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By , The Wall Street Journal, 06/30/2015

MarketMinder's View: Time for your daily Greece update! In today’s edition, it is official: Greece missed its €1.5 billion IMF payment. Until it pays up, it can’t receive any further IMF funds. But other bailout lifelines remain open—like the European Stability Mechanism (ESM), the eurozone’s official bailout fund, from which Greece just requested €29 billion over the remainder of this year and next. PM Alexis Tsipras fired off his request today, citing Greece’s upcoming debt payment schedule, poor financial situation and lack of access to capital markets, citing all the ESM treaty requirements Greece fulfills. He also asked to restructure Greece’s repayment schedule with the EFSF, which was the ESM’s predecessor, in a way that “secures the viability of the Greek economy, growth and social cohesion,” which seems like the same things Greece has been arguing for since January: a third default and less austerity. Eurozone leaders will get together and talk it over tomorrow, and if you believe the latest rumblings from Athens, Tsipras might U-turn on his pledge to campaign for a “no” vote in Sunday’s referendum on whether to accept creditors’ austerity terms. Though that is all speculation, and someone could refute it soon enough. Oh and Germany already said it wouldn’t negotiate anything until after the referendum. So stay tuned—and know that the global market risks here remain small.

By , The New York Times, 06/30/2015

MarketMinder's View: We are quite ambivalent on this one. On the one hand, it is a great look at why faith in central banks is often misplaced—they simply aren’t as powerful as most perceive. Bond buying through quantitative easing and its ilk can help reduce long-term interest rates (and therefore government borrowing costs), but they can’t make high debt loads go away. Greece and Ukraine can attest to this. However, it also seems to overestimate the amount of debt problems in the world right now. High debt doesn’t mean problematic debt, especially as long as low rates allow countries to refinance cheaply and kick the can down the road, as China is doing. That buys plenty of time to grow their way out. Also, you might argue places like Italy and Spain could benefit from modestly higher long-term rates, as this would steepen their yield curves and boost loan growth, which is still struggling there.

By , The New York Times, 06/30/2015

MarketMinder's View: We are quite ambivalent on this one. On the one hand, it is a great look at why faith in central banks is often misplaced—they simply aren’t as powerful as most perceive. Bond buying through quantitative easing and its ilk can help reduce long-term interest rates (and therefore government borrowing costs), but they can’t make high debt loads go away. Greece and Ukraine can attest to this. However, it also seems to overestimate the amount of debt problems in the world right now. High debt doesn’t mean problematic debt, especially as long as low rates allow countries to refinance cheaply and kick the can down the road, as China is doing. That buys plenty of time to grow their way out. Also, you might argue places like Italy and Spain could benefit from modestly higher long-term rates, as this would steepen their yield curves and boost loan growth, which is still struggling there.

By , Bloomberg, 06/30/2015

MarketMinder's View: This occasionally veers into sociology, but the last two paragraphs are well worth the journey, as they make an important point about fixed currency regimes like the euro. Fixed exchange rates (or in the euro’s case a common currency) can boost trade and help stabilize bond markets, but they aren’t fireproof. “Moving to a fixed exchange rate protects bond-holders from one specific sort of risk: the possibility that inflation will erode the real value of your bonds. But that doesn't remove the risk. It just transforms it. Now that the government can't inflate away its debt, you instead face the risk that they are going to run out of money to pay their bills and suddenly default. That's exactly what happened to Argentina, and many other nations on various other currency regimes, from the gold standard to a currency peg. The ability to inflate the currency had gone away, but the currency regime didn't fix any of the underlying institutional problems that previous governments had solved with inflation. So bondholders protected themselves from inflation, and instead took a catastrophic haircut. In financial markets, it is easy to move risk around and change who is bearing it. On the other hand, it's very hard to actually get rid of the risk.”

By , The Wall Street Journal, 06/30/2015

MarketMinder's View: Puerto Rico’s debt problems aren’t a macroeconomic or broad bond market risk. At about $100 billion, Puerto Rico’s GDP is about the size of Austin, TX or the entire state of Mississippi. Detroit is about twice Puerto Rico’s size, and when it went bankrupt in 2013, it didn’t cause contagion throughout US municipal bonds markets—investors knew Detroit wasn’t the US then, and they know Puerto Rico isn’t a bellwether today (particularly since markets have been pricing in Puerto Rican troubles for the better part of two years). But there is a lesson here for investors. Puerto Rican bonds have long been popular for their high yields and favorable tax treatment, and they have a great presence in several bond funds. Always remember: Free lunches don’t exist, high risk accompanies high reward, and it is important to understand how your fund’s income is generated. If it is through a concentrated position, think long and hard.

By , Investment News, 06/30/2015

MarketMinder's View: Here, dear readers, is another example of why the fiduciary standard alone isn’t a good reason to hire an investment firm: It does not erase conflicts of interest. (Nothing can do that—they’re inherent in this industry.) In this case, some Registered Investment Advisers (RIAs) receive trail commissions (also known as revenue sharing) for recommending certain mutual funds—ironically, a practice the Department of Labor wants to stamp out with its own forthcoming fiduciary standard for anyone advising on a retirement account. Trail commissions are a conflict of interest: They give advisers an incentive to recommend a fund that may not be optimal for a given client, either because it isn’t managed well or because there is a comparable cheaper product available. But this is allowed under the fiduciary standard provided the RIA discloses the arrangement and acknowledges the biased recommendations it might create. The onus is always on the investor to do thorough due diligence to discover how their adviser is paid and what influences their recommendations. Incentives and values often govern behavior much more than rules do.

By , The Associated Press, 06/30/2015

MarketMinder's View: The passage of Trade Promotion Authority (aka fast-track authority) and Trade Adjustment Assistance (funding and training for those whose jobs are presumed displaced by trade) should help boost the chances of Congress ratifying the big trade deals presently in the works, including the Transpacific Partnership (TPP). But first, Congress must have something to ratify, and that is as far from certain as ever. As this notes, “trade experts” expect a finished TPP by autumn, but the deal still faces several roadblocks. The US alone has differences with Japan over agricultural and auto tariffs, Vietnam over its textile imports and many more. Getting 12 different nations to come together and agree on every detail of a trade bill is a tall order. So while TPP would be a big long-term positive for the global economy and markets, keep your expectations rational. (Though, a deal not getting done isn’t a negative, just the absence of a new long-term positive—a positive this bull market has done fine without.)

By , EUbusiness, 06/30/2015

MarketMinder's View: Don’t read too much into the latest inflation data—it remains skewed by oil prices’ big fall. Oil peaked last June, skewing the year-over-year calculation (month-over-month, prices were basically flat). Inflation data will probably be noisy and not especially telling for the next several months, as last year’s higher prices (and early 2015’s much lower prices) work their way through the math. To get a better read, view core inflation, which excludes food and energy (and slowed a smidge to 0.8% y/y, compared to May’s 0.9%), or look at money supply growth. Eurozone M3 money supply is growing swiftly (5% y/y in May), which suggests prolonged deflation doesn’t loom. For more, see our 6/17/2015 commentary, “Deflating Inflation Stats’ Importance.”

By , Bloomberg, 06/29/2015

MarketMinder's View: On June 30, atomic clocks will add one second to make up for the slight difference between standard time and the earth’s rotation—a practice done every few years (2012 was the last one). However, this will be the first “leap second” to happen “during trading hours since markets went electronic.” (We presume “electronic” alludes to high-frequency trading, or HFT, and not the use of actual electricity, which has been around for a long time.) In our view, this is much ado about a non-issue for markets. For one, technical glitches have happened occasionally (squirrels, lack of heat, computer issues) yet their impact was fleeting. And two, with the adjustment scheduled to take place at 8pm eastern time, markets aren’t even open unless you’re day-trading in Asia. Instead of fretting, we suggest using that extra second toward something more fun, like enjoying the summer weather.     

By , The Washington Post, 06/29/2015

MarketMinder's View: No, it likely won’t trigger a crisis. Some have loosely compared Puerto Rico’s struggles to Greece’s, and there are similarities. Both are not new news (Greece’s saga is five years old, Puerto Rican bonds have traded like junk debt since at least 2013). Even ratings agencies have both rated below investment grade. Both are too small to materially affect US or global markets. Bonds issued by Greece and Puerto Rico aren’t widely held by banks. And both are more feared than they should be. If the commonwealth can’t meet its immediate debt obligation payments, the government and its creditors will likely enter talks to hash out a deal—probably a long, bureaucratic process that won’t surprise markets (and, as Bloomberg’s Matt Levine quipped this morning, won’t include the Fed and Treasury booting Puerto Rico from the dollar). A potential haircut will be painful for bondholders left holding the bag, though it’s impossible to game that right now. However, for investors, Puerto Rico’s tale does hold an important lesson: No security should ever be considered “safe.” Puerto Rican debt is popular for its high yields and tax exemptions, but the risk of loss comes with any and every investment—no exceptions.    

By , The Guardian, 06/29/2015

MarketMinder's View: Sorry, but comparing recent developments in Greece with the assassination of Austrian Archduke Franz Ferdinand in 1914 is beyond a stretch. Europe’s great powers were entangled in a web of alliances, and the Archduke’s assassination militarized these alliances—spurring World War I and the deaths of millions of people. That is a far cry from the allegation here, which is that Greece potentially leaving the euro would fundamentally change the single currency by eliminating the view it is irrevocable. Which is perhaps true if Greece leaves, but why is that necessarily negative? If the eurozone becomes 18 nations who choose to use one currency, does that make the union stronger or weaker? Would it increase or decrease the chances of systemic crises? (We think decrease by localizing them.) And, consider: If the troika would have backed down from their demands and rejiggered long-since agreed-to bailout terms, couldn’t that spur a backlash from euroskeptics in northern Europe? What message would such moderation send to anti-austerity groups elsewhere in the periphery? Couldn’t one actually argue Greece’s leaving would strengthen the euro by weakening these groups? Is it possible that is why there are few signs of contagion across the continent? Look, we are sympathetic to the Greek citizenry’s plight, but we are darn skeptical Greece calling a referendum is on a par with an assassination that led to tens of millions killed.

By , Financial Times, 06/29/2015

MarketMinder's View: Thing is, firms have financed most of these deals with cash and bonds, not secondary stock offerings. A rush of stock-financed deals would warrant a raised eyebrow, as it would dilute stock supply and imply investment bankers were perhaps out over their skis. But a rush of deals that destroys stock supply is actually fairly positive. It doesn’t require smokin’ hot earnings growth to pay off—just earnings yields that exceed today’s ultra-low bond yields. That’s exactly what we have today. This fear is just another brick in the wall of worry bull markets love to climb.

By , Bloomberg, 06/29/2015

MarketMinder's View: This is one of those arguments claiming there is too little cash on the sidelines (too few buyers) to drive stock prices up, and thus, expectations for future returns should be muted—a misperceived argument, in our view. Stocks don’t depend on investors rotating from fixed income to stocks, nor do they need more investors to go higher—it takes only one buyer to bid prices up. And as sentiment becomes increasingly optimistic, we expect investors to keep bidding stocks higher—a run that could last for a while. This doesn’t mean returns will be more modest in the maturing stages of a bull market, either: See the late 1990s, when global equity returns were above their long-run 10-ish % average from 1995 – 1999, including three 20% years.

By , The Washington Post, 06/29/2015

MarketMinder's View: So there are some sensible points here: One is the admission economists don’t know nearly as much about what makes growth go as is often let on. And the other is that financial crises are usually surprises. Think 2008, when the unintended consequences of a well-intended accounting rule and the ensuing haphazard government response roiled the global economy and triggered a big bear market. However, the “warnings” from the Bank for International Settlements (BIS) and Organization for Economic Cooperation and Development (OECD) revolve around one big false fear: low interest rates and their potential consequences, from artificially boosting Emerging Markets to threatening the solvency of pension funds and insurers. Sorry, there is just no evidence a massive heap of cheap money made its way into Emerging Markets, setting up a potential bloodbath when rates rise, or that pensions are in trouble (long-term projections are wrought with inaccuracies). Yes, it is likely a matter of when, not if, the next financial crisis will hit, but we don’t see anything with that potential in markets today—most fears are either misperceived or widely discussed, weakening their surprise power.   

By , Financial Planning, 06/29/2015

MarketMinder's View: But it won’t settle anything, because it completely ignores what individual investors do with these funds. Academic studies and industry data show investors don’t hold index or actively managed funds long enough to reap the benefits of long-term investing. They flip in and out, following trends, chasing heat and occasionally panicking—often trading at the wrong time, knocking their personal return below the fund’s return. More data on fund performance is all well and good, but it’s really just trivia. The real issue here is investors’ inability to stick with either passive or active funds—and the fact owning a fund can’t instill discipline.

By , Bloomberg, 06/29/2015

MarketMinder's View: Folks, look:  For all of Greece’s current economic struggles and political flubs, it isn’t a poorly developed kleptocracy where the rule of law is non-existent. The comparison here is super surface-level: Technically speaking, MSCI considers the imposition of capital controls—measures restricting the flow of capital out of a country and reducing investors’ access—a step disqualifying a nation from inclusion in its Emerging Markets index. Greece’s imposed capital controls over the weekend to quell asset movement in the wake of announcing the country would hold a referendum on the bailout. This is basically a procedural requirement, not a paradigm shift. Also, MSCI index membership isn’t a market driver. To us, Greece has bigger fish to fry than what MSCI wants to call it.

By , The Wall Street Journal, 06/26/2015

MarketMinder's View: China’s domestic or A-share markets have fallen sharply all week, and the typical cheerleading from officials published in Xinhua is conspicuously absent, leading some to fret the government is cooling on promoting stock market investing as an alternative to real estate and dodgy wealth management trusts (basically, securitized loans). But the impact of this is likely very limited. For one, the A-share market is largely off limits to foreign investors, who buy mostly domestic shares listed in Hong Kong (H-shares).  While H-shares have gone up nicely in the last 12 months (~50% at their peak), that is a far cry from A-shares 162% peak gain. Similarly, while A-shares entered Friday down -12%, H-shares were down -2.5%. Domestic Chinese investors may have been swept up in the big returns, but foreigners remain skeptical. And contrary to the article’s assertion that “Regulators are keen, however, not to spark a prolonged fall, which would have repercussions for the broader economy,” A-share markets are notoriously volatile and do not act as much of a forward-looking economic indicator. There have been two bear markets in Chinese A-shares since 2009. The economy has grown at a solid clip throughout, even accelerating during the first, which ran from mid-2009 through mid-2010. A-shares’ big swings don’t have a global reach.

By , Bloomberg, 06/26/2015

MarketMinder's View: Yeah, well, maybe this weekend is “decisive” and maybe it isn't. After all, as has been widely reported, missing Tuesday’s IMF repayment will not qualify as a default, technically. The next payment is due to the ECB by July 20, and it is probably more important. Besides, there is also the distinct possibility the troika kicks the can forward and extends the existing bailout by five months, teeing up a Grerun or Grepeat in the fall. Either way, though, we'd suggest not overthinking this one—there isn't any sign Greece is contagious, and absent that, it should have roughly the market impact of the 2013 Detroit default: minimal.

By , InvestmentNews, 06/26/2015

MarketMinder's View: Well, we aren’t so sure the House and Senate slapping an amendment onto an appropriations bill that hasn’t been voted on by either full chamber is so “unstoppable,” particularly considering the White House backs the DoL proposal and President Obama can simply not sign the law. But either way, we’d suggest most of the claims brought by both sides in favor of and against a broad fiduciary rule are overwrought. The DoL’s rule isn’t “sweeping” at all—it permits all forms of compensation and waters down the SEC’s version. The impact to small account holders is likely nil. And the DoL’s version will do very, very little to better “protect investors.” The fiduciary standard in even the SEC’s form requires advisers to reasonably believe they are putting clients’ interests first. A subjective standard! Investors must do the requisite due diligence to understand the values, structure, experience and expertise of the firm they are working with. There is no shortcut to ensuring the advice you’re getting is adding value.

By , The New York Times, 06/26/2015

MarketMinder's View: This is the second trade-related bill to make its way through the House in recent days, this one expanding the trade-adjustment assistance program, which aims to retrain and compensate American workers deemed displaced by trade. It is likely to become law, as trade-promotion authority already did. However, we’d suggest some of the other nuggets noted in this article—the discussion of currency manipulation and anti-dumping bills—support the notion any deal on the Trans-Pacific Partnership (TPP) still faces a stiff fight. And that assumes the 12 nations in the talks actually come to an agreement. While we would welcome being wrong here (because the TPP would be good for stocks and the economy, in our view), we are skeptical the TPP becomes a reality soon.

By , MarketWatch, 06/26/2015

MarketMinder's View: It wasn’t. The S&P 500 fell -0.03% on a price return basis. And volume was nowhere near as high as it was March 20th. The theory held that the Russell index series rebalancing was effective Friday, with some stocks added and others deleted. Ultimately, it really doesn’t matter much for investors, because volume has very little bearing on price movement, so we’re not sure many folks beyond specialists, market makers and traders should care.

By , Reuteres, 06/26/2015

MarketMinder's View: We totally agree with the headline suggestion, that the Fed should ditch its relatively new practice of publishing individual staff member forecasts in an anonymous, bizarre “dot plot.” However, the notion of replacing it with a consensus staff forecast is even worse, considering this would only calcify the idea that Fed forward guidance is predictive of policy. There are ample examples—like the fact it is June 2015 and there has been no rate hike, contrary to consensus expectations—suggesting this practice has major holes. And this article encapsulates perfectly why forecasting the Fed is folly: “But the idea (of issuing a staff forecast) has always foundered at an institution whose various members give different weight to different bits of data, have different views on policy, and have a plethora of staff forecasts and models volleying around the Washington-based board of governors and 12 regional banks.” That, friends, is why we have consistently reminded investors not to try to divine the Fed’s next move.

By , The Wall Street Journal, 06/26/2015

MarketMinder's View: Volatility doesn’t operate on schedules any more than corrections do. Merely because the S&P 500 hasn’t had a -5% move since late last year doesn’t mean we will have one soon. In early 2010, a -7.6% dip ran from January 20 – February 8. Fifty-four days later a -16.0% correction hit. Twenty-five days after that correction bottomed, a -5.6% dip began. And, beginning to end, the S&P 500 rose 12.8% (not including dividends). Volatility defines randomness and it is the cost of earning stocks’ high returns. Obsessing over attempts to forecast it is the height of folly.

By , The Telegraph, 06/26/2015

MarketMinder's View: Like their American counterparts, British pundits and analysts spend an inordinate amount of time trying to divine when the BoE’s Monetary Policy Committee will hike overnight interest rates. And like Fed watchers, BoE watchers have been all over the map with forecasts of when that will happen. Read this article as a nice, if unintended, argument against the practice. Central banks are not gameable market forces, which explains why forecasts of their actions have been poor. It isn’t that economists are out of step with the post-crisis world economy. It’s that they can’t possibly know how a biased panel of economists is interpreting that data.

By , Dow Jones Newswires, 06/26/2015

MarketMinder's View: Yep. Because years have passed, firewalls have been finalized and banks have already taken haircuts and reduced exposure, a potential Greek euro exit today isn’t likely to carry much global impact. What’s more, it seems many who still fear a Grexit do so based on this notion: “‘They could lose something, this sense of the irreversibility of the euro, and they would never recover it,’ said Erik Jones, professor of European studies at the Johns Hopkins School of Advanced International Studies.” To which we say, OK fine, but is that necessarily bad, or would it have the effect of making potential future crises even more country-specific and not systemic?

By , The Wall Street Journal, 06/26/2015

MarketMinder's View: Wheeeeee! Gleeeeee! But the thing is, rising consumer sentiment doesn’t foretell rising consumer spending, it is exclusively a snapshot of how folks felt at one given moment in time. And in June they were joyous! Huzzah!

By , Dow Jones Newswires, 06/26/2015

MarketMinder's View:  Yet more evidence the eurozone’s economic revival is on track: “Lending to the eurozone's private sector rose at its fastest rate in more than three years in May, according to a report on Friday from the European Central Bank, suggesting the region's economic recovery is beginning to broaden out and boost demand for new credit.”


By , Marketwatch, 06/25/2015

MarketMinder's View: We agree with the behavioral material at the beginning of this article: It is our experience too many investors tend to buy and sell at the wrong times, detracting from their returns. Now, of course having a cool hand isn’t good enough in investing, so we agree in principle there, too. Where this piece lost us are the claims there is something called valuation risk that differs from volatility risk. There isn’t. The whole entire reason the 15-year period between 2000 and 2015 was lackluster was because of two big bear market cycles during the period. That’s it. A bear market is always a risk in equity investing. Yes, returns over selected 5, 10 and 15 year periods will differ. Yes, it’s possible that bonds beat stocks over any future 15 year period that aligns with two big equity bears. But on balance most 15-year periods stocks win out. Of the 70 rolling 20-year periods since 1926, stocks beat in 68—and by a 3.5 to 1 return margin. There are zero, zippo, nada 30-year periods in which bonds led. That doesn’t mean there won’t be. But investing is a probabilities business, not a possibilities one. In planning your future, we would recommend going with what’s probable. Not what has occurred in one selected period of time that could easily reverse by simply shifting the start date forward or back by a smidge.

By , The Street, 06/25/2015

MarketMinder's View: We agree a recession is unlikely to occur in the foreseeable future, but not for the reasons cited here. It really doesn’t matter that the current expansion is shorter than the average of the three expansions prior to 2008, which is far too small and recent a sample to know whether cycles are longer due to essentially better government policy. As for the claim GDP has accelerated throughout the current growth cycle, that was also true in the 1990s. While there is some truth to the notion slow credit growth cooled the expansion’s first few years, it wasn’t because fiscal policy was restrictive. Maybe someday we look back on this time period and say, “Wow, yeah. This expansion was much different than the preceding.” But for investors, we’d suggest that’s a waste of time that won’t help you navigate this bull. To determine how likely or unlikely it is a recession looms, one must look at leading economic indicators. This article does none of that, instead arguing that trends in backward-looking, frequently revised data and historical patterns suggest something about the present. Folks, we don’t think a recession is coming because the yield curve is positively sloped encouraging bank lending, new orders gauges for manufacturing and services are rising, and The Conference Board’s  Leading Economic Indexes for most major economies point to growth. 

By , CNBC, 06/25/2015

MarketMinder's View: The 3rd bubble being a fixed income bubble. Look, we get that interest rates have recently risen off of multi-generational lows and that many believe they have nowhere to go but up from here. But the fact so many fear rising rates is the exact opposite of what we would see if we were in a bond bubble. In a true bubble, investors would be saying we’re in a new era where bonds will forever post strong returns. They would ridicule the many, many wrong forecasts calling for spiking rates over the course of 2009 to now. Bond issuance would soar, as entities look to cash in on the raging bond bull market. A flood of new vehicles for investing in fixed would hit the market. But none of this is happening right now. So what then would cause a bond bear market? Huge inflationary pressures or worries over mass defaults. But that, too, is all absent, associated with our goldilocks scenario of low inflation coupled with a growing economy and super-healthy corporate balance sheets.

By , Bloomberg, 06/25/2015

MarketMinder's View: In May 2013, then Fed head Ben Bernanke’s initial and vague allusion to slowing quantitative easing bond purchases caused 10-year US Treasury rates to surge by a little over 1 percentage point in a month and a half. That move has since been dubbed the “taper tantrum,” a name that vastly overstates the market action. US stocks fell by about 5%, something they’ve only done a dozen or so times during this bull. Many (wrongly) believe this action caused havoc in select Emerging Markets because it reversed a huge wall of capital that had surged into them in search of yield, causing currency and equity markets to sell off. Yet there is a) no evidence such a surge happened and b) no evidence it reversed. There is more evidence bizarre Indian monetary policy and backtracking on reforms caused the trouble back then, particularly since Indian stocks rose during 2014 when the taper was actually completed. Now it seems some suggest a repeat of what amounts to more such volatility will occur as the Fed soon begins hiking short-term rates while other major central banks continue their own QE programs. However, the taper example suggests it would require more wacky Indian maneuvers. But either way, folks, it is almost impossible to accurately predict market volatility, stock, bond or otherwise. Even if US monetary policy played a role then, it may not now because rate hikes have been discussed for over a year now.

By , USA Today, 06/25/2015

MarketMinder's View: According to the Investment Company Institute, a group which tracks fund flows, retail investors have been net pulling money out of US stock funds since late February. Here is the really telling thing about the outflows cited here: They are pretty darn dinky. Fund flows can be a gauge of sentiment, but the most you can draw from flows this small is that folks are neither irrationally negative nor positive. Flows typically only say much turning points when they are at extremes such as near bear market lows when fund flows are extremely negative or bull market peaks when they are overwhelmingly positive As for all the other citations of timid or skittish investors, our reaction is: Yes, indeed. Some investors are skeptical. And that is another sign euphoria-driven sky high expectations, which reality can’t match, aren’t here yet.

By , The Wall Street Journal, 06/25/2015

MarketMinder's View: Three for four, in our view. We really like point number one, which is about baked in biases and the fact you should be cognizant of them. Point number two presumes you are cognizant and can manage the other three points to invest passively. Folks, in our experience, that’s a rarity even among professionals.

By , Bloomberg, 06/25/2015

MarketMinder's View: While last month’s 0.9% m/m gain in the broadest gauge of consumer spending isn’t predictive of where the overall economy is headed, it’s still yet more evidence Q1’s US GDP contraction was fleeting. With The Conference Board’s Leading Economic Index in a solid rising trend over the last 16 months, more growth is likely moving forward.

By , The Wall Street Journal, 06/24/2015

MarketMinder's View: There are several reports of Greek talks breaking down today. First PM Alexis Tsipras sent some harsh Tweets complaining about his proposals’ apparent rejection. Then he rejected creditors’ counter-proposal. As we write Tsipras and co. have been locked in talks for six hours and might go all night. Meanwhile other reports say Finance Ministers’ meeting ended before it even began. They apparently aim to regroup tomorrow, before the evening’s EU summit, but that might also depend on Tsipras and creditors emerging from their potential all-nighter with a workable deal. So, still in limbo. But if you want to see what they’re all haggling over, The Wall Street Journal article we’re actually blurbing in this space has a handy rundown of the sticking points, which appear to be concentrated in tax hikes and pension cuts. Can they find common ground? Sure, anything is possible. Will they find common ground? Tune in next time.

By , The Washington Post, 06/24/2015

MarketMinder's View: Activity was revised up across the board, which is nice, but we wouldn’t read into any of this. The BEA has already told the world their seasonal adjustment methodology was insufficient, and they’re revising all this again on July 30 to fix the problems. By then this news will be even more backward-looking. What matters more for investors is that data released since then—and the high-and-rising Leading Economic Index—suggest growth resumed in Q2 and likely continues looking ahead.

By , The New York Times, 06/24/2015

MarketMinder's View: RadioShack, we guess, though we’ve never tried to buy A/V cables in Greece. We also never tried to custody a brokerage account there. And we have no record of Lehman or RadioShack selling Feta or olive oil. But we might be taking the analogy a little far. Anyway, this piece misperceives just what happened with Lehman in 2008. The world didn’t panic because Lehman couldn’t meet its obligations that September. They panicked because the Fed and Treasury denied funding to Lehman’s potential suitors, directly violating the precedent they set earlier that year, when Bear Stearns was in an identical predicament. That inconsistency—which followed the seizure of Fannie and Freddie and preceded AIG’s nationalization—created havoc and confusion. The government was effectively choosing who lived and who died, making it impossible for investors to handicap how the chips would fall. That’s why Lehman was a watershed moment. The Greek situation, needless to say, is different. Creditors are treating it the same way they treated Ireland and Portugal. There is no inconsistency on creditors’ side—the bizarritude comes from Greece’s government. More importantly, Europe’s financial system is firewalled. The risk of contagion is thus minimal, and absent contagion, Greece is too small to impact the world economy. It is 0.3% of world GDP. China alone is projected to boost world GDP by 0.9% this year. Any questions?

By , Financial Times, 06/24/2015

MarketMinder's View: “Managers are under huge pressure to generate an income, and alarmed by the low yields available on bonds, but are not comfortable with equity risks either. The net result … is the “bondification” of equities, as they invest in stocks with good dividends, fewer debts, strong pricing power, free cash flow and high return on equity — factors that make them more bond-like.” Sorry but nothing about a share of ownership in a company resembles bonded debt of that company or a country. The stock characteristics listed can help create the perception of stability, but that is all in the eye of the beholder. We have also seen little evidence investors are shunning bonds for these stocks en masse—just like we never saw evidence the Great Rotation from bonds to stocks was ever a thing. Seems to us this is just new wordsmithing for “yield chasing,” which we are sure happens on an individual level, but is not a macro market trend. If it were, wouldn’t high-dividend stocks be outperforming? They have trailed since at least 2013’s end. And also, if people “can’t trust” bonds for income anymore, then why would they trust stocks, which are inherently more volatile and whose dividends are less sacrosanct than bonds’ coupon payments?

By , The Washington Post, 06/24/2015

MarketMinder's View: Yep: “The crisis in Greece is not, at base, an economic story: It is a political story, a story about the promises that governments make to their citizens and about the ability of any state to guarantee a particular standard of living to its citizens, not only in Greece but also all over Europe. The current Greek government was elected on a completely false premise: that Greece could continue to run one of the most expensive pension systems and one of the largest bureaucracies in Europe, relatively speaking — and that other countries would pay for it.” But citizens in other countries are used to much smaller safety nets and don’t want to pay for it. Some bailed-out countries took their medicine, accepted tough aid conditions and are now growing again—they aren’t so keen to pay for Greece to do the opposite. This is why the gulf between Greece and everyone else is so wide and emotions are running so hot.

By , The Telegraph, 06/24/2015

MarketMinder's View: So a lot of this is sociological, but it is also a handy lesson in the law of unintended consequences, and it is just chock full of smart: “The number one lesson that bankers learn, practically at their mother’s knee, is the time value of money: cash today is worth more than the promise of cash in the future because, if you have cash now you can invest it and earn interest. … So, literally the first thing that every banker did on hearing about new rules, which will allow regulators to claw back bonuses for up to 10 years after they are awarded, was open up a fresh spreadsheet, conduct a discounted cashflow analysis and work out what a bonus that couldn’t be spent for a decade was worth in today’s money. The second thing they will have done is walk into their boss’s office and demand that their total compensation was hiked by whatever the difference is. If they didn’t, they're in the wrong profession.” Seems about right. Look, we’re all for transparency and good behavior in the financial services industry—and in all industries. We are just darned skeptical that a 10-year bonus claw-back window will change anyone’s behavior.

By , Bloomberg, 06/24/2015

MarketMinder's View: Splits are meaningless. So is the price of a stock. Let’s play a little game here. Pretend you have two companies: Paperclips R Us and Paperweight Emporium. Paperclips R Us is $50 per share. Paperweight Emporium is $100 per share. Which is pricier? Perhaps you think Paperweight Emporium. But what if Paperclips R Us has 1,000,000 shares in circulation, while Paperweight Emporium has just two? What if Paperclips R Us has earnings of $0.25 per share, but Paperweight Emporium earns $3 per share? Stock price alone tells you nothing. Nor do splits impact future performance, while we’re at it. That myth flourished when tech companies split multiple times during the late 1990s. Many believed it created exponential growth. But the overall value of the company—the market capitalization—is what ultimately moves. Splits don’t impact that.

By , The Wall Street Journal, 06/24/2015

MarketMinder's View: How about just forget the Dow, period? It is a broken, narrow, price-weighted index that bears little resemblance to the broader market. That its movement is skewed by the 10 companies with the most points, not the 10 biggest companies by market value, shows just how broken it is. Of the top 10 Dow companies by price weighting, just one is in the top 10 by market cap. Call us crazy, but we think an index weighted by a company’s actual size is far more reflective of real life. Also, in those top 10 by price weighting, you get two Tech firms, one Financial, one Health Care, three Industrials and three Consumer Discretionaries. Sorry, but trends in that narrow slice of corporate America just won’t tell you where the entire market is going.

By , The New York Times, 06/24/2015

MarketMinder's View: This starts off in a fine place, capturing today’s investor sentiment and showing the tug of war between skepticism and tentative optimism. And it quite rightly points out that whenever Greece fades from headlines, investors will probably move back to any of the many things they’ve fretted for years now. But then it goes to an odd place, arguing a Fed rate hike will spell near-certain trauma for stocks, either by making the dollar strengthen or by spurring bond yields higher, upsetting the “delicate balance that has helped keep stocks elevated.” Sorry, but stocks do not have a set relationship with bond yields. Stocks have done fine alongside high rates and low rates—and done not so fine with high rates and low rates. Assuming stock investors would chase higher bond yields en masse misperceives why many folks own stocks in the first place—long-term total return. Heck, if long-term rates rise and steepen the yield curve, that is usually great for stocks.

By , The Wall Street Journal, 06/24/2015

MarketMinder's View: Highlighting the sort of sticking point that often holds up big trade deals, the US is demanding garment-producing powerhouse Vietnam source more yarn and fabric from the US and Mexico and less from China. This strikes us as rather odd, because China makes a lot of fabric and is like right next to Vietnam, so costs are low. Sourcing more from the US and Mexico would add shipping costs and make products more expensive, which is sort of the opposite of what free trade tries to accomplish. The whole point of free trade, as envisioned in the old days by Adam Smith and David Ricardo, is for countries to specialize. “Free trade” that interferes with specialization in an attempt to block secondary imports from China is really just protectionism in sheep’s clothing.

By , Xinhua, 06/24/2015

MarketMinder's View: We guess you can file this under “mini stimulus” and “financial reform,” though it is a very small move. The required 75% loan-to-deposit ratio didn’t much impact lending—other ceilings are lower. This is largely a paper move that gives a couple banks a tad more flexibility.

By , The Wall Street Journal, 06/24/2015

MarketMinder's View: Well, much of this decline stems from the rising dollar (because reserves are tallied in dollars), which affects the value of the roughly 40% of forex reserves denominated in non-USD currencies. So they didn’t spend much down at all, in that light, and it is mostly market movement. But also, consider: In the 1990s, when many central banks desperately tried to support currencies in Asia and elsewhere, they did so mostly to try to defend pegs to the dollar. Those pegs are largely gone, with floating currencies replacing them. In addition, “Despite the drop, total foreign reserves still are hovering around record highs for emerging countries, giving observers confidence that they are, overall, in a relatively strong position to withstand external shocks in periods of stress. Some countries, such as Russia, have been rebuilding their reserves after significant declines. Total foreign reserves are able to cover about 11 months of import needs for these countries, according to IMF data, while a rule of thumb for adequacy is six months.” This is not a real fear.

By , The Wall Street Journal, 06/23/2015

MarketMinder's View: This is just cool: S&P Dow Jones Indices is launching a S&P 500 bond index—as in a market-weighted index of most corporate bonds issued by companies in the S&P 500 stock market index. It will cover $3 trillion of the $3.8 trillion outstanding S&P 500 company bonds, excluding only variable-rate bonds and issuances under $250 million, and it will have a full GICS sector breakdown. It will also have a retroactively calculated 20-year performance history. We anxiously await the opportunity to dive in, explore and analyze trends over the last two decades—we only wish it would stretch back to the late-1980s corporate bond bubble, so we could do a true now-and-then comparison, as most of the evidence we’ve gathered so far (like credit spreads) suggests corporate bonds actually aren’t in a bubble at the moment.

By , Bloomberg, 06/23/2015

MarketMinder's View: All just a bunch of observations with no forward-looking implications for stocks. Stocks have been calm by just about every measure, but that isn’t predictive. Inferring that Fed moves or shockers are necessary for volatility simply because the S&P 500’s last big daily move accompanied a Fed pronouncement is classic correlation without causation. Stocks don’t need a catalyst for volatility to return. The simple truth is this: volatility is normal, so at some point, it will return. Could be tomorrow, could be next month, could be next year—you can’t predict it. Everyone seems to be ruling out volatility before September, so perhaps ye olde contrary stock market will decide to start bucking before then just to fulfill its time-honored role as The Great Humiliator. But as long as this bull market persists, that volatility should include the good kind of volatility—the uppy kind. Be ready!

By , Real Clear Markets, 06/23/2015

MarketMinder's View: Why are they confused? Because their dual mandate is based on the long-ago debunked myth that low unemployment creates inflation—and therefore, to prevent inflation, they should cool growth and therefore hiring through tighter monetary policy. The trouble with this is twofold. One, as Milton Friedman showed in the late 1960s, labor markets are linked with real wages, which are adjusted for inflation, not nominal wages. Two, often growth stems from productivity gains—doing more with the existing labor force or even fewer workers—as technology advances. And here is the kicker: “Growth spurts that result once again from cars, tractors, planes, trains, ATMs, computers, and internet relieve the economy of the need for human labor, but far from pushing us into breadlines, those advances that cause the supply of capital to surge in amount lead to all sorts of new forms of work. The Fed's models don't get this simply because in the eyes of the Fed and those reporting on it, nothing much changes. In short, the Fed is confused. Stranded in a static world of its own making, unchallenged by reporters who are even more confused than central bankers are, the Fed doesn't see that economic growth doesn't overheat economies as much as it removes any labor pressures that might reveal themselves in the first place. In trying to centrally plan a not-too-hot economy, the Fed is at best robbing the economy of the very advances that would mitigate any presumed labor and capacity pressures that might emerge absent progress. Looked at more broadly, can anyone seriously argue that a Fed this confused about the nature of inflation is somehow staffed with minds bright enough to centrally plan bull stock markets? The very notion is too silly for words. Sorry pundits, but a Fed this bewildered about simple economics is not tricking the deepest market in the world.”

By , Financial Times, 06/23/2015

MarketMinder's View: Here, we are told low interest rates since 2009 slowed global growth, and we are a long way off from monetary policy “normalization,” so get ready for more low rates and more slow growth—along with a lack of economic reform, weak competition from upstart businesses who can’t get funding, slow or no wage growth and struggling pensions. Folks, we’ve heard the same darned thing for years. But stocks have risen at a fairly typical pace for bull markets, and we see no evidence things are different and worse now. Stocks have long since moved past these false fears.

By , The New York Times, 06/23/2015

MarketMinder's View: This is a great read. As a standalone strategy, a pure short-selling approach is extraordinarily difficult to pull off repeatedly and profitably. Stocks rise far more often than not, so the odds are not on short sellers’ sides. But the way they’re received here says a lot about sentiment today. Short-selling often gets a bad rap, particularly during downturns, when many accuse short-sellers of driving down markets and making things worse for normal investors. That they aren’t vilified today—and are even rightly seen as a force of good that can make market pricing more efficient—shows how far we’ve progressed since the deep pessimism that reigned when this bull began. That short-sellers are struggling to find investor interest in short-offerings is another sign of warming sentiment—fewer investors are willing to put money on a downturn. At the same time, short-sellers are treated with respect, not ridicule—no one laughs at them for thinking stocks could fall—which is a sign the euphoria typical of market peaks isn’t here yet.

By , Bloomberg, 06/23/2015

MarketMinder's View: Maybe! But long-term forecasts like this are usually wrong. These economic projections—which include Mexico and Indonesia replacing Russia and Italy in the top-10 biggest economies, Chinese per-capita incomes almost catching up with Japan’s and Asia accounting for 53% of global GDP—are based mostly on population trends and a straight-line extrapolation of the recent past. That ignores the fact that the past isn’t the future—and it ignores a wealth of potential changes between now and the next 35 years. Even if it were accurate, the forecast wouldn’t be much use for investors. Stocks don’t correlate with GDP growth. See China with any questions.

By , Reuters, 06/23/2015

MarketMinder's View: In today’s update, some members of Greece’s ruling coalition don’t like the concessions PM Alexis Tsipras offered to creditors to (hopefully) secure more funding. This isn’t a shocker, considering Syriza—the party name—is an acronym (in Greek) for “Coalition of the Radical Left,” which will naturally include folks with a strong aversion to pension cuts and tax hikes. But presuming Tsipras and creditors seal the deal and this goes to Parliament for approval, the opposition of a few Syriza hardliners doesn’t mean the deal won’t pass. Greece’s Parliament has a sizable pro-euro, pro-reform minority, and we reckon Tsipras wouldn’t have much trouble—should he so choose—securing votes across party lines. Maybe that triggers a no-confidence vote, but maybe Syriza backbenchers decide it isn’t worth bringing down their own government over doing what’s necessary to stay in the euro, something about 75% of Greek voters support. Though, far be it from us to speculate, considering the deal isn’t done yet and this could all change tomorrow.    

By , Reuters, 06/23/2015

MarketMinder's View: In today’s update, some members of Greece’s ruling coalition don’t like the concessions PM Alexis Tsipras offered to creditors to (hopefully) secure more funding. This isn’t a shocker, considering Syriza—the party name—is an acronym (in Greek) for “Coalition of the Radical Left,” which will naturally include folks with a strong aversion to pension cuts and tax hikes. But presuming Tsipras and creditors seal the deal and this goes to Parliament for approval, the opposition of a few Syriza hardliners doesn’t mean the deal won’t pass. Greece’s Parliament has a sizable pro-euro, pro-reform minority, and we reckon Tsipras wouldn’t have much trouble—should he so choose—securing votes across party lines. Maybe that triggers a no-confidence vote, but maybe Syriza backbenchers decide it isn’t worth bringing down their own government over doing what’s necessary to stay in the euro, something about 75% of Greek voters support. Though, far be it from us to speculate, considering the deal isn’t done yet and this could all change tomorrow.    

By , The New York Times, 06/22/2015

MarketMinder's View: We won’t sit here and argue the government should never spend a penny ever—that would be absurd. And we won’t argue America’s roads are in perfect shape. Your MarketMinder editors battle the potholes on US-101 and I-205 daily. But this just drastically overestimates the importance of government spending and monetary stimulus for US growth. It, like so many other articles, presumes that US can’t grow without an artificial lifeline. That ignores the simple facts that a) the private sector comprises over 80% of US GDP and b) monetary policy has been a headwind this entire expansion, flattening the yield curve, yet America has grown anyway. That is a testament to how much we don’t need special help. Also, we just can’t reconcile the numbers here. It says “At this point, Congress’ tax-and-spending policies are neither adding to nor subtracting from growth. That is an improvement from 2013, when politically-motivated budget cuts shaved an estimated 1.6 percent from growth and, in the process, led to the loss of about one million jobs.” (Boldface ours.) Um, we checked, and public-sector payrolls fell by just 64,000 workers in 2013. Total nonfarm payrolls rose that year. Spending cuts shaved just -0.39 percentage point off full-year 2013 GDP growth.

By , The New York Times, 06/22/2015

MarketMinder's View: Variable annuities claim they can provide investors with a “guaranteed paycheck for life, providing protection in the market’s darkest hours, yet allowing them to profit during upswings.” If you believe that, we have a calorie-free cake you can try out here. Folks, if anything sounds like it is too good to be true, we suggest you treat it very skeptically. While this piece focuses on the variable annuity, it offers lots of good advice about approaching any annuity (or investment product) in general. Like questioning how exactly that “guaranteed paycheck” is paid out. And what kind of fees you need to pay (including any “riders,” or extra features, you may buy). As well as the surrender penalties you may face if you decide to take your money out early. For more, see our 1/10/2014 commentary, “Guaranteed*.”   

By , Bloomberg, 06/22/2015

MarketMinder's View: We suggest not looking too deeply into the rationale here for why you should be bullish—fund flows, valuations and other backward-looking metrics—and instead notice what the pros are forecasting by year’s end: They’re holding steady on their call for the S&P 500 to rise 5.8% by year-end. Given the S&P is up about 3.5% YTD, that’s a mere two and a half percentage point rise for the rest of the year. Even the most bullish analyst here is predicting a low double digit rise. Given markets often do what the consensus doesn’t expect and fundamentals are overwhelmingly positive—and stocks can move quickly—we still expect a fine up year for stocks. For more, see our 6/12/2015 commentary, “Searching for Meaning in Tame Times.”

By , The New York Times, 06/22/2015

MarketMinder's View: Here is some great information on why pre-election polls whiffed so badly in the UK, Denmark, Israel and elsewhere over the last year—and we expect the same will apply to polling for America’s 2016 presidential election. That will make the results all the more difficult to handicap as the contest approaches. While politics and US elections can impact markets—as we’ll discuss more and more in the run-up to 2016—we advise readers not to make portfolio moves based on opinion polls alone.  

By , Financial Times, 06/22/2015

MarketMinder's View: While it may seem like China has a different definition of currency liberalization from the IMF, it remains entirely consistent with its approach to reform: slow, steady and on the government’s terms. As the PBOC’s governor Zhou Xiaochuan said, “The capital account convertibility China is seeking to achieve is not based on the traditional concept of being fully or freely convertible … Instead, drawing lessons from the global financial crisis, China will adopt a concept of managed convertibility.” However, whether the IMF includes the renminbi (or yuan) in its Special Drawing Right (SDR) currency basket this year or not is mostly a symbolic gesture—the renminbi’s ascent as a global reserve currency will take place over many years, not overnight, and lingering capital controls are just one reason why. For more, see our 6/8/2015 commentary, “The Yuan’s Rise Doesn’t Doom the Dollar.”  

By , The New York Times, 06/19/2015

MarketMinder's View: While we’re still waiting to see what happens with bailout talks (the next critical make-or-break meeting is set for Monday, followed by a critical make-or-break EU summit and maybe a critical make-or-break conference call), for now Greece’s banks retain their ECB lifeline as the country’s “bank jog” continues. Analysts think another €3 billion jogged out this week. We’ll see what happens Monday, but in any case, the global impact is likely small. Even if deposit flight continues and Greece has to implement capital controls, we saw something similar play out in Cyprus in 2013, and the bull market continued.

By , Financial Times, 06/19/2015

MarketMinder's View: This argues markets are being too complacent about Greece and a Fed rate hike and should be tumbling instead of bouncing around near all-time highs. Sure, all the negative consequences of Greece and Fed rate hikes described here are possible. But stocks move on probabilities, not possibilities, and none of these nightmares look likely over the foreseeable future. Plus, markets have been well aware of all these possibilities for years. They’ve had ample time to consider the risks. And after seeing all possibilities hashed and rehashed by investors and pundits, they have moved on. Time will tell if this turns out to be complacency, but based on our analysis of current events and knowledge of market history, we strongly suspect stocks have rightly weighed the likely future and are looking toward things like continued growth in the US and globally, firm demand in Emerging Markets, resilient earnings and revenues and a tame political backdrop. All those bullish factors survived two Greek defaults in 2012, quantitative easing “taper” terror in 2013 and actual tapering in 2014. It isn’t so different this time.

By , Financial Times, 06/19/2015

MarketMinder's View: This is a great piece highlighting the difference between speculating and investing—and the danger of viewing stocks as a ticket to quick riches. The history of London’s “junior market,” the Alternative Investment Market (or Aim), shows this in spades. Less regulated than the London Stock Exchange, it always had high-risk-high-reward allure, complete with a handful of high-flying success stories. But it also had a lot of poorly run stinkers with cooked books, and the successes were the exception, not the rule: “Over the past 20 years, investors would have lost money in 72 per cent of all the companies ever to have listed on Aim, according to the professors, who were part of the team who designed the FTSE 100 index. Analysing data on the 2,877 companies which have listed on Aim, they calculate that in more than 30 per cent of cases, shareholders lost at least 95 per cent of their investment. By contrast, there are 39 companies — just 1.4 per cent of the historic total — that have given investors multiyear returns in excess of 1,000 per cent.” Our advice: Pick a broad, well-constructed benchmark, be it the broad MSCI Indexes, S&P 500 for the US or FTSE if you’re UK-only. (Though we recommend going global, of course—diversification!)

By , Bloomberg, 06/19/2015

MarketMinder's View: Look, there is no way to quantify exactly how many US manufacturing job losses since 2000 tie directly to China’s joining the World Trade Organization, which gave it freer access to US markets. These folks tried to do so by counting job losses in industries where Chinese imports surged, tallying up 982,000 from 2000 to 2007, but even then, there are too many other variables. Like automation, cost-cutting during and after the 2001 recession (which had nothing to do with China), and the natural force of creative destruction that keeps powering industry into the future. Were jobs lost? Yes. But what about jobs gained? That’s the real elephant in the room and one this article overlooks entirely. It cites the fact that only 1 in 12 US jobs is in manufacturing today, vs. 1 in 5 in 1980. Well, ok, but it isn’t like all those displaced manufacturing workers are unemployed. Many work in safer, higher-paying service sector jobs. Free trade creates a lot of those. It also creates jobs in retail, transportation, logistics, finance and so much more. Almost nothing is ever completely devoid of negatives—there are always plusses and minuses. There will also be sociological consequences sometimes. But when it comes to freer trade, the plusses outweigh the minuses, and in our view it is a big net positive. And markets don’t really pay attention to the sociological side of things.

By , The Wall Street Journal, 06/19/2015

MarketMinder's View: We aren’t really sure what to make of this one, and we reckon we aren’t the only ones. The deal in question would double the capacity of the Nord Stream pipeline, which transports natural gas from Russia to Europe through Greece and Turkey instead of Ukraine. Getting this done would help solve the issue of Russia’s perpetual squabbles with Ukraine disrupting EU gas supply. It will also probably get Greece a couple billion euros, which Greece sorely needs. But it’s also a very incremental development, completion is years away, and the EU is trying to curb its reliance on Russian gas. Also, EU officials don’t so much love Greece cozying up to Russia, and they have frowned on these efforts. So while the potential for increased gas supply is theoretically good, there are just a lot of weird things muddying the waters. Plus, this is all just sociology—none of this really has anything to do with markets.

By , The Guardian, 06/19/2015

MarketMinder's View: No shock here: The UK has never been enamored of EU rules forcing member-states to become less competitive, whether by synchronizing corporate tax rates (as proposed here) or taxing financial transactions. We reckon they aren’t the only country opposed, as Ireland is quite proud of its 12.5% corporate tax rate. And national governments get a veto in matters like these. So while these sweeping plans might not sound so grand for markets, they also stand little chance of becoming reality. 

By , The Guardian, 06/19/2015

MarketMinder's View: No shock here: The UK has never been enamored of EU rules forcing member-states to become less competitive, whether by synchronizing corporate tax rates (as proposed here) or taxing financial transactions. We reckon they aren’t the only country opposed, as Ireland is quite proud of its 12.5% corporate tax rate. And national governments get a veto in matters like these. So while these sweeping plans might not sound so grand for markets, they also stand little chance of becoming reality.  

By , MarketWatch, 06/18/2015

MarketMinder's View: While this veers a little too much into buy-and-hold land (if you identify a bear market before most of the downside, it can make sense to get out of stocks for a while), it is an otherwise dynamite look at the danger of succumbing to false fears: Most are “low probability, unlikely events. Often, they frighten investors into making hasty, emotional decisions that cause more long-term financial damage than the scary events themselves. The most damaging consequence of the financial crisis wasn’t the temporary 50% decline in stock prices. It was the unrecoverable loss experienced by those investors who sold in panic and have remained in cash for the past six years.”

By , Financial Times, 06/18/2015

MarketMinder's View: Indeed, uncertainty is a constant fact of life. You might say the only thing certain is more uncertainty, if you were into nerdy wordplay like we are. For all the talk of not-so-volatile markets being “complacent” in the face of uncertainty, markets today are simply doing what they always do: looking past widely discussed information and false fears, and discounting the likeliest outcomes over the next year or so. That isn’t complacency—just a bull market. We agree that “when investors come to believe that the inherent uncertainty of markets or economies has gone away, it is usually a sign of trouble ahead,” but we aren’t at that point yet. Investors are mostly still overemphasizing uncertainty (whatever that even means), not underestimating it. For more, see our 6/8/2015 commentary, “Rational Optimism, Not Irrational Exuberance.”

By , Bloomberg, 06/18/2015

MarketMinder's View: Yuuuuuuuup. Corporate profit growth often slows and even falls occasionally during bull markets—and stocks often simply move on. A lot of times, investors overemphasize these signs of weakness and underestimate the probability of future growth, setting up a big positive surprise down the road. That’s all part of the wall of worry, folks, and as this piece shows, this appears to be what’s happening now. Revenues are still growing nicely outside the Energy sector, and firms don’t rely on cost-cutting to grow earnings. The outlook for Corporate America’s balance sheet is a lot brighter than most perceive.

By , EUbusiness, 06/18/2015

MarketMinder's View: Not much new on the Grecian front today. Still no deal, no material progress at the eurozone finance ministers’ rendez-vousjust a rumor about a €10 billion six-month can-kick, which German Chancellor Angela Merkel quashed 31 minutes after it hit. Yet. So all eyes turn to Monday’s eurozone summit and to, um, Moscow, where Greek PM Alexis Tsipras is Vladimir Putin’s “star guest” at an investment boondoggle—and is hoping to line up a couple billion in return for letting Russia put a natural gas pipeline through Greece. Alternative funding strategy? Ploy to warn Europe he might cozy up to Russia further if creditors don’t concede that last bit of bailout funding? No one knows. Stay tuned, folks—but the market risks here still look small.

By , The Wall Street Journal, 06/18/2015

MarketMinder's View: So this makes a couple fair points—namely, that the strong dollar probably helps keep import prices low, tugging on inflation, and most of this May’s CPI gain came from that 10% jump in gas prices. We’ll probably see much more oil and gas-related bouncing as the last year’s worth of price gyrations work their way through the year-over-year calculation. So points for those observations. But it went on to warn this could be bad for earnings because rising costs could squeeze margins. What costs are we talking about here? Imported parts and labor? Because the strong dollar keeps those cheap. Oil? Still 40+% below last year’s peak. Natural gas? Still cheap. Fact is firms have received a huge, unintentional cost cut from the dollar and energy markets over the last year. If they did fine earlier last year, before markets gave the gift of lower costs, why wouldn’t they be able to weather a potential slight uptick from very low levels now?

By , Bloomberg, 06/18/2015

MarketMinder's View: Does it matter? The plot, which shows where Fed people believe the fed-funds rate will end the next few years, isn’t a monetary policy blueprint. It isn’t even where Fed people think rates should be. It is their forecast of economic data and estimate of how they and their fellow Fed people might respond. That is a whole lot of guessing and assuming, which is all sort of pointless since monetary policy, as Chair Janet Yellen repeatedly reminded everyone yesterday, will depend on the actual data. And decades’ worth of Fed transcripts show these Fed people are not so very good at forecasting the actual data. This is all just searching for meaning in not-so-bouncy dots. We suggest searching for hidden pictures instead—equally meaningless but far more fun.

By , The Wall Street Journal, 06/18/2015

MarketMinder's View: Yep, it is never too early to start teaching the next generation about personal finance! Though, this overlooks perhaps the biggest piece: the magic of compound growth. So simple, yet so wonderful—a penny saved might be a penny earned, but a penny invested becomes many many pennies over time. This concept underpins so many crucial financial decisions, like how you invest to meet your retirement needs. The earlier you start, the longer you have for that compound magic to work!

By , The Wall Street Journal, 06/18/2015

MarketMinder's View: We can’t really decide if this is a step forward or backward for trade-related legislation, which remains in the slow lane. Yes, Trade Promotion Authority—the so-called fast-track trade legislation allowing the President to submit trade deals to Congress for an up-or-down vote, no amendments (in return, Congress gets to help set the trade negotiators’ agenda)—passed the House today. But Trade Adjustment Assistance—programs and funding to help and retrain workers potentially displaced by freer trade—remains stalled, and the Senate’s fast-track bill was a TPA/TAA hybrid. And Senate and House bills must match. So the TPA half now goes to the Senate, and all are skeptical it will pass without TAA. And TAA faces a tough road in the House. And President Obama has said he’ll sign only the joint package. So, tough road ahead, in addition to the tough road big trade deals like the Trans-Pacific Partnership and US/EU free trade agreement already face as the many involved nations haggle over tariffs and try to protect their own pet interests. It doesn’t exactly look good for these big deals, great as they would be for growth in the long run, but that is ok—stocks would love freer trade, but failing deals isn’t a negative, just the absence of a positive. For more, see our 4/23/2015 commentary, “Will Free Trade Ring the Pacific?

By , Financial Times, 06/18/2015

MarketMinder's View: Though this is just talk for now, EU regulators’ increasing openness to securitization is encouraging—the more banks can package and resell loans, the freer they are to lend more. Securitization got a bum rap in 2008, but the trouble didn’t stem from securitized debt itself. The trouble came when US accounting rules forced banks to mark these illiquid assets, which they never intended to sell, to the most recent comparable market price. Absent mark-to-market, trouble in mortgage-backed securities wouldn’t have wiped out nearly $2 trillion in bank capital, because banks wouldn’t have had to take paper losses every time someone else sold at firesale prices. After all, realized trading-related losses and loan losses were merely in the billions, not the trillions. The trillions in paper losses were what ultimately led to panic, failing firms and the government’s inconsistent response. Securitization is a handy scapegoat, but it is mostly innocent.

By , The New York Times, 06/18/2015

MarketMinder's View: Nope, and this captures some but not all of the reasons why. As this notes, the first rate hike usually doesn’t have much impact on long-term rates, and long-term rates determine the cost of loans for consumers, homebuyers and businesses. The pace and magnitude of the tightening cycle matter far more. But in going on to emphasize the psychological impact of a rate hike’s timing on both traders and markets in general, it goes a bridge too far. Yes, the action of a rate hike says far more about the Fed’s intents to end the “era of easy money” (which we’d put in air quotes even if it weren’t a direct quote from the article because money hasn’t been all that easy) than mere words can say. But as Fed head Janet Yellen said yesterday, the timing of that first hike doesn’t say a thing about what the Fed does thereafter. It isn’t like bond traders can magically lock in certain assumptions for the next two years once rates finally move. We suspect any psychological impact will probably be more of the “hey look they hiked rates and the world didn’t end, guess it wasn’t such a big deal after all, let’s get on with life!” variety. History supports this, too. The Fed has launched nine tightening cycles since 1970, and stocks have risen over the first year after the first hike seven of those nine times. The yield curve has historically taken several months to a few years to invert after the first hike—even in the last cycle, when the Fed hiked in 17 straight meetings. These are the bigger (and most relevant for investors) reasons the timing of the Fed’s next move doesn’t much matter.

By , Financial Planning, 06/18/2015

MarketMinder's View: Labor Secretary Thomas Perez and some industry reps and experts testified in the House of Representatives about the DoL’s proposed fiduciary standard for anyone providing investment sales or advice on a retirement account, and it looks like the discussions were chock full of mythology about the rule and its effects, good or bad. So, time to set aside all biases, tune out the party affiliation of who said what, and just consider the facts. The DoL says this standard is necessary to ensure advisers and brokers act in their clients’ best interests, but we’ve read the rule, and it will ensure no such thing. It is full of loopholes that enable everyone to navigate conflicts of interest without materially changing their behavior, recommendations or products sold. The rule would just increase disclosure and paperwork. It would not end commissions on trades or products sold, nor would it prevent the sale of pricey products like variable annuities and non-traded REITs. That means legislators’ and the industry’s concerns about brokers leaving the biz because they can’t compete and earn a living, leaving millions of American underserved, it probably also off base. They’ll be able to earn a living just fine, and rules won’t prevent them from serving smaller accounts. Similar concerns plagued the UK before their own, similar rules took effect, and they ended up overwrought. Look, we’re all for transparency and accountability in this industry, and we’d love for every shop out there to put clients first, always and everywhere. But rules won’t bring this about, because rules don’t govern values—and values ultimately determine behavior.

By , Bloomberg, 06/17/2015

MarketMinder's View: Obviously Greece isn’t going to go anywhere, but imagining if it just ceased to exist is a thought experiment that can help you see why the global market risks from a messy default and eurozone exit should be small. Greece is small! Deleting Greece would reduce EU stock market capitalization by 0.2%, cut EU GDP by 1.5% and shave 1% off EU trade volumes. Scale it globally and the impact shrinks further. Debt is bigger than Greek GDP, but the private sector holds few of those IOUs, and eurozone governments’ holdings range from 1% to 2% of GDP. We daresay few ever expected it all to be repaid with full interest. This parallel is also worth considering: “If EU member Greece just disappeared and re-emerged as Hellas, a newly non-EU state, leaving its debt behind, it would be just like the countries that emerged from the Soviet Union's breakup. They, too, had clean slates, because Russia assumed responsibility for their debts. There was a lot of purely psychological fallout, of course, including a fallen-empire complex for many Russians and a reallocation of trust in the markets. Yet the EU is probably better able to handle this than was Russia in the early 1990s: It is much stronger economically and more enlightened about how the world works.” For more, see yesterday’s commentary.

By , The Telegraph, 06/17/2015

MarketMinder's View: This list of small business growth hotspots—led by Northern Ireland, with the north of England close behind—is anecdotal, but it is more evidence the UK’s expansion is hardly a London-only phenomenon. Headlines often grouse about the “unbalanced” economy, implying financial services are pulling the wagon while all else stagnates, but the geographic balance shows this just isn’t true. The manufacturing, heavy industry, high technology and other service industries driving growth outside the capital are all powering the UK economy.

By , The Wall Street Journal, 06/17/2015

MarketMinder's View: Hear ye, hear ye! Birth rates are not cyclical economic drivers. Population growth hasn’t driven one single US expansion. Nor has it fueled a bull market. Population trends move glacially. You can see demographic shifts coming decades in advance. Stocks don’t move on such slow, widely known factors. So please do not get overly excited by grand statements like this: “Higher fertility is positive for the economy because it means more workers in the future to propel growth and pay for the social benefits of the elderly. It also means more people to consume the nation’s goods and services.” Maybe it is true over the very, very, very long term! But it is simply a non-issue for markets and our economy over the foreseeable future.

By , Bloomberg, 06/17/2015

MarketMinder's View: We’ve often mentioned that while Greek leaders and eurozone officials have strong incentives to keep compromise and keep Greece afloat, ration and logic don’t always prevail in these matters. This article shows why, drawing cleverly on behavioral psychology and the human condition. It is all sociology, but if you want to understand why this saga is so fraught and unpredictable despite the obvious advantages of compromise, this will shed a lot of light.

By , The Wall Street Journal, 06/17/2015

MarketMinder's View: There are some sensible nuggets here, like the parting observation that future bailouts probably aren’t imperiled by the federal court’s ruling that the Fed and Treasury overstepped their bounds when wiping out AIG’s shareholders as they nationalized the flailing insurance giant in 2008. But overall, this paints the AIG bailout in a bizarre light, saying it was the “we’re all in this together” moment in 2008’s financial panic, implying it helped restore confidence. Actually, it did the opposite. It was the giant “wait, huh?????” that capped the government’s increasingly schizophrenic crisis management. First, they married Bear Stearns off to JPMorganChase. Then they seized Fannie Mae and Freddie Mac. Then they forced Lehman to fail—when it was in the exact same predicament that earned Bear a shotgun wedding months earlier. (Don’t believe us on the forcing part? Check the Fed transcripts.) And then they nationalized AIG, before treating WaMu and Wachovia like run-of-the-mill failing banks days later. That inconsistency is what sent markets reeling that autumn, and AIG was a prime source of that confusion.

By , The Wall Street Journal, 06/17/2015

MarketMinder's View: Yep, quoting daily Dow swings in points is meaningless, and not just because the Dow is a broken, narrow, price-weighted index! It is also really big, just under 18,000 points. “The DJIA first closed above 100 points on January 12, 1906, almost a decade after it was founded. More than 80 years later, the DJIA had its first 100-point day on Friday, Oct. 16, 1987, when it fell 108 points, or 4.45%. The next trading day, of course, was “Black Monday,” during which the Dow crashed 508 points.” Today, a 100 point move is about 0.55%. That isn’t earthshattering. It was Monday.

By , Reuters, 06/17/2015

MarketMinder's View: So Japanese publicly traded stocks have a new corporate governance code, and expectations are high for it to shake things up. This move has been a long time coming, and the combination of outside directors and more powerful shareholders could help push long-slumbering Japan Inc. in a more dynamic direction, rooting out bloat and inefficiencies. There is some evidence shareholders are starting to hold board members’ feet to the fire. Yet, how much success they’ll have remains in question. The old guard is entrenched and set in its ways, and some execs are already circling the wagons. So while it is too soon to tell how much this change will help Japan over time, we’d suggest keeping expectations grounded.

By , The Wall Street Journal, 06/17/2015

MarketMinder's View: Most of the discussion here mirrors what we’ve said in recent commentaries and other blurbs, so we apologize for any perceived redundancy. We find it worth highlighting because it sheds some light on a less-discussed aspect of a Greek exit—Target2, or Greece’s liabilities in the European payments system. “Greece’s liability in Target2—which covers not just fleeing deposits but the net result of all transfers between Greece and the eurozone—roughly doubled to €98.7 billion from the end of 2014 to the end of April as capital flight gathered pace. This looks like a big debt. However, unlike normal debt it has no repayment date and Greece only defaults if it stops paying interest. Default in this case would cut Greece off from Europe’s payments system, making cross-border trade more difficult—something Greece would surely want to avoid. The interest cost is the ECB’s main refinancing rate, which at 0.05% represents an annual fee of less than €50 million to keep exports and imports moving after a Greek exit.” Quite manageable.

By , eKathimerini, 06/17/2015

MarketMinder's View: So after Syriza took power, they formed a Parliamentary committee to audit the legality of Greece’s entire debt load. This group, led by Parliament Speaker Zoe Constantopoulou, is called the Debt Truth Committee, and we promise we didn’t make that up. Anyway, they released their findings today, in a sharp report to a Bank of Greece report that warned of catastrophic consequences should Greece renege on creditors. First, the Speaker lambasted the Bank of Greece for releasing its report on a memory stick, not paper, and we promise we didn’t make that up, either. And then, the Truth Committee’s verdict: “All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate and odious.” (Because, you know, illegal alone isn’t enough. It has to be illegal, gross and smelly.) Folks, this is all theater. Syriza’s various fringe elements have been saying stuff like this for months. Their words have carried little weight thus far, and we imagine this latest salvo won’t tip the scales. Chalk it up merely as a sign of the increasingly bizarre times in the Hellenic Republic.

By , The Telegraph, 06/17/2015

MarketMinder's View: Well, yes, they do! But not because bouncy bond markets, oil prices and a Chinese hard landing are huge risks. The Greek threat is small because of all the factoids described in the article’s first half, like backstopped eurozone financial markets and the accompanying low risk of contagion. So, points for that. But then our quibbles begin, and we have a large quibble with the notion of an economic boom as a stock market risk. Yes, boom turns to bust eventually, such is the economic cycle. But this underestimates how long booms can last. Usually, they end when everyone a) recognizes them as booms and b) forgets about the bust. Today, few see America’s expansion as a boom. “Recovery” is still the most frequent description. Moving on to bond yields, even if they do rise from here (we expect yields to finish the year flattish, as explained here), interest rates and stocks have no set relationship. Stocks have done fine alongside rising rates at times and not so fine at others. Fears rising yields will hurt stocks now makes the erroneous assumption low rates underpin the bull market—ignoring the many economic and political factors supporting stocks the past six-plus years. As for oil, it has rebounded some off its lows earlier this year, but at roughly $60/barrel it remains down significantly from a year ago. Even if Middle Eastern conflict disrupts OPEC supply, US shale producers have a huge “fracklog” just waiting to come online. Finally, folks have feared a Chinese hard landing since 2011, and it has yet to materialize. It remains unlikely as ever, as the government continues to cushion its deliberate economic slowdown and rebalancing with very accommodative monetary policy.

By , CNN Money, 06/17/2015

MarketMinder's View: As far as basic primers on target-date funds (TDF) go, this is fine—simple, easy to read and no jargon. But we’d be remiss not to point out TDFs’ flaws and drawbacks. Chiefly, they embody the misperception that age alone should determine asset allocation, investors should own fewer stocks as they get older, and time horizon ends at retirement. This ignores the time value of money, and it ignores the fact most new retirees could need their investments to provide for them for two or three decades—or more. This could require achieving equity-like returns well after retiring, as well as higher equity exposure in their prime working years. TDFs grant the opposite. They also can’t account for an individual’s personal circumstances, needs and overall financial situation. Our advice: Don’t base decisions on your age and retirement date alone. Consider your total time horizon—the length of time your portfolio needs to provide for you, your family or beneficiaries—as well as your needs and potential life events. The right asset allocation for your situation may look quite different from a TDF. For more, see our commentaries here, here and here.

By , Bloomberg, 06/16/2015

MarketMinder's View: Well, the charts here are fine (if backward-looking), and we agree the economic “weakness” from earlier this year was overstated. However, we fail to see how this bolsters “Yellen’s reputation as a top forecaster among Federal Reserve policymakers.” Pretty much every economist saw this coming. It didn’t take psychic powers or economic X-ray Spex. Just an understanding of GDP math and awareness of the BEA’s seasonal adjustment issues. We could also quibble with this notion of Yellen being a superstar forecaster by pointing out some of her past foibles. Like in 1996, when Yellen agreed with then-Fed Chair Alan Greenspan warned of “irrational exuberance”—several years before the bull ended in March 2000. Or in 2008, when Yellen joked about falling demand among plastic surgeons and country club memberships as Lehman Brothers died and the Financial Crisis was entering its even more chaotic stages. This isn’t to throw verbal tomatoes at our Fed head—the fact she isn’t a great forecaster puts her right there with all the rest of the Fed heads. Not their bag, if you will. Nor do they really need to be. Their job is to stand ready as lender of last resort and manage money supply growth.

By , CNN Money, 06/16/2015

MarketMinder's View: While we agree with the title, this doesn’t win full points. For one, it fails to distinguish between true bull market corrections—short, sharp, sentiment-driven drops of -10% or greater—and bear markets, which are deeper, longer and have fundamental causes. World stocks haven’t had a correction since 2012, but that doesn’t make one any more or less likely today. Nor does it mean anything about the likelihood of a bear market. It is true that bear markets and economic recessions often coincide, and recession looks highly unlikely in the foreseeable future, but we also wouldn’t advise waiting for the powers that be to declare recession before you turn bearish, because stocks are a leading economic indicator. Bear markets usually begin before recession becomes readily apparent. We do award points to the discussion of valuations, though, because they aren’t predictive, and they indeed can “stretch a long time before they snap,” as the economist interviewed here said. And as he also notes, the cyclically adjusted P/E ratio (CAPE) is distorted by collapsed earnings during the last recession, making it mostly useless. Anyway, most telling about this piece: Most pundits still expect muted market returns, suggesting sentiment carries some doubts. That’s bullish, in our view.

By , EUbusiness, 06/16/2015

MarketMinder's View: Just when you think Greece’s saga can’t get any more bizarre, Prime Minister Alexis Tsipras accuses the IMF—the one creditor that actually supports Greek debt relief—of “criminal responsibility” for austerity measures. But, as German Chancellor Angela Merkel said, there is, “unfortunately very little that is new to report.” Tomorrow will probably be even weirder. One of four things will eventually happen: Greece gets money, Greece defaults and stays in the euro, Greece defaults and leaves the euro, or they just kick the can a few months ahead. Either way, global market risks remain small. Greece is too small, eurozone markets are backstopped, and investors have realized Greece is an isolated case of messiness. For more, see Elisabeth Dellinger’s column, “Greece Has Some Loans to Repay.”  

By , Financial Times, 06/16/2015

MarketMinder's View: “Investors are moving their money out of equities and into cash in anticipation of a Greek default and a Federal Reserve rate rise this year, with record numbers taking out protection against a fall in equity markets this summer!” Sounds scary! And then you see the stat: “Global fund managers increased the amount of cash in their portfolios from 4.5% last month to 4.9% in June.” Not to 14.9%, not to 49% … 4.9%. Which seems … not so scary at all. Also, if fund managers are making these moves because of Greek default and a Fed interest rate hike concerns now, where were they this entire year? These aren’t new issues—they’re the same old false fears that have persisted throughout this bull market. This is a prime example of the crowd reacting wrongly to widely known information.

By , Bloomberg, 06/16/2015

MarketMinder's View: Well, last year the CBO forecasted 2039 government debt to reach 106% versus the 74% in 2014, and this year, they’re projecting 105% of GDP in 2039, so yay, they’re projecting slower debt growth? Actually, given the CBO’s rather abysmal long-term forecasting record, we suggest investors not fret this big, scary-sounding number that comes with little context about how the rest of the world looks in 2040. Extrapolating recent trends decades down the road uses the recent past as evidence of how the distant future will look—a mistake for any forecaster or investor. Unimaginable changes, good and bad, can happen between now and then. Besides markets look no further out than 30 months or so and focus most on the next 12-18. And within that time frame, what matters is simply that debt is increasingly affordable. No Greece here.

By , The Telegraph, 06/16/2015

MarketMinder's View: For all the (misperceived) concerns about an “unbalanced” recovery, the UK’s ascending tech sector is a strong counterpoint. This phenomenon is relatively new, but firms and entrepreneurs are realizing the UK is a great place to do business. The tech industry has a long history of being a magnet for itself—companies tend to cluster together, so ideas can feed off each other. Britain has a growing cluster. Or should we say, clusters! “Silicon Britain” isn’t just a London phenomenon—places like South Wales, Bristol and the West Midlands are experiencing some of the fastest business activity and growth in the country. This is all a nice long-term positive for the UK economy. For more, see our 4/29/2015 commentary, “Britain’s Balance.”  

By , Vox, 06/16/2015

MarketMinder's View: Ok party people, what time is it? Time to take off your partisan hats, set aside your ideological leanings, and get “just the facts” on why legislation necessary to pass future trade deals is dying on the vine. Points 1-3 here illustrate the specific issues Democrats and Republicans have towards the Trade Adjustment Assistance (TAA) and Trade Promotion Authority (TPA)—essential components for the US to negotiate the Trans-Pacific Partnership (TPP). Given the gridlock in Congress, the failure to come to an accord here isn’t surprising. We probably wouldn’t use “cronyism” to describe the investor-state dispute settlement system and patent issues explained in point 4, but it otherwise does show how the political winds are blowing. And yes, trade discussions being conducted in secret is normal—even beneficial—but that just isn’t popular today. Congress always gets to vet negotiated deals before voting on them—everything ends up in sunlight. But again, politics. So those are the roadblocks to freer trade. Our trading partners are the other big road block, as it is hard to get 12 countries to agree on meaningful tariff reductions—each has their own pet interests to protect. But, as we’ve long said, this isn’t a big negative for markets—just the absence of a long-term positive. For more, see Todd Bliman’s column, “It’s the Slow Lane for TPP.”

By , Bloomberg, 06/16/2015

MarketMinder's View: Do you remember when ECB President Mario Draghi announced the ECB would do “whatever it takes to preserve the euro” in 2012? “Whatever it takes” ended up being the Outright Monetary Transactions (OMT) program, in which the ECB would buy troubled countries’ short-term debt to help reduce borrowing costs. The ECB hasn’t yet used it. Some euroskeptic politicians tried to ensure they’d never use it by challenging OMT’s legality in the European Court of Justice, but their bid failed. OMT is legal, confirming what most concluded three years ago. The implications here are limited, but considering OMT was QE-lite, there was a chance killing OMT could have raised questions about QE. (Though, that’s probably the next legal challenge waiting to happen.) Anyway, this group of pols has challenged pretty much every bailout mechanism in the European courts, and they’ve always lost, which speaks to the political will to keep the union together. It remains intact with today’s ruling.

By , Forbes, 06/15/2015

MarketMinder's View: Quite simply an excellent article and one we believe you must read. Here is a sample, but we implore you to read the whole thing: “Indeed, the accepted wisdom about the bull market raises many simple objections.  For one, the Fed’s imposition of artificially low interest rates on the way to supposedly easy credit would have to be one of the few instances in global economic history of price controls actually leading to abundance over scarcity.  City mayors eager to decree apartments cheap would be lined up to learn the Fed’s secret if a low Fed funds rate had in fact made credit ubiquitous.” For more, see our 05/15/2015 commentary, “The Fed Isn’t Fueling This Typical Bull Market.”

By , Bloomberg, 06/15/2015

MarketMinder's View: Here again, set your partisan politics aside. This is an excellent article detailing the absurdity of a few US Senators’ argument that US public companies’ share buybacks are “market manipulation.” This all seems to operate on the faulty notion share buybacks prevent firms from expanding or investing in R&D, hurting workers and the economy. The two, as we’ve shown, are not mutually exclusive. We mean, buybacks are often debt-financed. Hiring salaried workers rarely is, because it is a recurring and regular expense. Conflating the two presumes a) public companies issue no bonds (obviously false!) or b) that hiring and wage increases are debt-financed (bizarre).

By , MarketWatch, 06/15/2015

MarketMinder's View: It should do no such thing. That household wealth is up by $24 trillion since 2009 to reach nearly $100 trillion in total is a fun factoid, but it is useless. To forecast future economic and market conditions based on this presumes past performance indicates future results in stocks, bonds and housing—because those markets are responsible for the lion’s share of the increase. This report also comes out at a lag—the current report is for Q1 2015. Backward-looking data regarding past performance that is published at a nearly three-month lag isn’t a leading indicator. If this weren’t the case, then every big bull market would be a nearly unstoppable positive feedback loop, and bear markets would be a negative one.

By , CNBC, 06/15/2015

MarketMinder's View: Well, we agree the Fed hiking rates in 2015 isn’t likely to repeat the mistakes of 1937, but that’s because the mistakes in 1937weren’t hiking short-term overnight rates, but rather, reserve requirements, which they nearly doubled. The Fed believed doing so wouldn’t have much impact—banks already held excess reserves nearly sufficient to cover the increase. Yet this was overconfidence on the Fed’s part—banks wanted the liberty of having excess liquidity, given the terrible crisis from 1929-1933. So when the Fed hiked reserve requirements, banks slashed lending and raised capital furiously. Anyway, there is very little comparison between that move and an initial rate hike from 0-0.25% to 0.50% or whatever. One is big, the other isn’t.

By , The New York Times, 06/15/2015

MarketMinder's View: OK party people, what time is it? Time to set aside partisan politics to take two useful investing lessons from this one. In case you didn’t hear, former Florida Governor Jeb Bush announced his candidacy for President Monday, and in his announcement, he targeted 4% annual US GDP growth (creating 19 million new jobs). This article suggests that, if growth continues at a 2.2% annual rate through the inauguration, the goal will be hard to achieve because the US economy would then be operating “above potential growth.” Potential growth, as we’ve noted here many times, is coulda-woulda-shoulda-been GDP that presumes full employment and business operating at or near full capacity throughout. We’ve been below that since 2008, due to … well … 2008. However, this is a faulty statistic. The CBO has no magic formula suggesting what growth would actually be given a set of mathematical inputs—this is a striking illustration of what F.A. Hayek called, “The Pretense of Knowledge.” But also, you should be very wary of presidential candidates’ big economic claims, too. The US Federal government directly accounts for 7.0% of US GDP. Including all state and local governments, the public sector’s share is 18.2%. We live, thankfully, in a private-sector driven economy. Contrary to what some folks believe, the US government simply has far, far less to do with economic growth than many fear or laud. So go ahead and vote next fall, but please don’t base investing decisions on some nice sounding vision of government bringing millions of great jobs and prosperity. The private sector, imperfect as it may be, is your ticket for that.

By , The Wall Street Journal, 06/15/2015

MarketMinder's View: So the message of this is fine—that stocks rise more often than they fall post-initial rate hike. But the data and evidence have some issues we think you should note. First, 1987 wasn’t five weeks after rates’ “liftoff,” it was well into a tightening cycle that began in 1986. That cycle began 150 days before stocks peaked on August 25, 1987, and US stocks rose 35.7% from the first hike until that point. The October 1979 moves were far more expansive than a mere rate hike—they hiked the discount rate sharply, increased reserve requirements for certain loan types and announced they’d cease targeting fed-funds. All that and the result was a correction, not a bear market! Finally, while the bar chart here is more or less fine, an even broader view of the data show Fed initial hikes just don’t predict short- or long-term market direction. For much more, see this or this.

By , MarketWatch, 06/15/2015

MarketMinder's View: Well, this is odd because manufacturing grew the last two months prior to a -0.2% m/m dip in May. The discussion here shifts back-and-forth between industrial production and manufacturing, which is a subset of the former. Declining oil output has heavily influenced industrial production over the past six or seven months. Plus, heavy industry isn’t at the forefront of the current US expansion, so we’d caution you against thinking there are broad implications for the US.

By , Bloomberg, 06/12/2015

MarketMinder's View: The “research” is speculation that the headline unemployment rate could drop as low as 4.3% without causing inflation to markedly rise—the so-called Non-Accelerating Inflation Rate of Unemployment (NAIRU). There are a couple of things to note about this. One, few economists agree on what the NAIRU truly is, and it changes over time to boot (presuming it even exists—more on that in a sec). Here is one such economist on the subject from 1996 whose name you may recognize: “Nevertheless, let me conclude by saying that I would not want to carry such reasoning too far. First, an unemployment rate of 5.1 percent lies near the lower end of almost anyone's estimated NAIRU range. Second, whatever the NAIRU, the unemployment rate does have predictive power for changes in the inflation rate. The probability of an increase in inflation is clearly higher when labor market slack is lower. For that reason, I conclude that the risk of an increase in inflation has definitely risen, and I would characterize the economy as operating in an inflationary danger zone.” That was now-Fed head Janet Yellen at the September 24, 1996, meeting of the Federal Open Market Committee. For the record, today’s unemployment rate is 5.5%. But also, consider: Even her claim here tying unemployment and inflation was debunked by Milton Friedman in 1968 and by the economy in the 1970s.

By , The Wall Street Journal, 06/12/2015

MarketMinder's View: We weren’t puzzled. From moment one, we said (as did many others) that GDP’s Q1 slowdown was a one-off and could be revised. But not because retail sales were revised, rather, due to a quirk in the seasonal adjustment some estimate could cause GDP growth to jump to 1.8% or so. It won’t be done until July, anyway. Besides that, there was a major work stoppage at West Coast ports and a frigid winter. Don’t overthink it. But also, don’t use backward-looking economic data to forecast financial markets, because markets look forward. Oh and even couching this in terms of the impact of a rate hike isn’t quite right. This offers no evidence initial rate hikes regularly wreak havoc on stocks—just claims without data. Welp, here are our data showing Fed rate hikes have no materially negative impact on stocks. So what is this based on other than raw fear and the presumption it’s different now with rates at or near zero?

By , Reuters, 06/12/2015

MarketMinder's View: We’ll admit that when we first read this headline, we mentally added the word “today” to the end. “Euro Zone Formally Discusses Greek Default for First Time Today.” But the fact it isn’t new news that Greece could default isn’t even the biggest misperception in this article. It’s this: “The discussion was very theoretical because the scenario of a euro zone country defaulting within the currency union would be without precedent. The meeting came to no conclusion on it.” Ummm. What about the two “haircuts” Greece took in 2012? “Haircut” is a euphemism for default. Make no mistake: It is a default when private bondholders are forced to write down the value of holdings by 53.5% (or nearly €100 billion). Also, when the bond issuer (Greece) buys back bonds from private bondholders at 35 cents on the euro, that is a default. These aren’t cute little trims taking a wee bit off the top. Heck, even the credit-ratings agencies all called this a default.

By , Bloomberg, 06/12/2015

MarketMinder's View: The one “housing chart” causing a guy insomnia is one showing the share of homeowners whose outstanding mortgages exceed their home’s value is 15.4%, down from over 30% in Q2 2012, but “still alarmingly above the 1 or 2 percent that marks a healthy market, said (Stan) Humphries, the chief economist at the Seattle-based real-estate data provider.” While it’s true many homeowners are presently underwater, this just isn’t the economic threat many presume. Yes, it makes it hard to move. (The author of this blurb is experiencing that first hand.) Yes, those who are underwater do seem to default on their mortgages more often than those who don’t. But, according to real estate data firm RealtyTrac, new foreclosure initiations were at 51,773 in April, down 5% y/y and a fraction of their peak level six years ago. More importantly, housing just isn’t as big a slice of the economy as many presume.

By , The Motley Fool via CNN Money, 06/12/2015

MarketMinder's View: The five tips that close out this article are quite handy, as is the caution that most any narrative can mine supporting data, leaving the onus on the reader and investor to separate fact from bias. But we also think this gives short shrift to history’s usefulness. Does it repeat perfectly? Nope. Do we have dozens of economic and market cycles to study? Nope. But we have enough data to use history as a baseline—figure out how stocks and the economy have acted under analogous historical conditions, and use that as a starting point to form probabilities in the here and now. For example, the Fed has launched nine rate-hike cycles since 1970. US stocks have risen during seven of those nine first years, which tells us that while rate hikes aren’t inherently positive, they aren’t automatically negative, either. We can also measure loan and broad money supply growth during this cycle, compare them to prior cycles, discover they’re the slowest this time, and intuit that slow money creation and a flat yield curve probably bear some blame for the fact GDP growth during this expansion was the slowest since WWII. All that stuff is useful. Just beware of the temptation to confuse coincidence with causality.

By , The Telegraph, 06/12/2015

MarketMinder's View: Um, no? Look, we rag on Greece now and then, but let’s be clear: For all its competitiveness issues, it is not a banana republic with no property rights, no rule of law and a kleptocratic dictator. Nor will a default and eurozone exit spiral it into a hyperinflationary nightmare where one dollar would equal 250 trillion drachma. That requires monetary mismanagement of epic proportions. Monetizing a couple hundred billion in debt—in all likelihood less than that, presuming default precedes Grexit—wouldn’t cut it. Would a drachma probably devalue compared to the euro? Yah, fundamentals and state payroll requirements point that way. But let’s not overstate matters. Actually, as The Telegraph’s Ambrose Evans Pritchard highlighted last week, Greece could end up doing fine with a weaker drachma.

By , Financial Times, 06/12/2015

MarketMinder's View: Well we guess if a national leader is going to accidentally declare war on the world, a currency war is probably the best case scenario. Kidding! Actually, this whole “currency war” bugaboo is entirely fictional. We’ve seen lots of talk about countries trying to gain an export edge by weakening their currency, making goods cheaper abroad. We’ve seen very little of countries actually weakening their currencies deliberately to make goods cheaper abroad. Korea and Taiwan didn’t devalue when the yen weakened. In this case, it seems the German Chancellor was simply trying to soothe German business leaders’ angst over the weaker euro (which they aren’t fond of due to feared inflation implications) by pointing out a silver lining—the weak euro benefits Spain and Portugal. That isn’t talking down the currency, folks—it’s trying to score political points. We’d say the same for any leader in the headlines for currency-related comments this week. Oh, and even if this were all true, and countries were trying to devalue, the economic risks are small to nonexistent. Currencies trade in pairs. You can’t race to the bottom, because there is no bottom. What you’d get is bouncing currencies, which is basically everyday life.  

By , Marketwatch, 06/11/2015

MarketMinder's View: Why? Because today allegedly resembles 1987, when “rising-rate action caused stock prices to tumble more than 30% within two months, including a sharp 20% selloff in October – still among the Dow Jones Industrial Average’s worse one-day percentage declines ever.” Interest rates are up now, and since stocks allegedly “follow” bonds, “the recent 12% plus loss in bond prices would generate a 24% decline in stock prices.” And since stocks haven’t followed bonds yet, look out below. That is the theory and oh, let us count the flaws! There is a big, big difference between the 10-year Treasury’s rise from 7.18% when 1987 began to 8.73% on 8/25/1987, when stocks peaked, and the year-to-date rise from 2.12% to 2.5%. A 38 basis-point rise to a very, very low level hardly signals the same sort of liquidity crunch bond markets registered in 1987. That liquidity crunch was ignored by most investors, who dreamed up ever-more irrational reasons why stocks should keep booming—euphoria that overlooked deteriorating fundamentals. What we have today is the opposite, skeptical investors making much too much of an overall benign movement. As for the Fed angle, sorry, but 1987 didn’t happen because the Fed hiked the discount rate from 5.5% to 5.95% in August. Also, arguing the Fed sat on its hands before then ignores two fed-funds rate hikes. Oh! And stocks and bonds are NOT correlated. If they were, then why would cash flow-taking investors hold big chunks of bonds to reduce short-term volatility? Why would stocks and bonds often move in opposite directions? This also errs terribly in assuming it is possible to use one liquid market to forecast another. That isn’t how it works! All similarly liquid markets discount widely known information simultaneously. Stocks are already well aware of whatever bond markets have been pricing in. Stocks have priced it in, too! They have just priced it in as a good thing. Don’t overthink it. 

By , USA Today, 06/11/2015

MarketMinder's View: 20% of S&P 500 stocks are down at least 20% from their 52-week highs—up from 4% a year ago—and this is supposedly a “dramatic wakeup call for investors who have been lulled into thinking this market can solider higher no matter what.” And we are pretty sure the percentage of investors fitting that description rounds to zero, because we read over 100 financial publications daily and talk to many, many, many people, and we have heard that sentiment zero times. Nor is the rising number of 20+% decliners a sign of deteriorating fundamentals. As bull markets mature, it is normal for the number of stocks driving the broad rally to decline. The biggest companies usually lead in maturing bull markets, and in cap-weighted indexes like the S&P 500 and MSCI World Index, the biggest companies—though fewer in number—contribute heavily to the index’s return. The percentage of companies outperforming their index—known as market breadth—can decline for years before bull markets finally end, and the percentage of stocks down over 20% isn’t a bear market signal.

By , via CNBC, 06/11/2015

MarketMinder's View: The data here are lovely, with May’s 1.2% month-over-month rise in retail sales suggesting consumers are happily spending their savings at the gas pump—something econ-watchers have awaited for months. However, the surrounding commentary is a mixed bag. These data, combined with other reports, are indeed a sign Q1’s GDP contraction was a blip. But they don’t suggest the economy is “finding momentum,” because momentum isn’t a thing in economics. Physics, yes, but not economics. Nor do retail sales represent all consumer spending—that tilts heavily toward spending on services, which isn’t captured in this report. Finally, rising home prices don’t drive spending. The so-called “wealth effect,” which claims rising asset prices make folks “feel” richer and thus more eager to shop, has always been a myth. Disposable income drives spending, so we find it far more meaningful that real disposable income is rising at a decent clip.

By , Financial Times, 06/11/2015

MarketMinder's View: We have one question: How can a central bank be at war with deflation if there is no deflation? And a follow up: How can they lose said war if there is no deflation? Yes, May’s 1. 2% annual inflation rate is well below the government’s target of around 3%. But 1.2% inflation is not deflation. Nor does slowing inflation automatically turn to deflation. Particularly not in places where broad money supply notches double-digit growth, like China. That country, like most others on planet Earth, is enjoying the fruits of falling commodity prices and low shipping costs. Good, not bad. And the central government is already attending to the local debt troubles discussed here, and because there is no deflation, the “real cost of repaying debt” is falling, not rising.

By , Associated Press, 06/11/2015

MarketMinder's View: Once again, a ratings agency bases a move on information every investor in the world already knew. We are fairly certain no one paying any attention to capital markets hasn’t entertained the possibility—indeed, probability—Greece will default if it can’t secure its remaining bailout funds. Heck, most seem to think those funds won’t be sufficient, and Greece will need more debt relief either way. This downgrade only confirms what bond markets have already discounted.

By , The Wall Street Journal, 06/11/2015

MarketMinder's View: Here is yet another supranational organization changing its growth forecast based on what has happened, not necessarily what will happen. They do this all the darned time, and it means next to nothing for global markets—partly because this is just a rehashing of widely discussed information, partly because these organizations often get their forecasts wrong. Growth could very accelerate in 2015’s second half, causing them to bump their projections back up or eat some happy humble pie at year-end.

By , The Wall Street Journal, 06/10/2015

MarketMinder's View: The imagined scenario goes something like this: Low liquidity will wreck bond markets. “Sellers will offer securities, but there will be no buyers,” because the Volcker Rule and other regulatory requirements will prevent banks from stepping in. “Prices will drop sharply, causing large losses for investors, pension funds and financial institutions. Additional fire sales will aggravate the decline.” Then banks will shed assets and stop lending, robbing businesses of financing and triggering a recession, layoffs and all that nasty stuff. This is all highly unlikely, folks. Yes, there will undoubtedly be a bear market and recession at some point. Such is business cycle’s unstoppable nature. But this just makes some very odd suppositions about banks. It assumes banks are the ones who buy when there is blood in the streets, stemming a panic, and without them there will be no buyers to stabilize markets. Not true! Banks have never fulfilled that role. That pleasure goes to individual and institutional investors—otherwise known as the “value investors” Bloomberg’s Matt Levine so excellently discussed here. As for the lending angle, the whole point of big capital buffers is for banks to be able to draw on them for liquidity when things get rough. The rules are designed to allow for this, giving banks some wiggle room if they fall under regulatory minimums during a crisis. Not that they’ll keep lending willy nilly, but they probably won’t need to deleverage to the degree imagined here. Capital below 8% won’t render them bankrupt in regulators’ eyes. Oh, and most of the assets that might theoretically damage banks’ capital are held to maturity, where mark-to-market accounting rules don’t apply, rendering much of this discussion moot.

By , Reuters, 06/10/2015

MarketMinder's View: Here is a dose of misplaced bullishness. Labor markets lag the broader economy, usually by several months, so record-high job openings don’t mean growth will surge from here. Those job openings came from past growth. Rising wholesale inventories are another weird reason for cheer, as inventories are open to interpretation. They do contribute positively to GDP, but if they were the only reason for growth we wouldn’t exactly jump up and down, because it could mean low demand caused goods to pile up. We guess the rise in small business confidence is sort of encouraging, but confidence is at best a coincident indicator. Don’t get us wrong, we’re bullish on stocks and optimistic about the economy! But for other reasons, like the widening yield curve spread, high and rising Leading Economic Index, rising bank lending and healthy consumer and corporate balance sheets.

By , Financial Times, 06/10/2015

MarketMinder's View: This is all so bizarre. Japan’s central bank chief, Haruhiko Kuroda, stated the obvious: The yen has like totally weakened. Then he stated an opinion: He thinks it is now fairly valued. (Whatever that means.) Then the yen soared. Then the financial media spilled a lot of pixels. Then Japan’s trade minister said markets had “misinterpreted” Kuroda, who “had not intended to move markets.” So, oops? Also, does it matter? Investors have a long, long, long history of responding quickly and bizarrely to central bank actions and statements. Nothing unique or earthshattering happened here. Today wasn’t abnormal. It was Wednesday.

By , The Telegraph, 06/10/2015

MarketMinder's View: Eek. This is a solution in search of a problem—and one that could seriously hamper Her Majesty’s Treasury, distort UK bond markets and unnecessarily tighten fiscal policy. There is nothing at all economically wrong with countries running budget deficits in good times or bad. Companies do it all the time, borrowing to fund growth. A little leverage can be good for national governments, too. Not that we’re keen on big governments running amok—they don’t always spend wisely—but money borrowed by governments usually finds its way to productive uses after changing hands two or three times. This would also needlessly limit UK bond supply, making banks and investors turn elsewhere. And the UK doesn’t even have a debt problem. Its debt is quite affordable by historical and international standards, with interest payments below 10% of tax revenue. Plus, it is unclear when borrowing would be green-lit, and the rules could end up delaying fiscal stimulus during a recession, because we rather doubt any surpluses would end up stored in a fiscal stimulus “lock box.” The UK will likely be best off if gridlock kills this proposal—as it very well could.

By , Reuters, 06/10/2015

MarketMinder's View: At first we thought this showed up in the headlines by mistake, an article from early 2013 accidentally finding its way to the front page. But no, it was published today. Fears of competitive currency devaluations, more colorfully known as currency wars, are as off-target today as they were back then. If the weak yen didn’t dent output and exports in other Asian nations for two years, then why would they suddenly start devaluing in response now? It makes zero sense, and Asia’s currency moves this year have much more to do with the dollar’s rise. Also! Asia’s 1997 financial crisis wasn’t a currency war. Things didn’t blow up because countries devalued to gain an export edge. The crisis happened because countries had unsustainable currency pegs. They were trying to prop up their currencies to match the ascending dollar. They devalued when they couldn’t hold out any longer, sending their currencies plummeting and wrecking all debt denominated in dollars. Nothing here is analogous to today, as most of these nations have free-floating currencies. This is all just markets being markets.

By , Bloomberg, 06/10/2015

MarketMinder's View: We hesitate to even blurb this, because these sorts of reports are usually denied and denounced within half an hour, but here goes nothing. Evidently, according to the ever reliable people familiar with the matter who don’t want to be named, Germany is willing to let Greece have some money for partial agreement on reforms. Like, maybe, if they agree to a VAT hike, they get a billion. And maybe another billion if they privatize some things. It’s like following a trail of austere breadcrumbs to a bailout. Anyway, we guess if this is true it is one small step toward compromise and money for Greece. But we aren’t holding our breath just yet. And we are sorry if this is all out of date by the time you see this.

By , The Wall Street Journal, 06/10/2015

MarketMinder's View: Divorce, buying a second home and starting a business aren’t threats—they are life events. Yes, they can impact finances, but they are in a different league from, say, underestimating your expenses, not saving enough, or having the wrong asset allocation for your needs. Indulging cash-grabbing adult offspring can imperil retirees’ savings, but we’d lump that one into the broader category of taking unsustainable cash flow. Focusing on one-off life events instead of the basics can put investors in an odd place.

By , Bloomberg, 06/10/2015

MarketMinder's View: None of the figures in here mean anything, good or bad. Yes, the current spread between the S&P 500’s highest and lowest point this year is 6.5%, and yes, that is the lowest in 20 years, but so what? Contrary to the assertions here, there isn’t anything about small swings that implies timid markets or high uncertainty. Heck, the biggest spread was in 2008. That was uncertainty! Look, none of this is predictive. Nor is the S&P 500’s muted year-to-date return predictive of the full year. Big back-end-loaded years aren’t uncommon. Don’t stress yourself out by searching for meaning in sort-of-bouncy times.

By , The Wall Street Journal, 06/10/2015

MarketMinder's View: This is a wee bit wonkish, but stick with it anyway, because it is an overall good explanation of why the fed-funds rate alone doesn’t determine overnight lending rates. When banks have excess reserves, demand for overnight lending falls, pulling overnight rates on the open market well below the fed-funds target. During past tightening cycles, the fed-funds rate has functioned more as a ceiling on rates, making it harder for the Fed to control the quantity of money and, ultimately inflation. This is why they now pay interest on excess reserves (IOER), and the IOER rate is intended to act as a floor for overnight rates. In theory, IOER should never stray far from the fed-funds target. The Bank of England puts this into practice, having one single rate for overnight lending and reserve interest payments (the bank rate). But the Fed is an odd pickle, because its two rates are controlled by two groups—the 10-member Federal Open Markets Committee (FOMC) controls fed-funds, and the 5-member Fed Board of Governors controls IOER. This makes it a tad likelier the rates could veer, leading to some odd distortions in money markets, though we reckon the chance is smaller than this article suggests. The FOMC is the Board of Governors plus a handful of regional Fed Presidents, so it would be odd for the two groups to arrive at different consensus decisions. Particularly when Chair Janet Yellen a) drafts their policy options and b) has repeatedly demonstrated a preference for waiting for broad consensus before acting. And when math makes it impossible for the Fed Presidents to outvote the Governors in an FOMC roll call (assuming the Governors all vote the same, which, who knows). Anyway, none of this is at all predictable. This is more just a friendly FYI to you, dear readers, that there is more than one overnight interest rate to consider. The more you know!

By , The Wall Street Journal, 06/10/2015

MarketMinder's View: We award four points for the headline’s pun about banks’ living wills, but we deduct 10 for missing the elephant in the room on this topic. The issue last year wasn’t that 11 banks produced living wills that weren’t credible. The issue was why they were deemed inadequate. Word on the Street last year was these banks failed the living will test because they assumed they’d be able to access the Fed’s discount window, where it does its “lender of last resort” thing. The Fed was created in 1913 for this reason—to provide liquidity to banks that are cash-crunched but otherwise solvent. The Fed quietly telling banks not to count on this was a tad disturbing, and the real question surrounding this year’s tests is, how will banks respond? The answer, and whatever guidance the Fed gives, could have big implications in the next crisis.

By , Financial Planning, 06/10/2015

MarketMinder's View: SIFMA, a brokerage industry trade group, offered its own version of a uniform fiduciary standard for brokers and investment advisers last week—think of it as a counter-proposal to the Department of Labor’s forthcoming fiduciary rules for anyone advising on a retirement account and the potentially forthcoming uniform standard from the SEC. Like the DoL’s proposal, which we dissected here, SIFMA’s version does not eliminate conflicts of interest—no rule can do that. Nor does it ensure investment professionals will always put clients first—no rule can do that. SIFMA’s proposal is simply a set of disclosure standards that is even more watered down than the DoL’s proposal, as this analysis shows. The real issue here is the ever-blurring line between investment sales and investment advice. Securities laws were always designed to separate the two. Yet the brokerage industry “wants to have its cake and eat it too. It wants registered representatives to be able to hold themselves out as trusted advisors, but have their own primary loyalty flow back to the broker-dealer firm and to product manufacturers. But this is not what Main Street desires. Rather, Americans desire trusted advice, from those who truly act in the best interests of consumers, not from pretenders. Financial advisors and investment advisors, you must make a choice. Do you desire to sell products, or do you desire to provide advice? Attempts to obfuscate, by straddling the middle of these two realms, are doomed to failure.” Amen.

By , Bloomberg, 06/10/2015

MarketMinder's View: This, like Dodd-Frank itself, errs in assuming the biggest banks pose outsized risk to the financial system and must therefore be regulated extra-super-duper heavily, while smaller banks can go about their business with less scrutiny. All this debating about where to draw that too-big-to-fail line misses the broader point: a two-speed financial regulatory system doesn’t really benefit anyone, and it will ultimately result in making the biggest banks even bigger, which we suspect is the opposite of what everyone here wants. You see, the more the big banks are regulated, the more folks will perceive them as safe, and the more deposits they will attract. So raising the TBTF threshold from $50 billion to $100 billion or $500 billion would just make any banks above that line become bigger behemoths. A level playing field would be much better for competition, particularly all those small banks that have lost market share since Dodd-Frank took effect. Drop the TBTF designation, and big banks probably shrink. (Not that TBTF is a big risk or that TBTF banks were the culprits in 2008—see this for more.)

By , Bloomberg, 06/10/2015

MarketMinder's View: This better-than-expected bounce higher doesn’t look at all that likely to stick around, as it is mostly underpinned by oil output. But that isn’t very surprising, as IP hasn’t exactly been leading the British economy for some time now. What’s more, Britain’s economy is heavily services oriented, which you can see in this statistic: “In the first quarter, industrial output rose 0.2 percent instead of the 0.1 percent previously estimated. The impact on gross domestic product is less than 0.05 percentage point, the ONS said. The economy’s rate of growth in the period was the least in more than two years.”

By , The Wall Street Journal, 06/10/2015

MarketMinder's View: But the decision not to include Chinese A-shares in the MSCI Emerging Markets index also isn’t surprising. Market access has always been MSCI’s swing factor, and A-shares simply aren’t that accessible to foreign investors. The Shanghai-Hong Kong Stock Connect, better-known as the through train, has strict daily quotas, which would likely prevent index funds—which usually trade at the end of the day—from buying enough shares to match their benchmarks. It does seem like this will spur officials to finish opening the market, and that is a long-term positive for both China and the world—open markets are good! But that’s about the only takeaway here. MSCI index inclusion really isn’t a market driver.

By , The Telegraph, 06/09/2015

MarketMinder's View: At least, they did according to one UK credit card provider, which reports an early (albeit limited) glimpse at consumer spending based on what their cardholders bought—so it’s limited and obviously not inflation-adjusted. But it does show the Brits are quite spendy these days, with many using their gasoline and food savings to go to the movies, travel, eat out and buy some high-tech doodads. All looks promising for the UK’s retailers and mighty service sector.  

By , The Guardian, 06/09/2015

MarketMinder's View: The trade deal in question is the Trade in Services Agreement, a 24-member pact-in-progress that spawned from the failed Doha round of World Trade Organization talks. Early drafts appeared on Wikileaks, and some members of the European Parliament fear they’ll strip Europe’s ability to cap carbon, just as prior trade deals (and the occasional spat) ended their limits on foreign airlines’ carbon emissions in EU airspace and ban on imported genetically modified food. Some politicians don’t like this, so they’re threatening to upend the whole shebang unless the language is rewritten. And who knows, maybe it already has been! Either way though, this isn’t a huge deal. Same goes if their angst extends to the pending US/EU free trade agreement, whenever (if ever) it is finally hashed out. Big trade deals like these are nice, but they rarely get off the ground due to all the competing national interests at work. Great as they would be in the long-term for markets, which like free trade, their failure isn’t a negative, just the absence of a positive. The global economy can do and has done fine without them.

By , The Wall Street Journal, 06/09/2015

MarketMinder's View: But it came closer in some parts, so that’s something, and there are weeks to go before the deadline. Heck, now there is talk that deadline could get pushed to March 31, 2016, as officials consider extending the current bailout program until then. That would be a big can-kick, giving them months to agree on specifics. But that’s speculation at this point, and who knows what Wednesday’s EU summit will bring. Whatever the outcome though, markets have long since moved on (recent volatility notwithstanding), and there is little evidence contagion is a risk. See these nifty charts to find out why.

By , The Telegraph, 06/09/2015

MarketMinder's View: Regardless of the subject matter—and regardless of your feelings and opinions about whether leaving the EU would imperil the UK’s creditworthiness—this highlights why all of the Nationally Recognized Statistical Ratings Organizations (NRSRO) (better-known as credit-ratings agencies) tend to publish reports and decisions that aren’t much use to investors. They are opinions, often rooted in groupthink, old information, industry mythology and—not infrequently—factual errors. The harsh analysis here is a case study, and the shortcomings it illuminates aren’t unique to this rater or situation. Hence why most investors look beyond the NRSROs’ opinions, and we’d recommend folks take their opinions and proclamations with the world’s biggest grain of salt.

By , Reuters, 06/09/2015

MarketMinder's View: Here is another example of incremental economic reforms in the eurozone beating very widespread expectations for political inactivity. Will easing labor contract requirements and delaying the tax penalties that kick in when headcount tops 50 employees jolt France to the top of the economic leaderboard? Probably not. But businesses should benefit from the added flexibility, and it is a sign the political reality in Europe is far better than most perceive.

By , The New York Times, 06/08/2015

MarketMinder's View: This piece includes a look at the impact of some big behavioral mistakes investors all too often make, eating into their total return. Like losing their discipline when market volatility strikes, giving in to emotions like greed or fear. Or that the price for stocks’ long-term returns is short-term volatility. Or that you shouldn’t chase heat (i.e., buy into whatever country/sector/individual stock has been hot recently). Now it also makes the all-too-common media mistake of presuming low cost is better without considering service’s role in helping you maintain discipline, but that is a minor factor overall. For more, see our 10/20/2014 commentary, “Amid Volatility, Beware Your Inner Investing Demons.”

By , The Wall Street Journal, 06/08/2015

MarketMinder's View: Dow Theory, the notion that the movement of the Dow Jones Transport Index relative to the Dow Jones Industrial Average tells you where stocks are going, has been with us for roughly 135 years. At one point, maybe—just maybe—it worked. But today, with the US economy services-based, it is highly unlikely a pure index of firms that move stuff and people is all that representative of the broad economy. It’s also a widely known reflection of past performance, which isn’t predictive. Perhaps that’s why there are myriad false reads in recent years, like when we wrote this article just last year.

By , The Wall Street Journal, 06/08/2015

MarketMinder's View: Legislation granting President Obama fast-track trade-promotion authority (under which Congress cannot amend an agreed-to deal, only vote it up or down) may have passed the Senate, but it still faces a tough road in the House. Politicians often struggle to message and explain the big benefits of free trade, even in districts with major export interests. As such, pandering to the public with politically popular messages like being “tough on trade cheaters” to protect jobs is common, despite the evidence of free trade’s overall economic benefits. Here is one astute quote from a former pol: “Former Democratic Rep. Jim Bacchus of Florida, a free trader, said that by focusing so heavily on exports as job creators, administration after administration has implicitly endorsed the view that imports must be job destroyers.” Even though, “imports can create jobs through the sales, marketing and manufacturing work involved with the import trade as well as lower costs for consumers and prod US suppliers to increase productivity through competition.” This article is an overall interesting take on how politics can interfere with trade.

By , Bloomberg, 06/08/2015

MarketMinder's View: Well, Greece has been in crisis for pretty much this whole bull market, and while we are just as tired as everyone else reading about this saga, the more important takeaway is that whatever happens with Greece—a can kick, a default within the euro or an exit from the common currency—markets have long-since moved on. So whether or not Greece magically finds some more change between the couch cushions, and whether or not these headlines continue into the summer, we’d suggest investors are better served to focus on the 99.8% (or so) of world GDP that isn’t Greek. For more, see Elisabeth Dellinger’s column, “Greece Has Some Loans to Repay.”  

By , EUbusiness, 06/08/2015

MarketMinder's View: Remember when the UK’s Conservative party defied all pre-election projections by winning an outright majority last month? We noted then their 12-seat edge didn’t mean PM David Cameron could ram through whatever he wanted, and it looks like he is already facing pushback from some of his euroskeptic backbenchers. After demanding his cabinet agree to any deal he made on EU reform, cabinet members are vocally revolting and warning they’ll resign. Despite the slightly different specifics, the UK’s political backdrop remains largely the same as it did prior to the general election—gridlocked, an underappreciated positive for stocks. For more, see our 5/12/2015 commentary, “UK Election Results Surprise but Aren’t a Gamechanger.”

By , The New York Times, 06/05/2015

MarketMinder's View: Some good, some bad here. The coverage of the factoids included in the US Bureau of Labor Statistics report issued today is all fine. We quibble with none of it. However, things veer off the rails when it starts trying to reconcile this big job growth with tepid Q1 GDP, drawing assumptions about cratering productivity. Folks, jobs lag growth. By a long way. May’s jobs figures likely have to do with Q1 growth. Second, Q1 growth was skewed, so drawing any conclusion from it at all is risky business. Finally, a skewed negative Q1 plus strong hiring will always mean falling productivity because that is how the numbers work. It does not mean, “we are in the middle of an unfortunate slump in productivity growth, and the nation’s output for each hour worked is stagnating or even declining. That would be terrible news for the long-term future of the economy, particularly if it persists.”

By , The Wall Street Journal, 06/05/2015

MarketMinder's View: We include this because of the strength of points 2, 3 and 5, which really are bedrock principles. They are:

  • Your behavioral errors can crush your returns no matter how smart or experienced you are.
  • The cost of stocks’ high long-term returns is volatility.
  • Time is your most important asset in investing, because compound growth is its most powerful force.

Now, we quibble with 1 & 4. The first point, diversification, is a sound one, but described inaccurately. You don’t need to own “a little of everything”—you must ensure your asset allocation (the mix of stocks, bonds, cash and other securities you invest in) matches your longer-term goals. The fourth, “When in doubt, choose the investment with the lowest fee,” strikes us as very odd, considering the others. What if you need service to avoid behavioral errors? What if your doubt is whether you have the right asset allocation? What if you can’t correctly identify your time horizon? Sometimes, folks, you get the help you pay for.

By , CNN Money, 06/05/2015

MarketMinder's View: Corrections—short, sharp, sentiment-driven moves of -10% or greater—define randomness. They cannot be “overdue,” “due” or “early” because there is no schedule. The chart included in this very article shows you that. The standard deviation (the degree of change from the average 357 days between corrections, as they identify them) is 387 days. Folks, we have a name for anything with that high a standard deviation: Useless noise. Now, that is a technical term, but what it implies is what we’ve long argued: You can’t time corrections and most of the time, attempts to do so harm more than they help.

By , Equities.com, 06/05/2015

MarketMinder's View: There are 855 words in this article, which argues the US economy is doomed because the baby boomers are getting older (exiting their peak spending years, ages 19 – 39) and will therefore spend less. Which it interprets thusly: “That means, when the biggest generation falls off the demographic cliff…you can pretty much guess what happens!” (In case you are a bad guesser, the answer is a bear market and massive recession.) But here is the thing: These 855 words are very light on evidence, long on opinion. First, the baby boomers are not the “biggest generation,” the millennials are. And Gen Z (those born between 2001 and now) are gaining on them, with five years left to go. You can see this yourself at the link here. Second, spending (by the affluent or otherwise) did not “plateau” between 2000 and 2014. Both retail sales and personal consumption expenditures (which include services spending) are at all-time highs. And both moved in cycles to get there, which they kind of tend to do, hence the terms, “boom” and “bust.” Demographics aren’t likely to materially alter our economy’s cyclical nature any more now than the baby boomers growing into their “peak spending years” didn’t prevent the downturns in 1970-1971, 1973-1974, 1979-1982 or any other darn recession since. Demographics move too slowly to materially impact economic and market cycles.

By , Forbes, 06/05/2015

MarketMinder's View: Fearing the dollar’s days as the world’s primary reserve currency are numbered? You shouldn’t, for many reasons, but here is another. Even some foreign central banks that are not our biggest fans still fancy the dollar: “Russia may not be very fond of a unipolar world backed by the dollar, but its central bank remains a prudent player in the global currency markets. Like the other emerging market banks that hold trillions in dollar reserves — Russia is not about to make radical moves to replace the greenback anytime soon.” Russia, which spent some dollar reserves in the past year to defend the ruble amid 2014’s collapse, is refilling its coffers … with dollars.

By , The Wall Street Journal, 06/05/2015

MarketMinder's View: Combine a strong jobs report with an upcoming Federal Open Market Committee (FOMC, they’re the monetary policy people) on June 16 – 17, and what do you get? Speculation about rate-hike timing, of course! Seems now the consensus is shifting once again, fluctuating between September and next year. Heck, just yesterday, the head of the IMF was loosely engaged in the same, advising the FOMC not to hike before 2016. In our view, FOMC moves are 1) not forecastable and 2) aren’t proven bear market triggers, and an initial rate hike is likely inconsequential. The yield curve matters most for stocks and the economy and, positively, it has widened over the last three months as long-term rates drifted up some.

By , CNBC, 06/05/2015

MarketMinder's View: The U6 unemployment rate, this theory claims, which includes folks working part-time because they can’t find full-time jobs and workers who aren’t seeking jobs because they are discouraged. And it concludes that this rate is still “high” at 10.8%. Now, we get it—that seems like a high rate, but lacking from this article is any sense of history, as it offers only 10 years of data. The gauge itself (the U6 rate) goes back only to 1992. In the 16 years before 2008, the U6 rate averaged 8.9%. It was above 10% in 1996, which wasn’t exactly a bad time for the US economy. When you consider all of that, this gauge doesn’t seem to signal weak labor markets. Anyway, this is all kind of sociology as it pertains to markets, as jobs are a late-lagging indicator of both stocks and the economy. That said, the heavy focus on labor stats like these does illustrate sentiment, which still fails to appreciate the US economy’s health.

By , The Wall Street Journal , 06/04/2015

MarketMinder's View: Greece had four IMF debt payments due in June, the first one tomorrow. IMF policy lets countries bundle payments due in one calendar month, to reduce the administrative burden of making multiple payments days apart. The IMF has long wanted Greece to do this, but officials have declined until now, lest they spook the public and cause a bank run. But today they changed their tune, telling the IMF they will make all June payments at the end of the month. The last country to do this was Zambia, and some folks are making a to-do about that, but really, this is a procedural move. It is not a default. It is not a missed payment. It is paperwork. It also gives Greece more time to unlock that last aid tranche, moving the IMF due date to the bailout expiration date. Start your stopwatches!

By , Bloomberg, 06/04/2015

MarketMinder's View: And they probably don’t need to be, as this excellent, witty, easy-to-read piece shows. Most of the fear stems from a widespread misperception of banks’ role in corporate bonds markets, and plenty of real-world evidence already contradicts it. We won’t spoil the rest—just read it, and don’t miss the footnotes (or this unrelated ode to footnotes). For more, see our 5/5/2015 commentary, “The Mysterious Evaporating Bond Liquidity?

By , The Wall Street Journal, 06/04/2015

MarketMinder's View: First off, rebalancing isn’t what this piece it claims it is. Rebalancing refers to occasionally making sure market movement doesn’t throw your portfolio’s stock and bond weightings out of whack with your original plan. If stocks party and your 70% stock/30% bond portfolio morphs to, say, 90/10, then you’d likely want to rebalance back toward your original targets for risk management purposes. This article isn’t really about that. Instead, it views stock investing as a series of style boxes—a rigid X% for US stocks, Y% for foreign developed and Z% for emerging—that you’d theoretically rebalance annually to get back to target. And then it argues maybe don’t do that this year, because momentum is with foreign stocks. This is all pretty wide of the mark, folks. Momentum isn’t a market driver. Nor is mean-reversion. Basing portfolio weightings on either is odd, indeed—as odd as rebalancing static style allocations annually to reach some arbitrary target. We think investors are better off ignoring the calendar year, using the global market as a blueprint, and focusing on the outlook for each geographic region or major country. Emphasize the areas you expect to do best for fundamental reasons, not gut feelings, recent returns or technobabble, and own some stocks in the other areas just in case. Then change things up as your outlook evolves.

By , Forbes, 06/04/2015

MarketMinder's View: Yes, US productivity—output divided by man-hours—fell in Q1, but everyone knew that was coming. We already had both halves of the ratio, output and hours worked. And of course it was going to fall, given output fell while more people worked more hours. This is old news for stocks. It also has a big asterisk, as it too suffers from the BEA’s well-documented seasonal adjustment foibles. Once they revise everything on July 30, Q1 productivity will likely change. Even if it still fell, it will be even older news, and productivity isn’t a leading indicator. It also usually slows as expansions wear on, firms aren’t actively trying to do more with less, and efficiency gains are harder to achieve.  

By , InvestmentNews, 06/04/2015

MarketMinder's View: “In essence, the Securities Industry and Financial Markets Association suggests amending suitability rules enforced by the Financial Industry Regulatory Authority Inc. to include a ‘legal and enforceable best interests obligation’ and requirements to consider investment fees, avoid and manage material conflicts of interest, and provide disclosures about fees and conflicts.” That clashes somewhat with the Department of Labor’s proposed fiduciary standard for investment professionals advising on retirement accounts, which gives brokers and advisers all sorts of exemptions based on how they disclose and justify conflicts of interest. And who knows how it will differ with the SEC’s potentially forthcoming proposal. There are a lot of cooks in the kitchen here, though SIFMA’s proposal is just that, as they are a private trade group. So there is no guarantee their proposal takes effect, though regulatory officials suggest it could impact their own rulemaking. Anyway, keep an eye on this, but regardless of what shakes out, rules don’t guarantee behavior. Conflicts of interest are inevitable, and new rules won’t prevent the sale of things like variable annuities. Do your due diligence, ask tough questions, find out how your adviser/broker is compensated, and learn as much as you can about their values—a bigger determinant of whether they will actually put you first.

By , The Telegraph, 06/04/2015

MarketMinder's View: Here is a great read on what is at stake for Greece and the EU as negotiations wind on. Economically, it isn’t make-or-break. For all the warnings and brinksmanship, provided leaving the euro doesn’t prompt trade barriers, over the longer run Greece could rebound relatively nicely if—and as this piece points out, this is a very big if—Greek economic policies promote growth. After going through painful internal devaluation, Greece is still relatively uncompetitive, so monetary devaluation could help, though it would be a hollow victory without substantive economic reform. The political stakes are arguably higher, and while most of this discussion is sociological, it is fascinating. The risks discussed—Greece tilting toward Russia and revisiting authoritarianism and the eurozone disintegrating as participants realize it isn’t permanent—are extreme, but they illustrate why both sides have strong incentives to reach a deal.  Will they? Who knows. If they don’t, the political fallout will likely be a slow ebb, giving markets ample time to digest the outcome, whatever it may be (the extremes here, we should note, are possible though unlikely given the political winds). In the nearer-term, financial contagion is the bigger issue, and markets indicate that risk remains minimal.

By , Financial Times, 06/04/2015

MarketMinder's View: Sorry, we don’t believe in confidence fairies. (RIP, confidence fairy that died as a result of the prior sentence, according to Peter Pan lore.) Inflation is a monetary phenomenon, not a psychological one. You can’t convince people to think it into reality. Inflation depends on growth in output and the quantity of money. Quantitative easing (QE) has never boosted the broad quantity of money—not in Japan last decade, not in America, not in the UK. All three times, yield curves flattened, loan growth flagged and broad money supply sagged. That is disinflationary. The fact Japan is relying on wishes and feelings suggests officials there are off in Neverland—a big reason hopes for a meaningful return to economic dynamism is probably misplaced.

By , The Washington Post, 06/03/2015

MarketMinder's View: And in other breaking news, grass is green (except in California towns facing water rationing), water is wet, ice is frozen, baseball is a sport, cows moo, pigs oink and, well, you get the drift. Global growth has been lackluster most of this expansion. Stocks haven’t minded yet, so why would they start now? Moreover, this entire report is just policy nagging dressed up as economic analysis. Bad analysis at that, as it utterly misperceives the link between jobs and growth (growth drives jobs, not the other way around) and currency strength and the economy (no relationship, folks).

By , Associated Press, 06/03/2015

MarketMinder's View: We highlight this for two reasons. 1) Dolly Parton. 2) It illustrates why statistics like GDP and the unemployment report aren’t infallible. Many contractors and freelancers will fall through the cracks in the employment surveys. Many of their contributions and output won’t register in GDP. Same goes for all the folks selling on Etsy. Yet what they do helps propel our economy forward, and they are earning, spending, saving and even hiring. Statistics aren’t perfect—they are rough estimates, with methodologies rooted in the ideology of the time they were devised.

By , Bloomberg, 06/03/2015

MarketMinder's View: Errr, no, it doesn’t, despite what this roundup of error-filled research reports claims. There is nothing weird or scary about companies borrowing at historically low rates and plowing the proceeds into something with higher earning potential long-term, whether that something is their own stock, another firm’s stock, or a long-term project. That is called arbitrage. And with stocks’ earnings yields (the inverse of the price-to-earnings ratio) comfortably above corporate bond yields, this is a solid financial move. (Overall and on average—we aren’t saying no one will mess up now and then.) They aren’t borrowing more than they’re earning, either—S&P 500 firms’ net income in Q1 was $278.1 billion, which exceeds that $194.6 billion in investment-grade bond issuance. Nor have record purchases “drained cash reserves.” Cash on corporate balance sheets was an all-time-high $2 trillion when 2014 ended. (Q1 data aren’t out until next week.) And outside the Energy sector, business investment is growing fine. As is investment in research & development nationwide. All of this is groovy for stocks. As is the lingering skepticism here.

By , The Wall Street Journal, 06/03/2015

MarketMinder's View: Well, ok, we guess if one big firm wants to self-impose trading curbs when markets swing, that’s their prerogative, and it’s noteworthy that this is happening voluntarily, not by regulatory edict. We always say the market is good at dealing with things on its own, and this indeed an example of the market trying to deal. Some stock market circuit breakers, like the uptick rule (which requires short sales to be executed only after an uptick in the stock’s price), have been a net benefit. The whole thing merely strikes us a solution in search of a problem, however, considering rumors of escalating bond volatility and illiquidity have been greatly exaggerated. Even when prices do swing wildly, as Treasury bonds did last October 15, they quickly revert as buyers and sellers respond to the price changes. That’s how markets have always worked. People can be circuit breakers.

By , Associated Press, 06/03/2015

MarketMinder's View: Forget the trade deficit. It is a meaningless measure that says nothing about trade. Total trade—exports plus imports—is more telling. And it fell, which isn’t so grand, but there is still a ton of skew from the West Coast Ports labor dispute, which settled in February. That created a huge backlog of ships to unload in March—hence March’s 7.5% m/m rise in imported goods—and April’s drop was a natural falloff from that surge. Exports’ mild growth made us raise an eyebrow, as it’s logical to assume there would have been a pent-up backlog as dockworkers reloaded all those ships they’d unloaded in March—yet exports of goods rose just 1.5% m/m, the total ($189.9 billion) was far lower than exports in most of last year, and exports to the Pacific Rim (the primary destination of ships sailing from the west coast) fell. But we’re tempted to chalk that up to the dispute as well, as there was strong evidence overseas firms reduced orders from the US during the dispute. It might take time for a rebound in export orders to translate to a big rebound in actual exports.

By , The Telegraph, 06/03/2015

MarketMinder's View: Here is your obligatory Greece update. It’s all so twisted and bizarre that we won’t even try to summarize. (Ok actually we did try, but the best we could come up with was “Squabble, rumble, squabble, squabble, point fingers, write angry newspaper column, squabble, plant rumor, quash rumor, squabble, find money in sofa cushions, squabble, squabble, pout.”) Just read it and enjoy the hijinks, and know that whatever happens, the risk of contagion is next to nil. See these charts for more.

By , Bloomberg, 06/03/2015

MarketMinder's View: Well no, it didn’t, but that was never the point of Sarbanes Oxley and Regulation Fair Disclosure (Reg FD) anyway. Improving transparency at publicly traded firms has little to do with how analysts’ biases, guesses and occasional cognitive errors can make their forecasts wildly off base. They’re humans, not robots. Heck, the name of the rule is Regulation Fair Disclosure not Regulation Guess Better.

By , The Guardian, 06/03/2015

MarketMinder's View: Well actually, considering this is a story about a purchasing managers’ index (PMI), a more accurate (albeit less pithy) tagline would read, “A slightly smaller percentage of firms surveyed reported growth.” PMIs are a rough snapshot at the breadth of growth. They do not even attempt to capture the magnitude. If the 56.5% of firms reporting growth in May grew faster than the 59.5% of firms reporting growth in April, then growth could very well have sped up. Hence why we suggest not getting terribly bogged down in PMIs.

By , Financial Times, 06/03/2015

MarketMinder's View: We kind of don’t get all the hoopla over the ECB chief’s remark. He was really just stating the obvious, considering bond markets have always been volatile and probably always will be. Nor is this year’s volatility extra-volatile—gyrations are actually smaller than average. This is all just a tempest in a teapot. For more, see our 5/29/2015 commentary, “Big Theories, Small Moves.”

By , The Washington Post, 06/03/2015

MarketMinder's View: Do you have a kid, grandkid, niece, nephew or godchild you plan to help put through college? If so, here is some news you can use!

By , The Wall Street Journal, 06/03/2015

MarketMinder's View: So here is yet another example of why politicizing central banks leads to iffy policies. Hungary’s central bank is governed by the former Finance Minister, a crony of Prime Minister Viktor Orbán. Orbán spent years stripping the bank’s independence, pushing out the old board members, replacing them with puppets, and subjecting the bank’s decisions to parliamentary review. And now we have this. The bank will axe its standing deposit facility, which banks can count as collateral on their balance sheets, for a three-month fixed interest facility that will not count as collateral. Illiquid liquidity, if they will. This will push banks to park reserves in Hungarian debt, which is collateral. It’s like quantitative easing meets debt monetization meets bizarre. So yah. Politicizing central banks is a slippery slope, and it typically doesn’t end well.

By , Pragmatic Capitalist, 06/02/2015

MarketMinder's View: While this is a mixed bag, it makes a sensible point: Margin debt doesn’t cause bear markets. Leveraged investors can bid prices higher, and they get hurt more as prices fall, but the amount of debt itself isn’t inherently bearish or bullish. Nor does the overall level of margin debt tell you whether a peak is nigh. However, neither does the ratio of margin debt to GDP or the NYSE’s market capitalization—there is no consistent “trigger point.” What matter more is the rate of change. If there were a huge, sudden spike, that could be evidence of euphoria. But there is no spike today.

By , The New York Times, 06/02/2015

MarketMinder's View: Yes, Virginia, this is a Greek-default-is-the-new-World-War-I argument. And no, we don’t buy it. We actually don’t see much evidence either side is gunning for Grexit with a rah-rah-we-were-so-bored-before adventurism many claim infected Europe as WWI loomed. Nor do we reckon Greece’s third default in four years would be quite the economic equivalent of Serbian nationalists gunning down the Austro-Hungarian archduke. Nor do we reckon Germany will militarily invade Greece if it defaults. We are also fairly certain no one would call this the default to end all defaults. As for the market implications, most evidence strongly suggests the risks of contagion are minimal. Surprise moves markets. After five years, four governments, two defaults, a couple dozen bailout funding standoffs, countless missed deadlines and about 100 allegedly critical weeks for the euro, where is the surprise if Greece Grexits? Markets have long been aware of all Greece’s problems, Greek stocks have tanked, bond yields soared and debt insurance costs (CDS spreads) are off the chart. Yet stocks outside Greece are rising, other peripheral bond yields are flat or falling, and everyone else’s CDS spreads have barely budged. Trust the market, folks.

By , InvestmentNews, 06/02/2015

MarketMinder's View: So a couple things here: 1) Target-date funds aren’t passive (they actively shift asset allocation over time). 2) The logic behind exchange-traded target-date funds as a concept escapes us. The whole point of a target-date fund is that they are supposed to be one-decision products (set it and forget it). The point of an ETF is it is a fund with intraday liquidity. Seems to us the market discovered this is a rather odd contradiction.

By , The Wall Street Journal, 06/02/2015

MarketMinder's View: So what if a surplus production of physical goods is reducing prices globally? Last we checked, that is great news for consumers! Does it hurt producers? Sure, if they don’t control costs, but prices are a signal to do just that. Or cut production. Producers will eventually self-correct, and prices will rise. And then they’ll overproduce, creating more surpluses, lather, rinse, repeat. These things move in cycles, folks. If any of the logic in this article were true, the Industrial Revolution would have spawned the world’s longest, deepest depression.

By , The New York Times, 06/02/2015

MarketMinder's View: And we agree with a very literal reading of that headline. If the Fed lets sociological issues distract it, that opens the door to monetary policy errors. But most of the discussion strikes us as wildly off base. It’s centered on the question of, did quantitative easing (QE) exacerbate “economic inequality”? Folks, how can you measure the contribution of monetary policy to something that is itself immeasurable? As in, literally immeasurable, unable to quantify. (Not the metaphorical interpretation of immeasurable as “really really really big.”) Some try to isolate QE’s impact on stock prices, but that makes sweeping assumptions about who owns stocks. And also it makes sweeping assumptions that QE was good for stocks, which we’re inclined to disagree with, considering QE flattened the yield curve and stocks like steep yield curves. This whole flawed debate and all its misperceptions, not just the pure sociological nature of it, have near-limitless potential to drive policymakers astray. Flawed as the dual mandate is, we suspect markets and the economy are best off if the Fed keeps its narrow focus. (Note, that means striking “bubble hunting” from its to-do list, but that is another matter entirely.)

By , Reuters, 06/02/2015

MarketMinder's View: “The U.S. auto industry remained on track for the best sales year in almost a decade as consumers bought cars and trucks at the fastest monthly pace since early 2006.” Now, auto sales aren’t a leading economic indicator by any means, and they don’t represent broad consumer health. But this is just one of many data points showing consumer spending is alive and well (recent tepid retail sales notwithstanding), and the US economy is on much firmer footing than most folks think.

By , CNN Money, 06/01/2015

MarketMinder's View: Central banks have allegedly blown bubbles in bonds, startups, China, Tech, art and luxury New York real estate (we’re surprised Bay Area real estate didn’t get a shoutout, but we may be bitter biased). Now, you’ll get no argument from us that some of these markets are dealing with some big numbers. But big numbers alone aren’t evidence of a bubble, especially when supply is limited (Picassos and NY real estate). Bubbles form when investor sentiment gets detached from reality, which then can’t meet loftier and loftier expectations. Considering how much doubt still persists in most of these markets—as shown by frequent bubble warnings—we just aren’t convinced bubbles are forming en masse.   

By , MarketWatch, 06/01/2015

MarketMinder's View: Ugh. So this makes sweeping conclusions from the fact June has the worst monthly return over the last 10 years, averaging -1.32%. Yah, but! That’s skewed by one bear market and one correction. June isn’t consistently bad over the last 10 year or ever. Here, numbers. 2005: 0.1%. 2006: 0.1%. 2007: -1.7%. 2008: -8.4%. 2009: 0.2%. 2010: -5.2%. 2011: -1.7%. 2012: 4.1%. 2013: -1.3%. 2014: 2.1%. (All S&P 500 total returns, from Global Financial Data, Inc.) Does anyone really think it’s wise to alter your portfolio now because of how stocks happened to react to the mounting financial crisis in 2008 and Greek dread in 2010 and 2011? For more on the utter futility of trying to invest around alleged (and largely imagined) seasonal patterns, see our 5/26/2015 commentary, “The Truth About May—It Is a Month.”

By , The Telegraph, 06/01/2015

MarketMinder's View: If you want a compilation of the most recent China hard landing (false) fears—introduced in a bizarre way—look no further. But if you want an accurate accounting of whether China poses a huge risk to the global economy, sorry, this isn’t it. If you’ve been following the country’s recent economic trends, April data aren’t a big negative surprise—they’re consistent with China’s long-telegraphed transition from an export, investment-driven economy to a services- and consumption-based one. Chinese stocks dropped nearly 7% in two days last week after zooming, but that drop happened as officials hiked margin requirements. Chinese stocks reacted similarly to margin tightening in January and April, then resumed rising. Some interpret tighter margin as officials’ attempts to prick a bubble, but considering the moves coincided with monetary loosening, they seem more about channeling stimulus to the real economy rather than the stock market. Besides, Chinese stocks’ historic erratic behavior has often not gone global, so even if they do take a breather, let’s not jump to conclusions. Particularly when Chinese markets do have some fundamental support, like continually better-than-expected growth and market-oriented reform. Finally, while speculation on China’s military adventurism makes for interesting sociological discussions, saber-rattling in Asia isn’t new and China’s politicking isn’t different from any other country’s—the market impact is limited. Now, if the world’s second-biggest economy did have a “hard landing,” that would be a negative for the global economy. But contrary to the many warnings, it hasn’t happened yet—and one doesn’t look likely in the near-future, either.

By , Bloomberg, 06/01/2015

MarketMinder's View: Before evaluating these suggested “winners” and “losers,” we should point out that we differ with the broadly held view of quantitative easing (QE) as stimulus. By reducing long-term rates through its bond-buying program, the Fed lowered the spread between short-term interest rates (banks’ funding costs) and long-term interest rates (banks’ loan revenues)—and crimped net interest margins, a measure of loan profitability. This discouraged lending, because the risk/reward tradeoff didn’t make sense unless potential borrowers were super-duper pristine. Weak loan growth brought next to no growth in the quantity of money and—by extension—the slowest GDP growth since WWII. So, we sort of agree with point 1, as QE did help anyone lucky enough to get a loan during QE, though that isn’t confined to “middle-aged, middle-class households.” (Heck, we don’t even know how to define that second modifier.) No point painting this with sociology. By that token, we disagree with alleged beneficiary number two, “the equity class,” which isn’t even a thing. Moreover, we see no evidence QE pumped up stocks. Nor do we see any evidence supporting winner number three, “wage earners,” as there is zero support for the statement that wage growth would have been weaker without QE. Maybe QE zapped it! As for the “losers,” points 1 (lenders) seems more or less fine. Point 2 is half fine, as savers did get whacked by near-zero rates, but bondholders at least did ok in total return terms. And point 3, “poor and young households,” we’d again extend to just anyone who didn’t get to take out a cheap loan, because again there is no need for sociology here if you’re thinking like an investor.

By , The Wall Street Journal, 06/01/2015

MarketMinder's View: Er … What about it? For one, we doubt any government entity (or anyone, really) can craft a policy that accounts for future weather distortions. See the Bureau of Economic Analysis, which has struggled to assess how the winter impacts past seasonal adjustments. But besides the folly of trying to predict weather patterns’ economic impact, we also don’t see the point. Inclement weather may pull economic activity forward or push it back, but the global economy doesn’t hit a screeching halt because some places may or may not get a little more rain (also, this seems to vastly overstate agriculture’s contribution to growth in several nations). It also gets factored into the troves of economic data central bankers use to craft monetary policy. (Finally, there is also little worse we can envision than a Fedspeak weather forecast, which uses a bunch of buzzwords and jargon—like a temporal pattern of increasing incalescence (warm front!)—but never tells you if it is going to rain or not. Egads!)

By , Calafia Beach Pundit, 06/01/2015

MarketMinder's View: “Weak quarters happen every now and then. They don’t necessarily precede recessions, nor do they make recessions more likely. It’s quite likely that growth will bounce back in the current quarter—such are the vagaries of GDP accounting.” To see a more in-depth breakdown of Q1 GDP’s second revision, see our 5/29/2015 commentary, “US GDP: statisticians Will Replace Fuzzy Math With Different Fuzzy Math.”  

By , China Daily, 06/01/2015

MarketMinder's View: While this story won’t grab headlines like the Trans-Pacific Partnership (TPP) talks would, bilateral trade deals add more to the global economy than grand negotiations that go nowhere or end up watered down—particularly between two of the world’s strongest Emerging Market economies. It also speaks to the difficulty of completing a deal. It took three years to reach agreement on tariffs for over 90% of goods, which will be rolled out within 20 years. Adding in ten other nations—defending their own special interests—makes reaching an accord much tougher.