18 months.
|By Martin Crutsinger, Associated Press, 05/22/2014|
MarketMinder's View: The “gauge” referred to here is the Conference Board’s Leading Economic Index (LEI), and the gain is the third straight monthly rise. While no economic gauge is perfect, a trend of rising LEI readings is highly unlikely to precede recession—April’s reading suggests continued growth ahead.
|By Andrew Critchlow, The Telegraph, 05/21/2014|
MarketMinder's View: It might seem as if the deal has everything to do with recent events in Ukraine, but it has been in the works for a decade. This isn’t a case of Putin looking for a quick revenue boost to allow him to cut off gas supply to Europe—the timing is coincidental. Gas won’t even start to flow to China until 2018, and the amount in question is about one-fifth of what Gazprom exported to the EU last year.
|By Louis Sahagun, Los Angeles Times, 05/21/2014|
MarketMinder's View: This speaks to why we should take long-term forecasts with a massive grain of salt. Though the Monterey shale formation contains a chunk of the country’s shale oil reserves, projections about its eventual economic impact missed quite a few variables—like the fact geologists’ estimates of how much oil can be recovered with current technology could change. Though, we’d say the same about the fears this factoid is “a blow to the nation’s oil future.” Monterey’s tricky formation makes it very difficult to recover the oil through today’s fracking methods, but technology changes all the time. Who knows what advances the future could bring.
|By Staff, BBC, 05/21/2014|
MarketMinder's View: We wouldn’t advise spending much time stewing over popular interpretations of the BoE’s latest meetings minutes. Regardless of what views on rate hikes being “more balanced” (a fuzzy term) means, the minutes also said policymakers can and probably will change their opinions as the market evolves. Whatever plans one might glean from these 12 pages don’t matter—like all central banks, the BoE’s moves aren’t gameable. But even when the BoE decides to raise rates, it’s important for investors to note initial rate hikes aren’t inherently bad (or good) for markets.
|By Danielle Demetriou, The Telegraph, 05/21/2014|
MarketMinder's View: Claiming that expanding the number of baseball teams from 12 to 16 will bring economic prosperity the expansion of the US’s Major League Baseball in the early 60s preceded a boom is the ultimate example of coincidence without causality. Baseball is fun! It’s an industry! But it isn’t a major growth driver or a fix of all of Japan’s structural issues.
|By Staff, BBC, 05/21/2014|
MarketMinder's View: UK April retail sales jumped by +1.3% m/m and +6.9% y/y—more data pointing to the UK’s ongoing economic recovery.
|By Gillian Tan, The Wall Street Journal, 05/21/2014|
MarketMinder's View: A rise in leveraged buyouts isn’t a huge risk or a sign of a peak—they soared in 2007, but that’s just coincidence. Leveraged buyouts didn’t cause the financial panic. In our view, that makes regulators’ quiet crackdown attempts a bit perplexing. Capping leverage at six times earnings pre-tax and accounting maneuvers seems arbitrary—as do the many exceptions granted. It all makes us wonder if regulators are simply testing their macroprudential mettle in an effort to be seen as “doing something.”
|By Cai Xiao, China Daily, 05/21/2014|
MarketMinder's View: While many were disappointed with planned slow pace, considering there are about 600 firms waiting to go public, it’s still a noteworthy development as China works to implement financial reforms. China has been trying to modernize its IPO process for years, and several hiccups were apparent when officials briefly restarted IPOs in January. If the new processes they’re testing work, it’ll make Chinese capital markets that much more mature.
|By Staff, Jiji Press, 05/21/2014|
MarketMinder's View: This isn’t necessarily shocking given the country’s sensitivity over nuclear power. But if it sets a precedent for other plants, it wouldn’t be great for Japan. Restarting nuclear plants is pretty critical to Japan’s economic future and is a key plank of Shinzo Abe’s reform plans—energy imports would go down, likely making prices more affordable for businesses and households.
|By Andrew Grossman, John Letzing and Devlin Barrett, The Wall Street Journal, 05/20/2014|
MarketMinder's View: And so Credit Suisse becomes the first big bank to plead guilty to criminal charges in over a decade. Setting aside the merits of the case, what matters for investors are the broader implications of this and other pending criminal investigations on the Financials sector: The bank isn’t losing its license and isn’t being forced out of business. If this is the precedent, it seems the feds have learned the lessons of the Arthur Andersen debacle in 2002.
|By William Mauldin and John W. Miller, The Wall Street Journal, 05/20/2014|
MarketMinder's View: It’s still too early to say if these indictments against Chinese military personnel for stealing trade secrets—or any of the other simmering spats—could lead to full-blown trade clashes between China and the US. If it did come to that, it would likely be a negative, with implications for the global supply chain.
|By Amy Kazmin, Financial Times, 05/20/2014|
MarketMinder's View: Newly elected Prime Minister Narendra Modi has certainly filled the public with hope—expectations are running sky high. But for investors, the key question is: How many of his promises will actually become reality? For more, see our 5/20/2014 cover, “A New Leader for India.”
|By Staff, BBC, 05/20/2014|
MarketMinder's View: UK inflation ticked up for the first time in 10 months to 1.8% y/y in April—driven largely by an increase in travel and fuel costs. Though wage growth didn’t quite keep up, that doesn’t mean the recovery in real wages is over before it really began. With growth continuing, there should be plenty of fuel for rising wages.
|By Rebecca Burn-Callander, The Telegraph, 05/20/2014|
MarketMinder's View: According to a recent study, “Between 2009 and 2011, 23 of the 41 areas home to 50 or more fast-growing firms were found outside the capital”—an interesting counterpoint to the widely held view that the UK’s recovery is a London-only phenomenon.
|By Brendan Conway, Barron's, 05/20/2014|
MarketMinder's View: Investors with more financial knowledge tend to achieve higher annual returns in their 401(k)s, according to a new study. “Is it because brainy people know the markets better? Not necessarily. Better-informed investors hold more equity exposure, the study finds, and equity investments have performed better over time”—a sensible explanation, in our view.
|By Staff, EUbusiness, 05/20/2014|
MarketMinder's View: Talk continues, but neither side expects swift progress on the potential EU/US free trade deal—they’re already saying the initial deadline of year-end 2014 looks too optimistic. This isn’t surprising, as big, multiparty deals usually take significant time to work out and often don’t come to fruition. While a US/EU deal would be an added positive, though, the status quo is just fine for stocks.
|By Brett Arends, The Wall Street Journal, 05/19/2014|
MarketMinder's View: Why? Evidently, because price-to-earnings ratios (P/Es) are lower outside the US—and, specifically, in Emerging Markets. It’s a classic mean reversion argument—but stocks don’t work like this. Nor are valuations predictive—including the cyclically adjusted P/E (CAPE), bizarrely referred to here as the price “in relation to company net assets.” Investing globally is important for diversification, but not for any of the reasons given here.
|By Christian Reiermann, Der Spiegel, 05/19/2014|
MarketMinder's View: In theory, charging banks to deposit money with central banks is an incentive for them not to hoard cash. But this doesn’t mean they turn around and lend aggressively, solving all the eurozone’s economic problems. Because the penalties for failing upcoming stress tests could range anywhere from capital raises to forced bank closures, banks have every incentive to deleverage and hoard capital. If the ECB penalizes them for cash, they’ll likely just withdraw reserves and snap up other highly liquid assets, like German bunds or Treasurys.
|By Staff, China Daily, 05/19/2014|
MarketMinder's View: China should benefit from the reforms outlined here—over time. Even if they are implemented quickly, structural changes tend not to have an outsized short-term impact. We wouldn’t expect a quick growth boost from these plans—that will come more from the continued, small-scale fiscal and monetary stimulus measures announced in recent weeks.
|By Eric Rosenbaum, CNBC, 05/19/2014|
MarketMinder's View: Target-date funds are indeed inherently flawed, and investing based upon your age alone is folly—but not because it doesn’t adequately capture “risk tolerance.” Nor should comfort with volatility be the primary driver of an investor’s portfolio strategy, contrary to what this piece suggests. It’s important, but in our view, goals should come first. Knowing the primary purpose for your money—and identifying the length of time you must be invested to meet these goals—is step one. Then comes weighing the tradeoffs between long-term return and expected short-term volatility in different asset mixes.
|By Christopher Hope, The Telegraph, 05/19/2014|
MarketMinder's View: Adding to the annals of unintended consequences, all the talk about addressing soaring London home prices seems to have fueled the very problem regulators are trying to solve. Now, this isn’t creating a bubble—it’s just pulling forward normal demand. But it speaks to the follies of intervening in free markets with price controls and other unnatural phenomena.
|By Alison Sider, The Wall Street Journal , 05/19/2014|
MarketMinder's View: This is an interesting look at how the Energy industry is creating and adapting new technology to address some of the environmental concerns about hydraulic fracturing. Not only do these advances improve the overall process of extracting hard-to-get oil and natural gas from shale deposits, but they broaden shale’s downstream economic impact. None of this likely moves the needle much in the near-term, but this phenomenon should be a very long-term positive.
|By Joao Lima, Bloomberg, 05/19/2014|
MarketMinder's View: A formality, but a noteworthy one nonetheless, and another sign of how far the eurozone has come since the heart of the debt crisis in 2011.
|By Tetsushi Kajimoto and Stanley White, Reuters, 05/19/2014|
MarketMinder's View: While March’s record-high jump in core machine tool orders is certainly noteworthy, it doesn’t automatically mean capital spending has the momentum to keep rising and offset the sales tax hike’s impact on consumer spending and overall output. Momentum isn’t an economic force, and this indicator is notoriously volatile from month to month. We won’t know how Japan fares under the higher tax until we have a broader data sample.
|By Robert Shiller, The Guardian, 05/16/2014|
MarketMinder's View: Passing laws to automatically hike high-income taxes as “inequality” widens isn’t a solution to “future financial disaster.” Income disparity isn’t an economic risk. Those who argue for taxing it away forget our existing progressive tax codes already do so, to an extent, something ignored by most inequality data collection efforts. Plus, the gap has nothing to do with inherited wealth or “fundamental economic forces capriciously redistributing income.” A lot of it is demographic—most make more as they get older and advance in their careers. For folks at the tippy top, high income is usually the reward for the high amount of risk they take, whether that’s starting a business or running a company where you’re criminally liable for any accounting or reporting errors (ahem, Sarbanes-Oxley). Social mobility and opportunity haven’t changed in decades—that’s what matters. These opportunities are what breed prosperity in free, capitalistic countries like the US and UK.
|By Nelson D. Schwartz, The New York Times, 05/16/2014|
MarketMinder's View: Apparently, because inflation inched up and small business owners are optimistic, it’s smooth sailing from here—which seems awfully bizarre to us. We expect the US economy to do just fine, but not for these reasons. Inflation isn’t a leading indicator. Rising prices don’t spur a virtuous cycle of spending and growth any more than falling prices fuel a spiral of stagnant spending and no growth. If that were true, deflation would precede every recession, the 1970s would’ve been hailed as a time of great prosperity and no economy with inflation would contract ever.
|By Alen Mattich, The Wall Street Journal, 05/16/2014|
MarketMinder's View: The thesis: Deflation means low interest rates, which will help make eurozone debt more sustainable. The problem: Deflation weighs on nominal GDP growth, driving debt ratios higher. Lower nominal GDP also means lower tax revenues, making debt less affordable. 15 years of deflation and shrinking nominal GDP (and a heckuva lot of fizzled fiscal stimulus) is what drove Japan’s gross debt over 220% of GDP. Oh, and that deflation came from bad monetary policy, not demographics.
|By Javier E. David, CNBC, 05/16/2014|
MarketMinder's View: Why shouldn’t they be high? Even with better fuel efficiency, demand is high. Meanwhile, because refining capacity is constrained and crude oil difficult and expensive to transport from shale fields to Gulf refiners, the shale boom hasn’t much boosted gasoline supply.
|By Michelle Jamrisko, Bloomberg, 05/16/2014|
MarketMinder's View: Between rising construction and more banks unloading foreclosures, it appears recent price gains are encouraging supply growth. Combined with still-firm demand, that should help the housing recovery to continue providing a small economic tailwind.
|By Jeremy Warner, The Telegraph, 05/16/2014|
MarketMinder's View: While the risks described here seem way overstated (as is the UK’s dependence on low rates and consumption), the larger issue is the overall thesis. It argues Britain needs the rest of the world to grow in order to get off “the merry-go-round of ultra-low interest rates and credit expansion, with repeated rounds of boom and bust.” History has overwhelmingly shown the UK, US, Japan and pretty much every globalized country on earth is vulnerable to the business cycle’s ups and downs regardless of growth in the rest of the world. No amount of global growth is going to fundamentally quash the gyrations of the business cycle.
|By Mark Schoeff Jr., InvestmentNews, 05/16/2014|
MarketMinder's View: No. One, mutual funds, asset managers and the like don’t have balance sheet risk—they aren’t banks. They just buy, hold and sell assets with their customers’ commingled funds. When folks redeem their funds, managers sell securities. Two, fund managers don’t move markets over meaningful periods. For every share they sell, there is a buyer. If a manager has to liquidate a big chunk of their holdings, it might temporarily boost liquidity and cause some price pressure if supply outstrips demand, but these things usually even out soon after. They don’t cause bear markets or financial crises.
|By Staff, Reuters, 05/16/2014|
MarketMinder's View: An interesting look at the latest debate in global regulation: whether to force the world’s biggest 29 banks to hold an extra layer of capital in the form of so-called bail-in bonds, which would force creditors to be on the hook for losses if a bank went under. Until the proposed rule is released for comment in November, it’s all just talk—but it isn’t the most sensible plan, in our view. One, it would just make big banks even bigger—the safer you look, the more deposits you get—which is the opposite of what regulators want. Two, governments could still feel compelled to bail out a tottering giant, if they believed financial stability were at risk.
|By Charles Paikert, Financial Planning, 05/16/2014|
MarketMinder's View: Yield-chasing is a misguided tactic. It gives investment income too much weight, usually at the expense of the investor’s long-term goals. If you need your portfolio to generate cash flow over your entire retirement, you probably need some growth to avoid running out of money too soon. What matters most there is your portfolio’s total return over time—it’s ok to sell securities to meet your day-to-day needs. The notion that you can’t touch principal is a dangerous myth.
|By Jiang Xueqing, China Daily, 05/16/2014|
MarketMinder's View: Chinese banks’ nonperforming loan ratio ticked up a bit to 1.04%—yes, the highest level since 2008, but still ultra-low. Banks might suffer some losses, and the government might not step in, but this is just part of China’s transition to a more market-oriented economy—a long-term positive.
|By Henry Samuel, The Telegraph, 05/16/2014|
MarketMinder's View: A new law, taking effect today, gives France’s government veto power over foreign acquisitions of firms in industries deemed “strategic,” like energy, telecom, health care and transportation. A small rise in protectionism isn’t great, but many countries have used national security as an excuse to block mergers for years—the likelihood this causes other countries to act any differently (i.e., trade war) seems minimal.
|By Mark Gilbert, Bloomberg, 05/15/2014|
MarketMinder's View: There are parts of this we see very differently than this—namely, the fact that the housing bubble wasn’t directly responsible for the Financial Crisis. But there is one very salient point worth considering in here, in our view: The “zig-zag-zig” of the government’s approach with respect to the decision to bailout Bear Stearns, let Lehman fail and then bail out AIG were incomprehensible to the market participants and drove significant uncertainty, freezing credit markets. This haphazard behavior characterizes the government’s response in the crisis. For more, see Elisabeth Dellinger’s Investor’s Business Daily column, “Hunting Bubbles With Janet Yellen.”
|By Stefan Riecher, Bloomberg, 05/15/2014|
MarketMinder's View: Though Germany, the eurozone’s largest economy, expanded +0.8%, others fell, including a -1.4% fall by the Netherlands. But the region still grew +0.2% overall, making this the fourth straight quarter of growth. And in an economic bloc with 18 different countries varied growth rates are to be expected. One quarter of weaker data doesn’t necessitate ECB intervention, which could easily be more harmful than helpful to the recovery.
|By Charles Riley, CNN Money, 05/15/2014|
MarketMinder's View: Japan’s Q1 numbers look hot largely because April’s consumption tax pulled a lot of consumer spending forward, resulting in an impressive-looking Q1 figure of 1.5% growth (and a 5.9% annual rate). It’s expected Q2’s figures will be much lower as spending was pulled forward to front run the tax hike. More notable for investors: Prime Minister Shinzo Abe’s continued struggles to implement meaningful structural reforms that would boost long-term competitiveness and growth.
|By Michael Sincere, MarketWatch, 05/15/2014|
MarketMinder's View: This article smacks of fear of heights and attempts to predict the future using solely past performance. What’s more, it seems a tad confused about what typical bull market peaks look like: You can’t make new record highs in a bear market, and typically, there is widespread euphoria at the time—not waffling analysts on TV. All in all, we take this as a bullish sign that despite growing optimism, many still have doubts about this bull. For more, see our 5/6/2014 commentary, “Searching for Meaning in Bouncy Times.”
|By Eswar Prasad, Project Syndicate, 05/15/2014|
MarketMinder's View: “China has a long way to go before its currency can rival—let alone displace—the US dollar as the dominant global reserve currency.” We agree. While the marketplace for the yuan has slowly been expanding, it doesn’t come close to supplanting the US dollar. Further, just recently foreign holdings of US Treasurys hit record highs. That said, the growing prominence of other foreign currencies, like the yuan and euro, is ultimately a positive for the global economy, as it shows increasing openness in the global financial system. For more, see Elisabeth Dellinger’s column, “The Tale of the Dollar’s Demise.”
|By Ambrose Evans-Pritchard, The Telegraph, 05/15/2014|
MarketMinder's View: While we disagree that the Fed’s quantitative easing (QE) program had a material impact on India, the larger takeaway is sensible: internal issues, from outdated (or even nonexistent) infrastructure to a bloated, corrupt and ineffective political system prevent modernization and openness to trade and investment. Expectations domestically of new Prime Minister Narendra Modi seem a bit lofty to us. Though admittedly, the bar reality needs to clear is low for positive surprise. All in all, this just illustrates why reforms have been a key swing factor for Indian stocks in recent years. That likely continues under Modi. For more on India, see Mary Holdener’s column, “Let Them In(dia)!”
|By Rana Foroohar, Time, 05/15/2014|
MarketMinder's View: The argument here eschews the teaching that inflation is “always and everywhere a monetary phenomenon,” instead seemingly arguing inflation is a job growth and labor force phenomenon. It posits continued job growth combined with dropouts from the labor force will cause a tighter labor market and higher wages, driving hotter inflation—and this could prompt the Fed to raise interest rates, which may, in turn, affect the economic recovery. Unless, that is, labor force dropouts return. But the link between unemployment and inflation was disproven decades ago, suggesting this thesis is a wee bit off, and the notion the Fed can really move the needle on employment gives them far too much credit.
|By Liz Skinner, Investment News, 05/15/2014|
MarketMinder's View: “The dominant determinant of real-life, long-term investor outcomes is not investment performance, it’s investor behavior.” We agree—investors often struggle to remain properly long-term focused—good times beget lustful greed while bad times produce irrational fear. Both can be detrimental for investors trying to reach their long-term goals—a good adviser cannot simply act as a yes man or woman.
|By Andrea Wong and Andrea Jaramillo, Bloomberg, 05/14/2014|
MarketMinder's View: We find this article interesting for what it says of false fears of the dollar losing its status as the world’s most favored reserve currency. Frequently, those arguing the dollar’s doom looms presume Emerging Markets will be the culprits. However, we find this quote helps put it all in proper perspective: “The 12 developing nations with the biggest foreign reserves outside of China added $34 billion in the past three months, lifting their combined holdings to $2.98 trillion on April 30, the most since Bloomberg began compiling the data in 2008.” China added, too—it’s just their holdings are so huge as to skew the series.
|By Liam Denning, The Wall Street Journal, 05/14/2014|
MarketMinder's View: There is increasing talk in the media the US government may relax a nearly 40-year old ban on exporting US crude oil. While the concept is interesting and a potential positive for Energy firms, it’s a long, long way from completion despite the “We’ll consider it” from Energy Secretary Ernest Moniz. Politicians are slow to act—even slower in election years when they focus on more easy-to-message and popular campaigns to secure seats.
|By Ambrose Evans-Pritchard, The Telegraph, 05/14/2014|
MarketMinder's View: We agree the UK isn’t seeing a housing bubble—but rather, a shortage with “the proper answer being to build houses.” But recommending the use of macroprudential policies (aka bubble-hunting) is a questionable proposal. Central banks have no track record proving they can identify, never mind pre-emptively pop, price bubbles. (Not even command-economy China has had much success.) And toying with one part of an economy could easily bring unintended consequences elsewhere.
|By Linda Yueh, BBC, 05/14/2014|
MarketMinder's View: This is just the latest iteration of Chinese hard landing fears, which have been prevalent for over three years. The Chinese housing market’s cooling some in recent reports amid tighter Chinese credit has some fearing big fallout for the Chinese financial system a la what many perceive to have happened in 2008 in the West. But the reality is the 2008 global financial crisis wasn’t a direct result of falling home prices, and China’s financial system poses little threat. The nation has a propensity to recapitalize banks using some of its $3 trillion in foreign currency reserves to hedge off a crisis. It’s likely they would do so again, in the unlikely event it’s needed.
|By Isis Almeida, Bloomberg, 05/14/2014|
MarketMinder's View: Here is one big reason the Russia-Ukraine tensions likely remain isolated: natural gas. Russia’s economy is extremely dependent on energy, and restricting the market for Russian gas could do some serious damage. Europe, which gets about a third of its energy from Russia, understands this, too. Ultimately, an escalating crisis would be “lose-lose” for both sides, and world leaders likely respond with little more than wrist-slaps and blacklisting.
|By Victoria Stilwell, Bloomberg, 05/14/2014|
MarketMinder's View: That wholesale prices’ +0.6% m/m rise in April was their biggest in a year is telling about inflationary pressures. They’re low, but positive—a good sign deflation is unlikely. And as this article points out, wholesale prices usually take a while to impact consumer prices. Inflation, though we suspect it rises some over the next year or so, shouldn’t runaway soon, either.
|By Staff, Associated Press, 05/13/2014|
MarketMinder's View: After retail sales jumped higher than expected in March, +1.5%, April’s advanced reading might seem disappointing at +0.1% m/m. Whether or not the late Easter holiday is why sales slowed, as theorized here, it’s hard to argue the year-over-year growth rate of +4% is a sign of a cooling economy.
|By Staff, Reuters, 05/13/2014|
MarketMinder's View: Another jump in mortgage lending drove the rise—an interesting development after an industry survey last month suggested mortgages tanked. Just another episode illustrating surveys aren’t terribly meaningful gauges of actual economic activity. As for the actual rise, it’s good news. Household lending had fallen consistently from 2008 through Q2 2013. Q1’s rise is more evidence bank lending is turning the corner.
|By In-Soo Nam and Sarah Kent, The Wall Street Journal, 05/13/2014|
MarketMinder's View: Ending a ban enacted in 1975 as a reaction to the oil crisis seems rational, in our view—conditions now are a far cry from then. Today, production is up thanks to the shale boom, and refiners don’t have the capacity to handle it all. Allowing exports would ease some big bottlenecks and, despite many fears otherwise, it wouldn’t automatically cause prices to skyrocket—global supply and demand forces matter far more for prices.
|By Chuck Jaffe, Market Watch, 05/13/2014|
MarketMinder's View: The article points out several pitfalls investors may fall prey to—like believing capital preservation and growth are possible to target simultaneously, believing it’s possible to achieve “stable” returns through bull and bear markets alike, and relying too heavily on “gut instincts.” Achieving any level of return requires taking some risk—it’s a tradeoff. Understanding this and setting rational goals and expectations is crucial for investors of any age and in any financial situation.
|By Melanie Hicken, CNN Money, 05/13/2014|
MarketMinder's View: The “mistake” in question, apparently, is investing only a fraction of your 401(k) in target-date funds. In our view, though, the real mistake is investing any money in these funds! They’re packed full of flaws: They misperceive time horizon, ignore the time value of money and—especially damning—they often don’t mesh with the investor’s long-term goals and objectives.
|By Staff, Xinhua, 05/13/2014|
MarketMinder's View: Retail sales are one of the many Chinese indicators that slowed but still rose at a perfectly enviable pace in April. Jitters persist, but markets have had three years to get used to a slowing Chinese economy.
|By Kasia Klimasinska, Bloomberg, 05/13/2014|
MarketMinder's View: Rhetoric is heating up in some corners, but the likely economic impact of sanctions remains tiny. For one, measures appear extremely unlikely to go beyond the current blacklists and finger-wagging—self-interest is preventing more sweeping sanctions on entire industries. Eastern Europe and Baltic states need Russian energy, France wants revenue from selling warships to the Russian navy, and the UK doesn’t want its financial sector hurt by bank sanctions.
|By Brett Arends, MarketWatch, 05/12/2014|
MarketMinder's View: While this article goes a bit far in suggesting markets are inefficient—they can be, but are overall very efficient in the longer term—in our view, it does ably illustrate the lack of a stock market bubble today: “The fourth characteristic of a bubble is not simply that there are Jeremiahs warning people, but that people pay them absolutely no attention whatsoever.” We aren’t seeing much evidence folks are ignoring or making fun of negative nellies today.
|By Alex Rosenberg, CNBC, 05/12/2014|
MarketMinder's View: The conclusion here—that inflation likely ticks up a tad in the next 12 to 18 months, but is unlikely to be alarmingly hot—is sensible enough. However, the focus on wage gains and commodity prices overlooks the real driver: As Milton Freidman famously said, “Inflation is always and everywhere a monetary phenomenon.” With the Fed slowing its bond buying, pressure on long-term rates should ease, driving a wider gap between short- and long-term interest rates. As this is a proxy for banks’ funding costs (short-term rates) and loan revenues (long-term rates), wider spreads incent more lending. More lending means more actual money creation. More money creation likely means higher inflation and faster economic growth.
|By Mohamad El-Erian, Bloomberg , 05/12/2014|
MarketMinder's View: This reads like a laundry list of widely known issues folks have feared would drive volatility for the better part of 2014, yet all we’ve gotten are a few wiggly-wobbly, bouncy periods. Instead of overanalyzing factors that are either: a) too old, b) too small or c) entirely false—like forward guidance—we’d suggest focusing on the broader reality. Corporate profits are high and rising based on rising revenues; the global economy is growing fine; leading economic indicators around the world suggest it will continue to grow as well, a tailwind to corporate profitability.
|By Barry Eichengreen, The Guardian, 05/12/2014|
MarketMinder's View: Maybe some eurozone economies are still suffering from structural issues, but that doesn’t mean the crisis isn’t over. From an investor’s perspective, this suggests the wall of worry remains—fuel for more bull market ahead.
|By Anatole Kaletsky, Reuters, 05/12/2014|
MarketMinder's View: We agree investors should disregard the old “Sell in May” adage, but not because “it’s different this year”—rather because the adage is incorrect in the first place. There is simply no seasonality to markets, as taking a much broader view of the data than just four years shows. What about 2009? And last year, stocks wiggled a wee bit in the summer, but they rose 10% during the period April 30 - October 31. It is a bit bizarre to focus only on the volatility and not the return that comes with it. It will always take more than a calendar to forecast stocks. For more, see our 5/2/2014 cover story, “Stay in May.”
|By Joe Earle, The Guardian, 05/12/2014|
MarketMinder's View: Actually, all these statistics point out is the recovery is very nearly over—the UK economy is a hair below its pre-recession peak. Any growth from there would technically be considered expansion. The figures cited here all center on jobs growth and wages, which are typically late-lagging indicators of economic health that follow growth instead of lead it. For investors, it’s worth noting all this is backward-looking—what matters more is the UK expansion likely continues, providing bull market fuel.
|By Staff, Investment News, 05/12/2014|
MarketMinder's View: Whether or not FINRA is able to catch unnecessary transactions that aren’t in the best interest of annuity holders remains to be seen, but in our view, this is the latest of many reasons to be extremely careful when approaching annuities. It also illustrates the fact investors should do their homework before determining if an annuity is the most appropriate investment. These are hard products to understand and, as the old adage goes, are more often sold than bought.
|By Staff, Xinhua, 05/12/2014|
MarketMinder's View: While incremental, here’s another step China’s government is taking to keep its promise of liberalizing its financial markets: The People’s Bank of China (PBOC) will gradually offer negotiable certificates of deposit, allowing rates to be set by the market. It’s a long road, but allowing China’s financial markets to be more market oriented is a plus in the long-term.
|By Peter Dreier, The New York Times, 05/09/2014|
MarketMinder's View: The notion that 9.8 million underwater homeowners means 9.8 million foreclosures loom is a bizarre presentation of the statistic. Being underwater has no bearing on your ability to afford the loan. Second, the banks aren’t to blame for the incidence of underwater homes. In a free market, prices rise and fall—sometimes, folks get overexuberant and prices rise too much, then they fall a whole lot. Did banks get too easy with credit? Heck yes. But we’re pretty sure there wasn’t a cabal of bankers chuckling at jokes about falling high-end wine prices and country club membership as home prices cratered.
|By Mohamed A. El-Erian, Bloomberg, 05/09/2014|
MarketMinder's View: Economies aren’t spaceships, but the analogy isn’t the only flawed logic here. What central bankers say just doesn’t matter—what they do is the key. Central banks aren’t supposed to telegraph their every move or try to manage every corner of the economy. Traditionally, they manage the money supply according to their varied growth and inflation targets, and they stand ready as lender of last resort. Economies are usually best off if they just stick to basics.
|By Richard Dyson, The Telegraph, 05/09/2014|
MarketMinder's View: Throughout this discussion of legal and regulatory matters runs a key theme: Investors and regulators alike wrongly believe cash is somehow safe. Sure, cash isn’t subject to the same daily volatility and risk of loss as stocks, bonds and other securities. It is, however, extremely vulnerable to inflation over time. The longer cash sits idle while inflation continues, the more purchasing power it loses. For most folks, reaching their long-term financial goals requires at least some risk—it’s the tradeoff for the long-term returns they need.
|By Michael Schuman, Time, 05/09/2014|
MarketMinder's View: In addition to the reasons listed here (bizarre calculations, occasionally suspect inputs, constant revisions), we’d add another: Economic data are backward-looking! Every GDP, unemployment, home sales, business investment, consumer spending and inflation report tells you what happened in one period, and that period will always be in the past. Markets are forward-looking. Economic drivers matter, but by the time data are released, markets have already moved on the activities tallied.
|By Paul Krugman, The New York Times, 05/09/2014|
MarketMinder's View: “In reality, here is the full list of countries for whom a fiscal irresponsibility story of the euro crisis makes any sense at all: Greece.” The notion all these nations overspent, causing a euro-area-wide budget crisis is incorrect. For more, see our 09/26/2011 commentary, “Differentiating Europe’s Periphery.”
|By John D. McKinnon, The Wall Street Journal, 05/09/2014|
MarketMinder's View: Seems to us this is a potential election year debate that will not go away any time soon—but Congress has a way of eventually renewing (and retroactively applying) tax breaks like this. Though it wouldn’t surprise us if this turned into R&D Cliff by the time the summer comes. It’s the sort of issue legislators love to hype and campaign on.
|By Denise Roland, The Telegraph, 05/09/2014|
MarketMinder's View: Inflation is always and everywhere a monetary phenomenon, not a kinetic one. A slowing inflation rate doesn’t mean price gains are losing energy and might soon fall off into deflation. Deflation happens when central banks suck money out of a weak economy. Not when an economy is growing over 7% annually and the money supply rising double digits. Nor do falling prices trigger recession.
|By Richard Barley, The Wall Street Journal, 05/09/2014|
MarketMinder's View: Should two entirely different countries have the exact same GDP growth rate? Should they boast the same unemployment rate? Is one country’s growth rate exceeding the other’s over the last five years by six percentage points a big gap? If so, does it indicate anything forward looking? Lastly, does growing slowly indicate an ailing economy? These are the thoughts that ran through our minds as we read this very backward-looking comparison of two eurozone nations.
|By Katie Allen, The Guardian, 05/09/2014|
MarketMinder's View: No, we didn’t accidentally pull this one from the archives—the publication date is May 9, 2014. Years after the recession ended and on the heels of developed world-leading economic growth. The stats and trends discussed here are simply signs of the UK’s broadening, continuing recovery.
|By Staff, The Yomiuri Shimbun, 05/09/2014|
MarketMinder's View: While it’ll take more than agricultural reform to return Japan to economic powerhouse status, it’s a start. Raising caps on corporate investment in farming should help create a more modern, efficient agricultural sector. Whether more reforms will follow, however, only time will tell. The small-time farmers that make up the ruling Liberal Democratic Party’s power base probably won’t like this change, which suggests Prime Minister Shinzo Abe isn’t entirely unwilling to risk his popularity in pursuit of reform, but other politically difficult measures remain on ice for now.
|By Staff, EUbusiness, 05/09/2014|
MarketMinder's View: We’re a touch confused by all the fuss over Portugal’s intent to leave its bailout program without a precautionary line of credit from the EU/IMF in place. If Portugal hits a rough patch and needs help, won’t markets’ reaction be largely the same whether it’s tapping an already-negotiated credit line or haggling over a new one? Trouble is trouble. Outside help is outside help. Differentiating the two is pure political folly.
|By Adam Lashinsky, Fortune, 05/08/2014|
MarketMinder's View: This offers interesting ethical perspectives, but the “evidence” of a tech bubble is entirely anecdotal. While optimism and IPOs are picking up, so are revenues and profitability. This isn’t 2000, when every dotcom could make investors go hog-wild regardless of its business model or financials—now, folks are scrutinizing balance sheets, and firms aren’t flying nearly as high out of the gate. The environment today reminds us more of the mid-1990s. When investment bankers heavily promote slop simply to take advantage of rising optimism, in our experience, is when it’s time to get wary.
|By Chiara Albanese, The Wall Street Journal, 05/08/2014|
MarketMinder's View: Frontier markets may have promising demographics that bode well for long-term economic growth, but long-term projections, GDP or demographics don’t do much good for investors—political drivers matter, and many Frontier Markets are loaded with political risk. And just because a country is loaded with “potential” doesn’t make it a sound investment. See China, which boasts the world’s second largest economy but a lackluster equity market.
|By Stefan Riecher, Bloomberg, 05/08/2014|
MarketMinder's View: Will ECB Chief Mario Draghi launch some “extraordinary” trick like negative deposit rates or quantitative easing in June? Who knows. The last time he made a grand pronouncement, he subsequently announced a program that the ECB has still never used. Maybe he follows the same blueprint this time, maybe not—you can’t predict human decisions. In our view, though the best thing the ECB could do is nothing—just wait for stress tests to pass so banks can stop deleveraging and start lending. For more, see our 04/30/2014 commentary, “Inflating Eurozone Deflation Concerns.”
|By Staff, Xinhua, 05/08/2014|
MarketMinder's View: More specifically, exports were up 0.9% over April 2013’s artificially inflated number. Imports were up, too, rebounding from the pounding they took in March. Together, these are two more data points suggesting rumors of a hard landing were greatly exaggerated.
|By Allan S. Roth, Financial Planning, 05/08/2014|
MarketMinder's View: Prospect theory—the idea that humans feel the pain of loss is about two and half times greater than the joy of gain—is a powerful way to help investors understand their emotional reactions to market volatility. However, applying that to asset allocation decisions is a bridge too far. Your long-term strategy should be based on your long-term goals, time horizon, ongoing needs and other similar factors. Comfort with volatility—the tradeoff for long-term growth—is worth considering, but investors shouldn’t pick an asset allocation solely because they think it’ll make them feel better when times get rough. Doing so carries big opportunity costs.
|By Robert Peston, BBC, 05/08/2014|
MarketMinder's View: It’ll depend on when the BoE hikes rates and what the conditions are at the time. Rate hikes aren’t inherently bad or good. It’s more whether the actual decision is appropriate. We can’t predict that—only weigh matters after the fact. As for the UK setting the blueprint for the US and eurozone, perhaps conditions in America and across the Channel will be analogous to Britain. But maybe not. It would be folly to assume the US and eurozone would respond to rate hikes in the same way.
|By Rob Wood, The Telegraph, 05/08/2014|
MarketMinder's View: The title is sensible enough, but suggesting the BoE make it more difficult to purchase a house through more stringent affordability tests is largely a solution in search of a problem. The UK doesn’t have a housing bubble. It has a housing shortage in London. Intervening to limit demand there wouldn’t encourage supply growth, which is what would ultimately benefit real estate markets in the city (and country) the most.
|By Allan H. Meltzer, The Wall Street Journal, 05/07/2014|
MarketMinder's View: There are some sensible points here—namely, inflation is indeed a monetary phenomenon, not a function of unemployment. But the thesis, evidence and conclusion are off base. Food prices aren’t a leading indicator of inflation—they’re very often a function of weather and seasonal factors, which is a big reason why the Fed excludes food prices from its inflation analysis. Nor is quantitative easing “printing money” or the Fed financing runaway US debt—deficits are way down since the program started. It’s just a misguided tactic the Fed used to try to boost the money supply and lending by pumping out excess reserves and making borrowing cheaper—boost demand for credit. In doing so, they made lending less profitable and crushed supply. As it winds down, lending should pick up, but it’s premature to speculate over the impact on inflation.
|By Matt Egan, CNN Money, 05/07/2014|
MarketMinder's View: In short, yes. But not because high frequency trading (HFT) exists. Market volatility is normal and happens for any number of reasons, and trading errors aren’t unique to algorithms. The possibility HFT could be involved with a future intra-day drop (that likely shortly recovers as we saw in 2010) does not outweigh its very real benefits: making markets more liquid and efficient. For more, see our previous HFT commentary.
|By Robert Peston, BBC, 05/07/2014|
MarketMinder's View: Though the eurozone, especially its periphery, has come a long way in the last year, many worry a growing euroskeptic movement may change the balance of power in the European Parliament and stall progress toward tighter integration. But euroskeptics likely aren’t plentiful or powerful enough to offset the pro-euro vote—and the recently adjourned Parliament just passed a number of outstanding integration proposals. Even if euroskeptics gain more seats, political will to preserve the euro should prevail.
|By Staff, Bloomberg, 05/07/2014|
MarketMinder's View: Land sales, a major source of local government revenue, fell -5% y/y in 20 major Chinese cities in March, refreshing hard-landing fears. The fall isn’t too surprising. Officials have been cracking down on shadow financing, a big funding source for property developers. Perhaps this does put some pressure on local finances, but considering China has over $3 trillion in foreign exchange reserves and every incentive to keep the economy relatively stable—and various other data show China’s overall local debt load is not a major national economic risk—any troubles should be well contained.
|By Richard Dyson, The Telegraph, 05/07/2014|
MarketMinder's View: As the map here shows, the UK is not experiencing a housing bubble: Home prices in the majority of the country remain well below their previous peaks. London and its surrounding areas are seeing much higher prices, but that’s a function of (limited) supply and (hot) demand—reining in prices wouldn’t change that, but it would distort the market, a negative in our view.
|By Staff, Xinhua, 05/07/2014|
MarketMinder's View: Last month, China announced targeted stimulus measures, including halving some small (read, private) firms’ income taxes. Wednesday, details were announced, and the scope of the tax cut is better than initially expected—likely impacting 2 million (of 11.7 million) small firms. Though China’s private sector still faces a number of headwinds (i.e., a general lack of financing), this is likely a step in the right direction.
|By Lucia Mutkani, Reuters, 05/07/2014|
MarketMinder's View: Weather may have had some negative impact on worker productivity in Q1 (-1.7% y/y), but like GDP’s much lower than expected reading, the story likely ends there. Short-term data are volatile, and productivity isn’t a leading economic indicator. It normally rises and falls throughout an expansion as businesses alternately get more efficient, reach the limits of past efficiency gains, hire more, produce more, etc.
|By David Leonhardt, The New York Times, 05/06/2014|
MarketMinder's View: This discussion is long on what-ifs and guessing and short on evidence. As in, there is exactly one piece: The cyclically adjusted price-to-earnings ratio (CAPE), which happens to be at a level that, coincidentally, has preceded some yucky times for markets—weak evidence, in our view. Assuming any valuation is predictive is folly—there is no evidence high P/Es are bad for stocks or low P/Es are good—but CAPE is particularly bad. It ignores business cycles, uses suspect data (only returns post-1926 have been deemed historically accurate), and assumes the last 10 years forecast the next 10. That’s a huge fallacy. For more, see Michael Birnbaum’s 10/8/2013 column, “Smoothed O‘PE’rator.”
|By Martin Crutsinger, Associated Press, 05/06/2014|
MarketMinder's View: Trade deficits alone tell you nothing about how an economy is doing. The US could get a $40.4 billion trade deficit if it had exactly zero exports and $40.4 billion in imports—or $2 trillion in exports and $2.0404 trillion in imports. What’s more telling of overall economic health is total trade, which rose: Both exports and imports ticked up, rising 2.1% m/m and 1.1% m/m, respectively.
|By Staff, Reuters, 05/06/2014|
MarketMinder's View: Overall, Greece’s privatization effort has moved at a snail’s pace—until earlier this year, they’d privatized more privatization program officials than state-owned assets. However, following Greece’s successful bond auction last month, international investors are starting to show a renewed interest in Greek ports, railways, airports, island resorts and other real estate assets—another small but noteworthy sign of improving sentiment.
|By Claire Jones, Financial Times, 05/06/2014|
MarketMinder's View: The eurozone composite output PMI hit 54.0 in April, the highest level in three years, and its services PMI hit 53.1 (readings above 50 signal expansion). Core France and Germany both registered growth, but so did once-struggling peripheral nations Portugal, Ireland and Spain—more data supporting the ongoing and broadening eurozone recovery.
|By Staff, The Telegraph, 05/06/2014|
MarketMinder's View: The UK’s big service sector picked up again in April as PMI jumped up to 58.7 from March’s 57.6—more evidence the expansion has plenty of traction.
|By Staff, Associated Press, 05/06/2014|
MarketMinder's View: Europe’s financial transactions tax took a tiny step forward as 10 of the 11 original participants agreed to launch it by 2016, but plenty of details remain undecided, and another UK legal challenge is likely forthcoming. So there is still a small chance this tax and all its unintended consequences don’t see the light of day. We still think it’s a misguided venture. One, while it claims to tax banks, it really taxes the consumers, pensioners and savers banks will inevitably pass it on to. Two, it makes financial services in the participating countries less competitive, potentially causing some capital markets activity—like stock and bond issuance—to flee.
|By Larry Elliott, The Guardian, 05/06/2014|
MarketMinder's View: Hopefully not! Deflation usually happens when money supply falls, and quantitative easing (QE) tends to make money supply do just that. In both the US and UK, QE whacked lending and caused broad M4 money supply to fall for long stretches. They escaped deflation. But the eurozone, where bank lending is already suffering as banks hoard cash to prepare for stress tests, might not be so lucky.
|By Andy Roberts, CNBC, 05/06/2014|
MarketMinder's View: While this makes some important points—chiefly, that your adviser should get to know YOU—it vastly oversimplifies the due-diligence process. An adviser’s number of years in the business, client demographics and average client net worth tell you NOTHING about whether they’re the right or best adviser for you. More important—and not mentioned here—are their values, investment philosophy, expertise, resources, long-term track record and a demonstrated ability to put their clients first.
|By Kathleen Madigan, The Wall Street Journal, 05/05/2014|
MarketMinder's View: The US’s services sector—the vast majority of the US economy—clocked another month of expansion in April, accelerating to 55.2 from 53.1 and topping analysts’ estimates in the process. The forward-looking new orders gauge was particularly noteworthy, rising nearly five percentage points to 58.2. This is yet more evidence Q1’s weak GDP reading was an anomaly.
|By John Ficenec, The Telegraph, 05/05/2014|
MarketMinder's View: We debated including this one because we just plain didn’t know where to start. Here’s a stab, though: Markets are cyclical, not seasonal—warm weather isn’t bad for stocks. The data about the length of bull markets is incorrect, and even if it were accurate, bull markets don’t die of age. “Markets don’t keep rising forever” is of course true, but not analysis. Markets do not fall because they reached an arbitrary point, like a new record high. The take on QE here is vastly overstated, considering markets reacted to it in May 2013 and rose substantially over the rest of the year. And the conclusion here focuses on dividends and misses the impact of total return. Finally, here’s a nitpicky thing: In the first sentence, readers are told May is “the weakest” month of the year for stocks. Two paragraphs later it is “one of the weakest.” Which is it? The latter turn of a phrase contradicts the former—and it’s unclear. It could mean May is one of the 12 weakest months of the year.
|By Robert Samuelson, Real Clear Markets, 05/05/2014|
MarketMinder's View: Yes, bubbles are a function of mass psychology. So it’s a tad funny to use the fact some folks think we have bubbles left and right as evidence we do. Or that they occur any more frequently than they did in the past. That seems to indicate, you know, skeptical sentiment—not bubbly. The history here is also off: Japan, in the 1990s, peaked with a bubble. The US Energy sector was home to a 2000-like bubble in the early 1980s. One could argue events like the US Gold Rush peaked with a bubble, too. (2008’s housing bubble, in our view, wasn’t the culprit for the downturn then, either.) Finally, we are skeptical of any government’s ability to diagnose and then preemptively prick a bubble that they’ve declared exists. That sounds terrible.
|By Staff, Reuters, 05/05/2014|
MarketMinder's View: China’s HSBC manufacturing index—which doesn’t measure huge, state-run businesses—has been in contraction for months now, and while it’s slowed some, China’s economic growth has exceeded 7% y/y throughout and their contribution to world output is enormous, even at these slower rates. All in all, PMI gauges alone won’t tell you much about any economy, as they only register the percentage of firms reporting any growth. They don’t tell you the magnitude. What we take from this report is largely that tight access to credit continued to hurt smaller Chinese firms in April.
|By E.S. Browning, The Wall Street Journal, 05/05/2014|
MarketMinder's View: In our view, the trouble here is three-fold: It’s based on past market performance (2013’s gains won’t be repeated); a myopic look at the market reaction on one day to one lagging economic indicator (unemployment); even a less myopic view of unemployment shows it isn’t a good forecasting tool for stocks. To us this is just another example of lingering skepticism. But for investors, that euphoria is still absent means the bull likely continues.
|By Larry Summers, The Washington Post, 05/05/2014|
MarketMinder's View: We largely agree—but for entirely different reasons. If, by austerity, you mean spending cuts and tax hikes, the fact is Britain hasn’t been austere. They’ve lowered some taxes and increased others. Future rates of spending growth have been cut. So no, austerity can’t be proven to work by Britain. For that you need to look to the US, where we’ve cut government spending for quite a few quarters in a row now, and yet growth lives.
|By Dan Strumpf and Matt Jarzemsky, The Wall Street Journal, 05/05/2014|
MarketMinder's View: We’d suggest stocks have plenty of fuel from positive fundamentals (rising corporate profits, retail sales and consumer spending to name a few), but more cash-based M&A activity should provide an additional boost looking ahead. As the article notes, “To some investors, the pickup in deals is long overdue, given huge cash hoards companies amassed after the financial crisis. Companies in the S&P 500 held a record $1.3 trillion in cash or short-term securities at the end of last year, according to the S&P Dow Jones Indices.”
|By Jan Strupczewski, Reuters, 05/05/2014|
MarketMinder's View: Maybe they do, maybe they don’t. But the EU’s governing Maastricht treaty target of 3% deficit-to-GDP is rather arbitrary, in our view—there’s no evidence such a deficit level assures market or financial troubles loom. Second, despite potentially missing the target, a 3.4% deficit to GDP is still lower than, you know, the entire EU average at many points in the last four years.
|By Norb Vonnegut, The Wall Street Journal, 05/02/2014|
MarketMinder's View: While so-called robo-advisers—automated online financial advice—have gained market share, in our view (and as this piece highlights), they aren’t an improvement. Simply, robots can’t know you. They can’t get to know your long-term goals, cash flow needs and the why behind them. They can’t tell you whether you’re accurately estimating your investment time horizon. Their recommendations are based on algorithms whose inputs often include rules of thumb and industry mythology, like age-based asset allocation. They might be cheaper up front, but the long-term opportunity cost of a strategy that doesn’t match your goals—and a lack of ongoing counsel—can be devastating.
|By Matt Levine, Bloomberg, 05/02/2014|
MarketMinder's View: The title is tongue-in-cheek, of course. The exchange wasn’t fined for rigging anything or allowing dirty deeds. Rather, they were dinged for not filing appropriate written policies and procedures for things like its error account (where boo-boo trades are booked in order to resolve errors without impacting the customer) or rules and guidelines for third-party traders who operate on the exchange’s floor (so-called co-location). These are administrative snafus—they don’t impact the market’s functioning.
|By Alex Andreou, The Guardian, 05/02/2014|
MarketMinder's View: The UK doesn’t have a housing bubble. London has a housing shortage. There is a big, big difference. People aren’t bidding up London homes because they’re seen as “safe” investments with “ever-rising value.” Not five years after a deep housing crisis. Rather, they’re competing for a very limited commodity. What would benefit the city (and country) most isn’t radical interest rate jiggering and price controls, it’s measures to encourage supply growth.
|By Katherine Rushton, The Telegraph, 05/02/2014|
MarketMinder's View: They are—at least, as best as they understand it (presumably) based on the data available. That the Fed statement said economic activity had “picked up” mere hours after data showed GDP nearly flatlined in Q1 is coincidence, not evidence of inside scoop. The Fed was referring to the many publicly available data releases showing the US accelerated in April, continuing its rebound from a harsh winter. Any additional evidence, judging from the patterns shown in past transcripts, is likely anecdotal, based on Fed members’ conversations with bankers and shopkeepers.
|By Philip Shishkin, The Wall Street Journal, 05/02/2014|
MarketMinder's View: Though the conflict is escalating and devastating for all involved, from a market standpoint, nothing has changed: It’s still very localized and centered within an economically tiny area. It takes something huge and global to disrupt bull markets, and the likelihood this conflict gets big enough seems infinitesimal.
|By Jonathan Soble, Financial Times, 05/02/2014|
MarketMinder's View: No shock there. Given the acute political sensitivity over nuclear, those last safety checks are going to be extra tough. Even the new autumn target might prove optimistic. If nuclear power plants ever do go back online, however, Japan would benefit—energy imports would go way down, easing huge price pressures on businesses and households.
|By Joe Light, The Wall Street Journal, 05/02/2014|
MarketMinder's View: This is a sign of sentiment and nothing else—new money isn’t a market driver. It just means investors are moving on from the deep pessimism that marked this bull’s first few years. But as the anecdotes here show, optimism isn’t universal or anywhere near the euphoria typical of bull market peaks.
|By Stefan Riecher, Bloomberg, 05/02/2014|
MarketMinder's View: The slow recovery in eurozone unemployment shouldn’t surprise or alarm—and it doesn’t mean the overall economic recovery is off track. Job growth follows economic growth at a long delay. In the US, the last recession ended in June 2009. Job losses continued through February 2010. In Europe, it’s just natural that a fitful job recovery would follow slow, uneven economic improvement.
|By Rich Miller, Bloomberg, 05/02/2014|
MarketMinder's View: Just because the Fed is yellin’ about the supposed new normal of slow growth doesn’t mean it’s real. The outlook shift Yellen describes likely stems from her well-known ideological differences with her predecessor and preference for arcane, demand-side statistics like the non-accelerated inflation rate of unemployment—not because the Fed suddenly has access to new information or anything that really matters looking forward.
|By Jim Puzzanghera, Los Angeles Times, 05/02/2014|
MarketMinder's View: Good news, though it’s but a very late confirmation of what investors already know: The US economy is growing.
|By Staff, EUbusiness, 05/02/2014|
MarketMinder's View: On May 17, Portugal will become the second victim of the eurozone debt crisis to exit its bailout program. Even though the country is still working through the austerity measures required under bailout terms, this is a big step and a sign of the eurozone’s continued progress.
|By Indira A.R. Lakshmanan and Joe Carroll, Bloomberg, 05/01/2014|
MarketMinder's View: While retaliation in response to the US and EU’s sanctions would heat up the rhetoric, Russia would risk some collateral damage—their economy is heavily reliant on energy, so cutting off supplies to Europe, for example, hurts Russian companies like Gazprom. Blocking foreign investment in local oilfields likely hurts production. But for investors, the additional sanctions’ impact on global markets would be limited—Russia itself is only 2.9% of global GDP. For more, see our 3/17/2014 commentary, “Don’t Go Russian to Conclusions About Sanctions.”
|By Staff, Financial Times, 05/01/2014|
MarketMinder's View: Here is a nice roundup of March manufacturing data around the world. The highlights: The US and UK both expanded nicely while China was mixed (big public enterprises showed expansion while smaller private companies contracted). Healthy global manufacturing is another sign of the global economy’s strength—a nice backdrop for the global bull to keep running.
|By Dunstan Prial, FoxBusiness , 05/01/2014|
MarketMinder's View: Fed statements are just words. They aren’t policy blueprints and aren’t meant to be—historically, the Fed has sought to be vague. Otherwise, investors will try to front-run decisions, believing plans are set in stone, and when the Fed eventually defies those expectations, they’ll lose credibility. Credibility is key to a central bank.
|By Steven Russolillo, The Wall Street Journal, 05/01/2014|
MarketMinder's View: Why? Because, apparently, average performance in midterm election years stinks compared to bonds and we haven’t had a correction for almost two years. And because it’s, well, May. Three fallacies—past performance doesn’t dictate future returns, coincidence without causation is meaningless, and calendar pages aren’t market drivers.
|By Michael Santoli, Yahoo! Finance, 05/01/2014|
MarketMinder's View: While we’d agree that investor sentiment is slowly transitioning from pessimism to optimism, we wouldn’t say “certainty” currently exists. Heck, we’d argue it never exists! Nor do markets need deep pessimism to keep rising—they just need a reality that exceeds investor expectations, which we have today. Especially if the low expectations in this article are any indication.
|By Josh Boak, Associated Press, 05/01/2014|
MarketMinder's View: With the largest monthly gain in consumer spending since April 2009, we’re seeing more and more evidence that this winter’s “polar vortex” didn’t put a permanent freeze on US economic activity—it just pushed it forward. Notably, a 1.4% rise in spending on physical goods led the gain—a change from the utilities-driven gains of winter.