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By , EUbusiness, 08/29/2014

MarketMinder's View: Not because they’re going to cut supply, but because they already cut off Ukraine—and Ukraine has a wee bit of a history of siphoning off gas traveling through its pipelines to the EU. And Ukraine’s government has admitted their reserves aren’t enough to get them through the winter. So they might pilfer. But they might also reach an agreement with the EU to reimport. Or they might find a way to settle this long-running dispute with Gazprom. It’s all too up in the air to predict today! Whatever happens for Ukraine, though, the EU has significantly more reserves this time than when Russia shut off Ukraine’s gas in 2006 and 2009. And if this saga is inspiration for them to build a few more pipelines and make their energy infrastructure more diverse and efficient, that’s a long-term silver lining.

By , The Washington Post, 08/29/2014

MarketMinder's View: So the theory here is that you can’t understand where the labor market is headed unless you  

1) Aggregate all the unrelated, backward-looking jobs data into one super backward-looking number.

2) Back-test it 22 years.

3) Calculate its momentum, which you then project forward. Voila!

You can’t use a super backward-looking thing to predict future employment. Which is, you know, backward-looking and a function of economic growth. We’d ask why they don’t just look at actual leading economic indicators and be done with it? Hey, listen, we agree the unemployment rate is fuzzy and one stat doesn’t perfectly capture labor markets. But the notion this is new and that you get clarity by smashing together 24 fuzzy series into the One Fuzzy, Backward Looking Series to Rule Them All is a bit off.

By , Quartz, 08/29/2014

MarketMinder's View: That really important thing? Businesses are “finally” spending again! Hooray! Except. They. Already. Were. Which the chart here even shows. Anyway. Contrary to the claims here, rising business investment isn’t a telltale sign of an expansion’s end. It doesn’t mean execs are too sunny and confidence has reached a peak. It’s just sort of what happens during an expansion as profitable firms want to grow and be even more profitable. We could show you a dozen charts to prove it, but we don’t have the space in this narrow sidebar.

By , Financial Planning, 08/29/2014

MarketMinder's View: No.

By , Reuters, 08/29/2014

MarketMinder's View: No it doesn’t—confidence surveys aren’t predictive. Those consumers who told the University of Michigan pollsters they’re more optimistic this month might not have gone out and shopped till they dropped. That said, we don’t see any need to fear a big spending slowdown—monthly data always bounce around a bit, and the longer-term trajectory is clearly up. Plus, consumer spending isn’t the be-all, end-all economic driver people think it is. Yah, it’s 70% of GDP, but it isn’t a swing factor.

By , The Motley Fool, 08/29/2014

MarketMinder's View: Here’s one reason why: “How finance and investing is taught is disconnected from how it actually works. Finance is taught overwhelmingly as a math-based field, in which students learn how to calculate beta by hand and dissect a balance sheet in their sleep. In the real world, finance is overwhelmingly a psychology-based field, where the best investors are those who control their emotions. This is rarely taught and never emphasized. And it's why some of the world's best investors have no formal finance training. Other fields, such as medicine and engineering, have done a much better job preparing students for the real world.”

By , Vox, 08/29/2014

MarketMinder's View: Why shouldn’t anyone draw big conclusions from the fact business IT investment has fallen relative to GDP over the past 15 years? Because technology! “Analogies are dangerous, but in this case I’d say thinking about a personal budget has some merit. Ten years ago, I had an aluminum PowerBook G4 that cost $1,799. Today, that’s roughly the combined price I paid for an 11 inch MacBook Air, an iPhone 5S and a Retina iPad Mini. … Matt Yglesias spends a considerably smaller portion of his income on computers in 2014 than he did in 2004 but he has much more computing power at his disposal.” Looking at “computing output per worker” tells a more accurate story—rough calculations show it’s on the rise.

By , China Daily, 08/29/2014

MarketMinder's View: In just about any other developing country with rampant corruption, a shaky legal system and weak property rights, we too would interpret government pledges to strengthen the rule of law as a positive and sign of more reforms to come. But this is China. A one-party state where stronger law means Internet clampdown and less personal and economic freedom. Don’t get us wrong: If they really do decide to modernize their legal system, clarify regulations and strengthen property rights, that would be a positive. But in a country where a business owner could get a death sentence for raising money privately and then going bust, we wouldn’t expect big changes overnight.

By , Bloomberg, 08/29/2014

MarketMinder's View: Old age isn't a cyclical factor. Monetary policy and inflation are. Don't mix the two. By the way, how can this be considered "disinflationary" when older folks tend to spend more on things with prices that rise faster than the average, like health care, pharmaceuticals and so on?

By , Reuters, 08/29/2014

MarketMinder's View: The new rule, which strengthens collective action clauses, is largely window-dressing. It won’t apply to already-issued bonds, and as this piece points out, national governments must opt to write them into their bond covenants—something they’re pretty slow to do. The tweaked rule also isn’t much different from what is already the norm in eurozone debt. This doesn’t wipe away the risk of hold-out creditors causing a commotion in future defaults (which also isn’t a big global economic risk, at least in the case of Argentina). For more, see Elisabeth Dellinger’s 7/31/2014 commentary, “Argentina Defaults. World Still Turns.”

By , EUbusiness, 08/29/2014

MarketMinder's View: Wait, but core prices—which exclude food and energy—rose from 0.8% y/y to 0.9%. Soooo … falling energy prices knock? We thought people liked that? And more to the point, none of this accounts for October’s bank stress tests (the real issue weighing on lending and money supply growth) or the ECB’s pending attempt to boost small-business lending. Things could look quite different—and better than most expect—in several months.

By , Associated Press, 08/28/2014

MarketMinder's View: The survey here shows 71% of Americans (out of 1,153) think the, “recession exerted a permanent drag on the economy,” and only 14% feel like they gained from the current bull market. Which may be true! But it and a different poll, which found that just 7% of respondents knew stocks rose 30% in 2013 suggest there is still time to get on board! Surveys and polls can show what sentiment is like at a particular moment, and these suggest euphoria is far off. For more, see our 08/26/2014 commentary, “The Trouble With Surveys.”

By , The Wall Street Journal, 08/28/2014

MarketMinder's View: If stocks fall, it will have nothing to do with the cyclically adjusted price-to-earnings ratio (CAPE). CAPE is a foolish attempt to predict the impossible—10-year returns—and is woeful at forecasting cyclical turning points (like, it forecast a bear in 1996). And if the bull runs on, it won’t be because of low interest rates. The Fed isn’t driving the bull any more than rates have driven stocks in the past. Heck, rising 10-year rates would be good, because rising long rates means steeper yield curve! Also? There is no rational reason we’re doomed to low returns for the foreseeable future—stocks don’t mean revert.

By , Associated Press, 08/28/2014

MarketMinder's View: Q2 GDP was revised up from 4.0% to 4.2% on higher business investment (yay), higher exports (yay) and lower imports (aww—though an 11% rise isn’t peanuts). This puts the last four quarters’ real US GDP growth at: 4.5%, 3.5%, -2.1% and 4.2%—three of the four exceeding the US’s postwar average growth rate. Which is a nice factoid you don’t hear many places! But backward-looking. Other measurements, like the Conference Board’s Leading Economic Index, suggest US economic growth should continue, and that’s more important for investors.   

By , The Wall Street Journal, 08/28/2014

MarketMinder's View: The negative central bank deposit rates announced in June indeed prompted eurozone banks to move reserves … but not to lend them. If Dutch banks are any indication, euro banks have parked funds at the BoE and Fed or bought high-quality sovereign debt. This underscores our long-held view: Eurozone banks aren’t cutting lending because they lack liquidity. They’re preparing for ECB stress tests, which carry stiff penalties for failure. For more, see our 06/06/2014 commentary, “Super Mario Strikes Again?”    

By , The Wall Street Journal, 08/28/2014

MarketMinder's View: The post-taper loan growth surge continues, in yet another demonstration of the fact the Fed’s quantitative easing was far from stimulative.

By , The Telegraph, 08/28/2014

MarketMinder's View: Banks’ core business is to lend. Small and medium-sized businesses (SMEs) want to borrow. Yet even with explicit government backing—the UK’s “Funding for Lending Scheme”—and a steeper yield curve, UK small business lending continues contracting. What gives? Regulatory uncertainty! British regulators are still nattering on about extra-tough capital requirements, and stress tests lurk nigh. This gives banks a big incentive to keep their balance sheets as clean as possible, which leaves smaller firms (widely assumed to be risky) out in the cold.  

By , The Telegraph, 08/28/2014

MarketMinder's View: Banks’ core business is to lend. Small and medium-sized businesses (SMEs) want to borrow. Yet even with explicit government backing—the UK’s “Funding for Lending Scheme”—and a steeper yield curve, UK small business lending continues contracting. What gives? Regulatory uncertainty! British regulators are still nattering on about extra-tough capital requirements, and stress tests lurk nigh. This gives banks a big incentive to keep their balance sheets as clean as possible, which leaves smaller firms (widely assumed to be risky) out in the cold.  

By , The New York Times, 08/28/2014

MarketMinder's View: Well, the credit ratings agencies themselves didn’t (and couldn’t) inflate the housing bubble in the mid-2000s. Bubbles are psychological phenomena, and we doubt Moody’s can really upgrade your mood much. Now, the provisions of this are fine in the sense they seek more disclosure regarding potential conflicts of interest in the raters’ issuer-pays model. In our view, a more appropriate move would be to drop credit ratings agencies’ “nationally recognized statistical ratings organizations” status, abolish the issuer-pays model, remove regulatory reliance on them, letting them sell their “opinions” as analysis investors can value as they wish. Precisely as they did before 1936.

By , CNBC, 08/27/2014

MarketMinder's View: By our count, there is more than one theoretical or factual error per paragraph in this “theory” (and we use that term loosely, as we’ll explain).

1) It incorrectly defines a correction—a decline of 50-60% is a bear by basically anyone’s definition. 

2) Offers absolutely no explanation for the cause.  

3) Bases the prediction near entirely on mean reversion (a behavioral error) and charts of past price movement (not predictive at all, ever). The entire reason for bearishness offered? Stocks are near all-time highs.

4) The charts are greatly distorted (please review the Y-axes), and they start from a wholly arbitrary point.

5) Trend lines are only trend lines after the fact. They aren’t predictive.

6) It attempts to tie the cause to monetary policy (withdrawal of QE), but markets are already well aware of this and have continued rising. Markets move in front of events, and we are a wee bit skeptical investors will, en masse, wake up one day and say, “Hey! Nine months ago the Fed began tapering! Sell!”

7) If you watch the video (which we did for you), you’ll find the analysis claims the Dow is in a 20-year uptrend, glossing over the cyclical changes in between.

8) Any theory containing a big bearish call and statements like, “It’s tough to know what the exact catalyst will be” is not actually a theory. It is an effort to get you to tune in.

By , The Wall Street Journal, 08/27/2014

MarketMinder's View: 2008 was a rough time to be sure, but there are next to no econometrics that actually support this statement. In the Depression, headline unemployment was reportedly over 25%; deflation was rampant and persistent instead of fleeting and shallow as it was in 2008; GDP fell by about a third. Thousands of banks failed in the Depression, and there was no deposit insurance or other program to protect imperiled savers. Now, in this way the two are similar: The Fed’s actions (or inactions) played a key role in exacerbating both downturns. In the Great Depression (1929-1933), the cause of the deflation was the Fed sucking about a third of the money supply out. In 2008, it was the Fed outsourcing crisis management to the Treasury, who countered the impact of FAS 157 with haphazard policy that led to credit markets freezing. As Bernanke said on Milton Friedman’s 90th birthday, “Regarding the Great Depression. You’re right, we (the Federal Reserve) did it. We’re very sorry. But thanks to you, we won’t do it again.” We’ve seen the Fed deliver no mea culpa on 2008 as yet.

By , The Telegraph, 08/27/2014

MarketMinder's View: First, a bit of a disclaimer: none of the words that follow these words should be interpreted as an endorsement or indictment of the Conservative or Labour parties. Or any other party. Investors often figure a pro-business party is better for stocks, but cycles swamp party stripes—and are fully global, which shows the problem with this thesis. After all, US stocks are among the world’s strongest, and the US president is from the party more Americans equate to being less business-friendly—and that fact holds historically in the US. Which shows this for what it is: correlation without causation—no-no time for investors. In our view, if stocks favor anything politically, it’s gridlock, which most of the world’s highly competitive, major economies have.

By , The Wall Street Journal, 08/27/2014

MarketMinder's View: Don’t wait for the regulators to get around to doing something, just start shunning nontraded, unlisted real-estate investment trusts now. They’re costly, illiquid and not at all transparent. Unlisted doesn’t equal price stability, despite how some pitch these. Consider: When one nontraded REIT discussed here listed on the NYSE in 2013, it listed “at a price that worked out to be a 45% discount to the share price at which investors originally bought into it.” Prices are moving even if you can’t see them. Just like, you know, real estate. Ultimately: We have yet to hear a reasonable, logical argument for why nontraded REITs are a thing. In our view, they should probably not be a thing in your portfolio, though.

By , The Washington Post, 08/27/2014

MarketMinder's View: As we’ve written, deficits are sharply down (again) in fiscal 2014, tied to rising federal government tax revenue. The CBO is projecting the year will close with a federal deficit of $506 billion. Now, we’re betting their forecasting might have a chance of being accurate 34 days from the end of the fiscal year, but we’d suggest taking all the 10-year predictions here with a grain of salt. Or multiple grains of salt. But also, we feel compelled to point out that the headline here is a real headscratcher. After all, if you are running a deficit, debt would always rise by definition. If it said “…Debt-to-GDP Continues to Rise” then we’d just quibble with the forecast. But we are sticklers for some factual wordishness stuff, otherwise known as nerds.

By , The Wall Street Journal, 08/27/2014

MarketMinder's View: While we agree the bull market likely continues higher from here, achieving a big, fat round number on the S&P 500 Price Index has nothing to do with our rationale. Looking at what happens after a round number is achieved is a fallacious exercise that sees only correlation with no attempt to explain causation.

By , The New York Times, 08/27/2014

MarketMinder's View: Here is some sound advice for investors about how to approach data and anecdotal evidence: “It’s so important to expand our sample size before making big money decisions. A single event, weighed in the context of everything else that’s happening, does not predict the future. But in the heat of the moment, it can feel like everything hinges on this one thing. If we genuinely feel like a single sample is of some consequence, then it shouldn’t be that difficult to get confirmation of our conclusion from other samples.”

By , The New York Times, 08/27/2014

MarketMinder's View: This is an excellent discussion of the influence of incentives and how a wee bit of economics might make your flight more comfortable—and more peaceful. Folks, if you don’t want someone to recline, throw cash—not water. You’d be surprised how much comfort someone is willing to give up for a bit of dough. For investors, though, consider: If your financial professional works on commission, he or she may be getting compensated to sell products that they aren’t totally comfortable with. Again, folks will give up a lot of comfort in exchange for some dough. For more, see Todd Bliman’s 12/04/2013 column, “Incentives, Interests and Investors.”

By , Bloomberg, 08/27/2014

MarketMinder's View: Ummm. The notion taxing Korean firms’ cash balances—mostly the large conglomerates called chaebol—will cease their hoarding of cash, driving wages higher for Korean workers, is bizarrely backwards, and suggesting this odd policy is right for Japan, too, is equally odd. For one, Korean firms aren’t excessively miserly—investment is already logging new highs. Two, assuming the tax was successful and firms deployed a trillion or so won in boosting salaries, firms could easily wind up hiring unnecessary employees or paying for unneeded work—a productivity drag, akin to the situation existing in Japan today. The notion this is a great strategy worthy of mimicry is just a bit wide of reality. For more, see Elisabeth Dellinger’s 08/18/2014 column, “Can Korea Tax Its Way to Business Investment?

By , Reuters, 08/27/2014

MarketMinder's View: So it seems German consumers are a little less rosy heading into the fall, but you know, what people say is worth a whole lot less than what they actually do. Which means statements like, “The GfK also reported a rise in shoppers' propensity to save in August, which could hint at an increasingly cautious attitude towards spending in future” might be right, but a cautious attitude doesn’t mean cautious behavior. If we care about attitudes a lot, though, we could always organize a squad of cheerleaders to chant, “Spend, Spend, SPEND! Go, Go, GO! Consume!” However, we doubt that would have any real economic effect beyond possibly adding some new jobs for Germany’s youth.

By , The Wall Street Journal, 08/27/2014

MarketMinder's View: There is a significant dose of charged politics in this article, so before you read it, remember: We aren’t endorsing the political bent of this or any article. Our sole point is this article’s central point—that Congress outsourcing rulemaking to the very bodies who enforce the rules is a potential negative—is correct, and a risk for stocks. Yes, it may permit industry figures to exert greater influence over rulemaking, a negative. But also, crucially, it means rulemaking happens in a much quicker, more opaque manner than very visibly debating and passing a law. Now, for the specifics, there is likely no market impact to House Speaker John Boehner’s lawsuit against President Obama, and Senators Brown and Vitter’s legislation seeking to boost capital levels at the nation’s biggest banks presumes “too big to fail” is a thing (we disagree). We’d suggest looking at the small example the Volcker Rule recently dragged up as an example of the potential risk.

By , The Wall Street Journal, 08/26/2014

MarketMinder's View: Why? “Because borrowing costs for European banks are cheaper now than they were immediately following the eurozone crisis, they can lend more. And in some cases, the premium offered by emerging-market Asian borrowers can be higher than in Europe”—or, more simply, it’s more profitable. Now, this is happening already, with the ECB’s stress tests and asset quality review ongoing—the high quality of Emerging Asia’s biggest companies makes the reward worth the risk. If the ECB starts quantitative easing (QE) and flattens eurozone yield curves further, it wouldn’t surprise us if this trend continued as lending outside Europe became even more profitable on a relative basis. Count this as one of several reasons we don’t think QE would do much for the eurozone economy.

By , Slate, 08/26/2014

MarketMinder's View: We don’t agree with every nuance of this article, but the general thrust—that the broad investing public has a bit of an obsession with all things central bank—is sound. Our main criticism is it just doesn’t go far enough: Faith in the Fed as the savior in 2008 is utterly misplaced and backwards; faith in QE, in our view, is wrong on theory and effect. They’re now supposed to employ macroprudential regulation to deflate bubbles, but there is no evidence they’ve ever identified one. The Fed isn’t all bad, mind you, and we’re not calling for a gold standard or something. But the degree of blind faith folks place in this institution vastly exceeds what’s warranted by history.

By , Slate, 08/26/2014

MarketMinder's View: Nothing magical about the S&P 500 surpassing 2,000. We’ve seen handfuls of round-number milestones during this bull market—the S&P reaching 1,600 in May 2013, 1,700 in August 2013, 1,800 in November 2013 and 1,900 in May 2014—and we could see many more. We don’t really know what it means to call a round number an important “psychological marker,” which sounds mostly like searching for meaning in all-time highs. Like this article using the 2,000 milestone as an opportunity to point to valuations—claiming stocks are “too expensive” and that they can’t keep rising forever. Their evidence? The cyclically adjusted price-to-earnings ratio, of course! Which wasn’t designed to forecast cyclical direction and doesn’t do it well, either.

By , The Wall Street Journal, 08/26/2014

MarketMinder's View: So some are predicting the opaque back-and-forth over Dodd-Frank’s living will requirement will prompt banks to shed operations left and right, and there is some evidence this is already happening. Whether it escalates is all very speculative, but we have to wonder: One big reason banks have multiple business lines is to diversify their revenue sources—that way their eggs aren’t all in one basket. If they become less diverse in order to avoid the Fed/FDIC’s wrath when the next round of living wills are judged next year, doesn’t that kind of make the financial system less safe, not more? Especially since the business units they’re selling are—quite logically—the most profitable ones? We aren’t saying this takes down the banking system or anything, but it seems like a bizarre approach.

By , Statista, 08/26/2014

MarketMinder's View: So it seems Russia’s ban on food imports is taking a toll on Russia (probably not what the country intended). The graphic highlighted in this article depicts Russia’s food prices jumping through the roof since the start of the year—potatoes (+72.7%), chicken (+25.8%), Pork (+23.5%), Sugar (+16.5%), Milk (+13.5%) and all food products (+10%). This is one of those points illustrating the folly of protectionism. After all, making goods more expensive for your own consumers just isn’t likely to be all that positive long term or short term, and it certainly isn’t protecting the Russian economy much.

By , The Wall Street Journal, 08/26/2014

MarketMinder's View: That +22.6% jump in July may look super boom-ish, but as with most such volatile data points, we’d suggest two things: First, dig into the details. Second, put the month in context. July’s big uptick was largely driven by surging aircraft purchases. Orders excluding transportation ticked down a tad (-0.8% m/m). But that’s all just one monthly blip in what’s pretty obviously a noisy data series. Overall, the longer-term trend is positive—a year-over-year look (here) shows orders have grown nicely this year.

By , Bloomberg, 08/26/2014

MarketMinder's View: We included this mostly because we found it a fun read, but there is a commonly misunderstood point regarding corporate inversions, too: “So the purpose of an inversion has never been, and never could be, and never will be, ‘ooh, Canada has a 15 percent tax rate, and the U.S. has a 35 percent tax rate, so we can save 20 points of taxes on all our income by moving.’ Instead the main purpose is always: ‘If we're incorporated in the U.S., we'll pay 35 percent taxes on our income in the U.S. and Canada and Mexico and Ireland and Bermuda and the Cayman Islands, but if we're incorporated in Canada, we'll pay 35 percent on our income in the U.S. but 15 percent in Canada and 30 percent in Mexico and 12.5 percent in Ireland and zero percent in Bermuda and zero percent in the Cayman Islands.’” Territoriality is more the driver than the rate.

By , The Telegraph, 08/26/2014

MarketMinder's View: “The developed world is full of clever people elaborating grand theories purporting to explain why we are doomed to failure. It would be a shame if we were transfixed by those stories and ignored the enormous opportunities which are – trust me – right in front of us. We have got a lot more prosperous and a lot healthier in recent decades and there is no reason we cannot maintain that progress.” This article is not a market call and shouldn’t be interpreted that way. Rather, these are just good reasons being a long-term optimist isn’t a Pollyanna point of view. It’s underpinned with, you know, things that actually happened.

By , Associated Press, 08/26/2014

MarketMinder's View: Consumer confidence surveys aren’t actually a great indicator of future consumer behavior. But they can be a marker of sentiment, and in that way they can be one data point helping paint the picture of consumer and investor mood. Presently, it appears folks are becoming more optimistic. Anyways, we advise investors to approach with caution coverage of these that considers them anything other than a measure of what certain selected people felt during a certain selected period of time. For more, see our theoretical discussion here from The Street.

By , MarketWatch, 08/25/2014

MarketMinder's View: While we share this article’s skepticism over the methodology of the highlighted study, the conclusion is hard to argue with (and one we’ve seen plenty other evidence supporting). Whether investors use actively managed or index funds, they tend to trade too often and for the wrong reasons, which can severely impact performance over time. This is something all the many studies measuring whether active or passive funds perform best miss. It isn’t really about the performance of the fund an investor uses. It’s about their ability to actually capture that performance. For more, see Todd Bliman’s 8/12/2014 commentary, “Passive Investing’s Primary Error: It’s (Mostly) Imaginary.”

By , The Wall Street Journal, 08/25/2014

MarketMinder's View: This entire piece operates on the notion that to invest successfully today—a time when US, Argentinian and Indian stocks are at all-time highs, corporate bond yields are ultra-low and US Treasury rates are falling—you have to find something “cheap.” Problem 1) Define cheap? Problem 2) Even “expensive” assets—whether you’re using recent price movement, P/E ratios or some other valuation—are perfectly capable of rising. Today, with earnings up and Leading Economic Indexes pointing to more economic growth ahead, those allegedly pricy stocks should have plenty of room to grow.

By , The Wall Street Journal, 08/25/2014

MarketMinder's View: As US regulators iron out the final details of the liquidity coverage ratio, which requires big banks to hold enough “high quality liquid assets” to fund their operations for 30 days if there is a run on deposits or short-term funding, rumor has it muni bonds might not make the “high quality” cut. While it’s premature to speculate on this before the final rule is released, this piece is a pretty sensible discussion of the potential impact. Some suspect it could raise state and local borrowing costs by removing an incentive for banks to own munis, but as this piece notes, banks tend to own muni debt for interest income, not for regulatory reasons. Even if demand does drop some, the banks impacted own only about 5.5% of the $3.7 trillion muni market.

By , CNBC, 08/25/2014

MarketMinder's View: The warning sign? While the S&P 500 hit a nice round intra-day all-time high of 2000, 10-year Treasury yields are trading lower (cue the ominous music). Which one is right, investors ask? Um, both? Markets are markets. The notion stock investors are ignoring some elephant in the room while bond investors are correctly eyeing slower growth ahead is just plain misplaced. Bond markets do not move on economic expectations alone.

By , The Telegraph, 08/25/2014

MarketMinder's View: While we wouldn’t recommend all the tactics highlighted here, this insightful interview with Irving Kahn (a cohort of Ben Graham) has some good, timeless nuggets of wisdom. Like this one: “I would recommend that private investors tune out the prevailing views they hear on the radio, television and the Internet. They are not helpful. People say ‘buy low, sell high,’ but you cannot do this if you are following the herd.” Other nifty truisms include the importance of resisting your impulses to run from short-term volatility, the power of compound interest and a reminder to look for information where more investors don’t—like in the footnotes of annual reports.

By , Bloomberg, 08/25/2014

MarketMinder's View: Actually, we don’t find this summer “different” from the many that came before it, and that’s true for the three supposed differences highlighted here. 1) Markets have always been resilient. How is this summer’s calm any different than the calm accompanying last summer’s tensions in Syria and Egypt? 2) There is no law saying stocks and bonds must move opposite each other. Any chart of market history will show you they move together sometimes, apart at other times. There is no such thing as “coupling” or “decoupling.” 3) Central bankers have always been confusing. Alan Greenspan turned it into an art-form. Also, we’re pretty sure difficulty in assessing labor market conditions isn’t why there is “greater policy divergence among central banks” (also normal)—that has more to do with conditions on the ground.  

By , The New York Times , 08/25/2014

MarketMinder's View: After (now former) Economy Minister Arnaud Montebourg criticized France’s increasingly pro-market policies in a widely read weekend interview, Prime Minister Manuel Valls evidently told President François Hollande, “it’s him or me.” In a telling sign about his agenda, Hollande picked the pro-business Valls, who should unveil the new cabinet Tuesday. Lesson: Politicians, whether in France, the US or wherever else, frequently moderate when in office, just like the “Socialist” Hollande has moderated over his two-plus year term (which is likely one reason why French stocks have outperformed since he took office). Bias blinds investors to this, which is why bias is deadly.

By , Reuters, 08/22/2014

MarketMinder's View: Well, world, this is what you were waiting for: Fed head Janet Yellen’s keynote speech at everyone’s favorite rural Wyoming central bankers’ boondoggle. And it went about as we’d expect: lots of jargony mumbo-jumbo about labor markets and noncommittal policy prescriptions amounting to “who knows what we’ll do and when, so cut us some slack, mmmkay?” Hey! Slack! Labor market pun!

By , Bloomberg, 08/22/2014

MarketMinder's View: Or not? A bar chart of the ratio of combined public and private debt growth to GDP growth (unclear whether this is real or nominal) over six periods of mismatched lengths that don’t even encompass full expansions tells. You. Nothing. Like, what happened in the second half of the 90s? Would the 2000s ratio be lower if they included 2007? Then again, even if they used a full data set and clearly compared real with real or nominal with nominal, these data still wouldn’t tell you whether “inequality, shrinking labor-force participation and decelerating productivity” were causing “secular stagnation” or whether “secular stagnation” is even anything more than a myth. For one, labor force participation was higher in the 80s and 2000s, yet those periods had quite “credit-intensive” growth, apparently. Two, traditional productivity gauges don’t accurately capture productivity—output per unit of labor sort of misses a lot of things. Three, inequality, just read this.

By , The New York Times, 08/22/2014

MarketMinder's View: Maybe the 34 trucks headed from the Motherland to Luhansk really are filled with food and medical supplies to assist the eastern Ukrainians displaced by the conflict. Or maybe they’re a supply column for the Russian soldiers and artillery units reportedly firing in Ukraine today. Either way, it still remains highly, highly unlikely that this conflict escalates to the World War III-like levels necessary for it to materially impact stocks. Now, if Russia invaded France, that would be very bad for markets. But a non-EU, non-NATO former Soviet state? Probably no there there.

By , Bloomberg, 08/22/2014

MarketMinder's View: Wait. So. If you want, you can round up a bunch of gold coins, use them to buy a bond whose face value is determined by the price of gold, the exchange rate of the US dollar and South African rand and a 0.5% interest rate? And you can opt to be repaid in either gold coins or cash? And the issuing bank will use your gold coins to “fund its gold-trading adventures”? And this is real? Whoa! Um that’s crazy. We aren’t in the business of offering recommendations for or against individual securities, but, um, well just do a lot of due diligence and think about tradeoffs and complexity and stuff. Because we’re pretty sure a gold-backed bond, in theory, is no more of a safety blanket or inflation hedge than normal gold, which isn’t either of those things.

By , The Wall Street Journal, 08/22/2014

MarketMinder's View: The likelihood there is a solid, clear answer provided to any of the questions here is minimal, and any of the words they respond with are likely just noise for investors. With that in mind, here are five questions far more useful than those listed here we’d pose to the Jackson Hole attendees. 1) Does one need a jacket there this time of year? 2) Which hiking trails would you suggest? 3) How’s the rock climbing? 4) Where did you find the best steak? 5) Get any good wildlife photos?

By , The Telegraph, 08/22/2014

MarketMinder's View: And the evidence is—wait for it!—relatively flat median inflation-adjusted wage growth for “goods-producing workers” in the US over the past 40 years, which apparently shows inequality, which apparently means the notion of comparative advantage in international trade was wrong. But, what about all the tens of millions of US workers that stat doesn’t capture? What about per-capita income, adjusted for inflation, more than doubling since 1970? What about the simple fact that inequality between countries would just logically get wider as some countries develop faster than others (and war-torn Central African nations are included in that comparison). Why would capital controls “help” with any of this? (They wouldn’t.)

By , The Wall Street Journal, 08/22/2014

MarketMinder's View: This is both sensible and a misperception in this sense: It rightly points out that banks with big excess reserves are unlikely to fail, a stability benefit to the Fed’s increased balance sheet. However, the process of building up those excess reserves requires depressing long-term interest rates, reducing the yield spread and thereby weighing on the profitability of lending. Less profitable lending likely makes loans harder to come by. That is the deflationary aspect of quantitative easing. Said differently, it isn’t the existence of the excess reserves that creates the problem, but how you get to that point.

By , Bloomberg, 08/22/2014

MarketMinder's View: So last week folks were all freaked out over the fact there were outflows from high-yield bond funds. Now they’ve stopped hyperventilating, and they’re buying them again. Here is a news flash: Using the herd’s direction as an indicator of where the market goes looking forward is a poor forecasting method.  

By , The Wall Street Journal, 08/22/2014

MarketMinder's View: It may well be that big companies with strong balance sheets and stable earnings do well looking forward! No quibbles there. Our issue here is more with the decision-making and behavioral aspects of this piece. Fear of heights isn’t really a wise reason to make changes in your portfolio. See today’s commentary, “The Joy of All-Time Highs,” for an illustration of just how much acrophobia might have cost you during the 1990s bull.

By , Bloomberg, 08/22/2014

MarketMinder's View: None of this searching for meaning in bouncing uppy times means anything. It is nothing more than an interesting observation that the recent uppy bouncing resembles the uppy bouncing in 1936. It doesn’t make this bull market any stronger or weaker (whatever that would even mean) than the dozen that came before it. Bull markets just generally have a way of moving up and to the right in a noisy fashion. That’s it. No need to overthink it.

By , MarketWatch, 08/22/2014

MarketMinder's View: Here’s the thing. If gold and copper were really leading indicators, we have a strong hunch NBER wouldn’t have removed commodity prices from the Leading Economic Index decades ago.

By , The Wall Street Journal, 08/21/2014

MarketMinder's View: Let’s see if we understand the (many) arguments being presented here. Investors should never try to time the stock market … Except maybe when the cyclically adjusted price-to-earnings ratio (CAPE) looks high or low … An investor who stayed in the market through the highs and lows would be rewarded for his discipline … But if you knew the beginning and ends of bear markets—and the CAPE can tell you that (sometimes)—you’d be even richer …  The CAPE has been wrong for most of this bull market, so “its value as a timing tool is tattered” … But you should use it anyway, since history says it’s kinda sorta been right at times before? Here is our friendly advice: When an article packs so many contradictions into eight short paragraphs, it’s probably a sign the thesis is wrong. No matter how much tortured, back-tested data are offered as support.  

By , EUbusiness, 08/21/2014

MarketMinder's View: Last week, folks went into a tizzy after the eurozone’s flash Q2 GDP reading showed no growth, sparking fears of long-term economic malaise in the region. Today’s eurozone flash PMI survey showed a reading of 52.8—anything over 50 indicates expansion—but since it was lower than July’s reading, folks assume it shows the region’s “fragility.” Look. We aren’t arguing the eurozone magically accelerates. But for stocks, what matters is the gap between reality and expectations. Considering just how many pundits and Nobel-winning economists think Europe is on the verge of deep depression, then slow and uneven growth would be kind of a positive surprise, no?

By , Bloomberg, 08/21/2014

MarketMinder's View: Huh whaaaaaaa? Why would the price of a stock today compared with the past 10 years of earnings, which are skewed down by a nasty recession, show investors’ confidence in the future? Don’t get us wrong—it’s refreshing to see an article about the Shiller P/E that isn’t hyperbolically bearish, but we think it’s important to be bullish for the right reasons. We don’t think the cyclically adjusted price-to-earnings ratio (CAPE) shows much of anything. This oddly calculated, bizarrely inflation-adjusted thing doesn’t tell you where stocks are going or even what current sentiment is like, since it’s heavily impacted by past data.

By , MarketWatch, 08/21/2014

MarketMinder's View: That this was the Number One story on MarketWatch all day is a pretty powerful indicator of where sentiment is. That’s about the only useful takeaway here, because the article itself is just so massively misperceived. One, the Crash of ‘29 and the 2008 panic don’t share fundamental causes. Two, stocks didn’t fall 92% in 1929. Three, the New Deal didn’t end the Great Depression. It kinda made things a wee bit worse. Four, “stimulus” didn’t drive stocks from 1933 to 1937 or from 2009 through today. Five, there are no correlations between today and the aftermath of the Great Depression. Six, aftershocks are geological phenomena—markets don’t work like that.

By , MarketWatch , 08/21/2014

MarketMinder's View: Intuitively, this makes sense—during the course of a bull market, stocks will rise more often than fall. Hitting an “all-time high” is a natural byproduct of that activity. At some point, stocks will hit their last all-time high of this bull market, and a bear will begin. But bulls don’t die because of age and magnitude. They die when sentiment is too euphoric and investors don’t notice some fundamental wobbling, or when some huge, largely unseen negative knocks stocks off course. With neither true today as far as we can see, there is no reason this bull can’t hit many more new highs before it ends.

By , The Aleph Blog, 08/21/2014

MarketMinder's View: Well, no, looking at historical stock returns can’t tell you whether a country you’re investing in will be torn asunder by war, plague, socialism and other pestilence. But market history does give you a reasonable basis for determining the probability of possible outcomes. How stocks have responded to certain events can provide a sense of how they will act to a similar event—just like stocks’ resilience during the many geopolitical conflicts of the 20th and early 21st centuries show there is a strong probability stocks fare fine through the troubles in Ukraine and Iraq. Yes the future could be very different from anything we’ve encountered in the past—this is why straight-line projections never work. But the same logic doesn’t apply only to stocks—it applies to every asset class. No investment comes with certainty. Period.

By , Bloomberg, 08/21/2014

MarketMinder's View: This illustrates why investors’ high expectations for new Prime Minister Narendra Modi’s ability to modernize India’s economy are likely misplaced. Modi’s coalition might have the strongest mandate of any government in a generation, but that coalition includes smaller parties whose leadership says things like, “Protecting your economy against the onslaught of foreign competition is never bad and never wrong,” never mind all the historical evidence showing huge trade barriers are always bad and always wrong. Modi has a vested interest in keeping these junior partners happy and on board, which gives him a powerful incentive to keep the status quo on the more politically unpopular measures, like trade, and picking only low-hanging fruit. For investors awaiting an Indian economic revival, we wouldn’t suggest holding your breath.

By , Bloomberg, 08/20/2014

MarketMinder's View: Actually, we doubt it’s so much the child cost as it is the fact that demographic shifts are not market drivers. They are too slow and widely known in coming, which is why all those go-go 2000s predictions based on rich baby boomers retiring and the Greater Depression fears based on the same both proved wrong. Never confuse a widely known structural factor for a cyclical market driver.

By , The Washington Post, 08/20/2014

MarketMinder's View: Well, we are a money manager and have absolutely no opinion about what people choose to eat. In our own personal case, we kinda think this might be a good diet strategy for us? Our major quibble with this article, though, isn’t the Fear Factor or Bear Grylls aspects to it, but rather, the motivation. Listen, long-term forecasts like this frequently discount human creativity: “…A 2013 United Nations report warning that with nine billion people on Earth in 2050, current food production will have to double. Between a lack of space and climate change concerns, we’ll need more sustainable solutions.” Thomas Malthus had much the same concerns about 200 years ago, which proved wrong as innovation took hold and developed more productive ways to produce food. Now, no one can argue this “cricket flour” thing isn’t a creative solution to the issue. We just kind of doubt it’s all that necessary come 2050.

By , MarketWatch, 08/20/2014

MarketMinder's View: So a few major quibbles with this one. Yes, buybacks reduce equity supply, so in that sense, their falling may slow one potential positive factor. But for one, the evidence presented here provides no definition to recreate the data and no real context. To the last point, consider: In this bull market alone, S&P 500 completed buybacks have fallen (on a year-over-year basis) in five quarters (Q2 2009, Q4 2011, Q1 2012, Q3 2012 and Q3 2013). Most data providers haven’t released Q2 data yet, so we’d categorize claims of a drop last quarter as a wee bit unreliable as of now. But even so, it might help to consider buybacks rose 50% year-over-year in Q1. Also, M&A activity rose sharply in Q2, so it’s possible that if a dip occurred, it may be due to companies, you know, buying other firms’ shares. But this also operates on the faulty premise that buybacks are the only thing propping up stocks. With 478 companies reporting as of August 20, according to FactSet, total (not adjusted for shares outstanding) S&P 500 revenues and profits rose in Q2. Bullish as they are, there is more to this bull market than buybacks. Moreover, the evidence regarding budget deficits and corporate profits is data-mined and ignores the facts on the ground. The thesis here is cratering deficits the last two years sap fodder for profits, but this is a wee bit odd considering government spending hasn’t fallen much—rather, tax revenues are up a lot. Oh and none of that is new and surprising for stocks.

By , The Wall Street Journal, 08/20/2014

MarketMinder's View: So this article is good in the sense that it highlights the complexity of variable annuities by showing how the brokers selling them struggle to understand all the ins and outs, twists and turns, fees, charges and traps! (Cue ominous music.) The fact the prospectuses for these insurance products often run over a hundred pages is a hint to that complexity. But also, if you sell one variable annuity to buy another and pay taxes in the process, you have not only bought a bad product, you bought it from a bad salesperson. There is a specific part of the tax code (1035) that stipulates how you can avoid taxes in this type of transaction. But again, that is a minor quibble in what is overall a good discussion of complexity.

By , CNBC, 08/20/2014

MarketMinder's View: Well, hey, maybe Americans weren’t accounting for reinvested dividends. (That’s a joke. Dividends alone would not account for such big discrepancies in last year’s returns.) But our guess is mostly that the poll respondents thinking the stock market rose much less than it did last year is just another factoid illustrating the fact sentiment isn’t euphoric today.

By , The Christian Science Monitor, 08/20/2014

MarketMinder's View: This article operates on a completely false either/or selection between 10 years of bull and 10 years of bear immediately before your retirement, then argues you’d be better off with the latter, because, you know, you’d buy lower only to be selling in retirement while stocks are in a new 10 year bull. Then it sets up another faulty premise, mean reversion, when it argues you should only buy what did poorly the preceding year. Then it argues retirees won’t benefit from this so they should be all in cash-like investments. But actually, the reality is a bear market is less of a risk than running out of money due to outliving your savings. Stocks’ 10% annualized long-term historical returns—a figure including bear markets—can actually help many folks fund retirement. And that is whether you are in retirement or a decade (or more) away. Ultimately, if investing were this easy, nearly everyone would reach his or her goals. We’re sorry to say that’s not the way the world works. It is much less convenient.

By , MSN Money, 08/20/2014

MarketMinder's View: The premise here is if bad news is good news for stocks (because it means more central bank stimulus), then good news must be bad news (because it means less). Which is a teensy bit wide of the mark in our view, from pretty much every perspective. First, you can virtually never divine exactly what is driving stocks on any given day—merely because the news media does it does not mean they are right. The premise also presumes there is no good news, which is beyond ridiculous. How about earnings? The overall rising Leading Economic Indexes across four of the world’s five biggest economies? How about political gridlock, which leads to less legislation? How about sentiment, which still isn’t euphoric and generally doesn’t fully appreciate the positive fundamentals existing today? And that’s where you get to the bottom of this article: Bad news isn’t bullish, the news just isn’t all bad. The fact many skeptics don’t see the good is what’s bullish.

By , Reuters, 08/20/2014

MarketMinder's View: This is the latest in a series of attempts by regulators to label large investment managers (those with greater than $100 billion under management, in this case) “systemically important” or “too big to fail.” Now, we don’t buy the theory that too big to fail is really a thing—the panic that struck after Lehman failed had much more to do with the unintended consequences of an accounting rule and the government’s haphazard behavior in trying to quell the panic. But even if you do buy the too-big-to-fail theory, that still doesn’t support the notion asset managers are systemically important. Their assets aren’t on the balance sheet of the institution, so outflows from a fund or funds don’t threaten the firm or the other investors’ assets. Hence, the notion advanced here of installing “gates” that could block redemptions during a panic just seems like an unnecessary restriction on investor freedom. This is far from a done deal, but we feel obligated to point out to the G20 this would favor smaller funds over bigger, but smaller doesn’t necessarily mean better.

By , CNNMoney, 08/20/2014

MarketMinder's View: The three factors pointed to here are dubious at best. The Shiller P/E, which isn’t even intended to identify near-term cyclical stock movements, called the tech bubble in 1996—or four years early. It has also been above average for most of the last decade. While Carl Icahn is a big deal, no doubt, it seems to us more telling where he’s putting his money (into stocks) than his words. Finally, sure, low rates could cause problems. But they won’t necessarily cause them. Your evidence that this is dubious is, you know, the last five plus years of bull market, which have occurred with low rates throughout, despite bubble and inflation fears being rampant the whole time. Let’s get this straight: What we have seen lately is overall rising prices. But bubbles are not mere price movements—they are a behavioral phenomenon in which folks’ euphoria pushes prices unjustifiably higher in the face of deteriorating fundamentals. While the world has weak spots today, the overall global economy—and particularly the private sector—are quite healthy and seem poised to continue growing, according to The Conference Board’s LEI gauges for the US, China, the UK and eurozone. (As an aside, the presumption a Treasury Secretary—in this case, from 1998—is a great bubble hunter is odd. You know, one inflated and popped in 2000, and there isn’t much of a relationship between 1998’s Long-Term Capital Management fallout and bubbles.) 

By , The New York Times, 08/19/2014

MarketMinder's View: As its creator mentions here, the cyclically adjusted P/E (CAPE) was never intended to forecast the turn of the market cycle. It aims to do the impossible: Forecast 10-year returns. So it’s bizarre that the article then proceeds to argue a high CAPE means a crash looms. History doesn’t support this, considering CAPE acolytes said much the same thing in, um, 1996. Plus, CAPE is backward-looking. It claims to “smooth” earnings volatility by aggregating the past 10 years, but all that gives you is a ratio skewed by deeply depressed earnings during the last recession. Why would that have any bearing on earnings and prices looking forward?

By , The New York Times, 08/19/2014

MarketMinder's View: There are a number of interesting, sensible points here, even if it is already pretty well-known that few (if any) companies actually pay the US’s developed-world-leading 35% corporate tax rate. But it overlooks a biggie: In order to take advantage of all those loopholes and pay a much lower effective rate, companies big and small pay through the nose for corporate accountants. Simplifying the tax code (and, yes, lowering the headline rate in the process) might not much change how much firms pay Uncle Sam, but it would allow them to spend capital much more productively.

By , Bloomberg, 08/19/2014

MarketMinder's View: To make a long story short, the ISDA is amending rules to allow bank bondholders who are “bailed in” when the bank goes under to collect credit default swap (CDS) payouts. The change comes too late to impact the CDS-owning bondholders who couldn’t collect when they were bailed into Banco Espírito Santo’s “bad bank,” but it should help future bail-ins go down in an orderly fashion. Since creditors will get the insurance payout, they won’t have an incentive to flee at the first sign of trouble.

By , Financial Planning, 08/19/2014

MarketMinder's View: While this seems to put a bit too much stock in the fiduciary standard’s ability to ensure investors get good, conflict-free advice, it’s an otherwise excellent discussion of an oft-overlooked point: The debate about a uniform fiduciary standard for the brokerage and investment advisery industries exists only because regulators have allowed the line between investment sales and advice to blur. The regulatory code was designed to keep them separate because the SEC’s architects realized too many conflicts of interest arise when sales and service mix—witness the shady behavior contributing to the Crash of ‘29. Instead of “forcing the brokerage industry to live under a fiduciary standard,” we think investors would be best off if sales and service were black and white again. It’s also important to realize standards don’t always ensure flawless behavior—why investors should make it a point to learn about their adviser’s values and principles. For more, see Elisabeth Dellinger’s 04/17/2014 commentary, “Values Rule.”

By , The Wall Street Journal, 08/19/2014

MarketMinder's View: This article reads a bit like a public service message: “However, the rush of newly public MLPs could slow since the Internal Revenue Service temporarily stopped blessing the structure in April to conduct a policy review. ‘This year would have equaled 2013, but for the [IRS] moratorium,’ said Roger Aksamit, a senior partner at law firm Thompson & Knight LLP in Houston.” … “The Treasury Department also is looking into the effects of MLPs on tax revenue as part of its work on tax-base erosion, a spokeswoman said.” Now, the risk here isn’t a market-wide one, as there are really only about 120 total listed MLPs. But this is a factor worth paying attention to if you are a unitholder.

By , The Wall Street Journal, 08/19/2014

MarketMinder's View: The first four sentences of this article are chock full of misperceptions, and the rest of the argument doesn’t redeem. To begin with, extrapolating long-term interest rates forward and presuming they won’t rise beyond 3% is a dangerous behavioral flaw, compounded by the complete and utterly baseless speculation about what the Fed will do—what the timing of the initial action will be, and even how long they’ll delay between hikes (that haven’t happened!). Finally, it’s curious to us the evidence offered here omits the UK and its 3.2% annualized GDP growth, the US’s 4% quarter, the fact Japan’s downturn was widely expected and largely due to the implementation of a sales tax hike, the fact China’s debt fears are old news and it has grown at a 7%+ clip throughout, continued quick growth in many Emerging Markets regions and more. The “secular stagnation” thesis seems a lot more like a selective argument when you consider the preponderance of the evidence. In our view, markets and economies move in cycles and there is nothing different about that now. Economically, when you consider the fast pace of technological change and advance today, the stagnation thesis seems a wee bit wide of the mark. Maybe it’s that traditional econometrics like GDP simply don’t appropriately account for activity? If you are an investor, it’s a mistake to get caught up in such super-long-term, structural theses with little to no economic or market impact in the here and now. Need more evidence why? Please review the last five years’ stock market results and square it with this stagnation thesis of a slightly different bent.

By , The Wall Street Journal, 08/19/2014

MarketMinder's View: To “Full Dovish,” “Contingent Dovish,” and “Semi-Dovish,” we propose the addition of several other terms utterly devoid of meaning. Here goes: Robustly dovish; shadow dovish; doubly dovish (for the alliteration, of course); devotedly dovish; mega dovish. We could go on, but our overall point is this article makes one sweeping presumption that cannot be proven—that markets are rising recently in anticipation of Fed head Janet Yellen’s speech this week. The Fed is not a market-oriented force and there is no realistic way to forecast their moves. As an aside, we don’t really know what it means to be “long risk.” There are risks to every single type of investment and investment decision ever made, Amen. So are you long interest rate risk? Inflation risk? Reinvestment risk? Stock market volatility risk? Risk that your options expire worthless? What. Does. It. Mean!

By , The Wall Street Journal, 08/19/2014

MarketMinder's View: While exports from northern Iraq have largely come to a halt due to the current turmoil, oil production in the south is rising—West Qurna II oil field has upped its production by 160,000 barrels since March. That’s positive news given the overall situation—and a counterpoint to the widespread fears about conflict taking a toll on production.

By , Bloomberg, 08/19/2014

MarketMinder's View: Actually, we’d see these as three reasons you shouldn’t care about central bankers’ annual Wyoming boondoggle. Central banks have zero influence over any of the issues mentioned in point one, which aren’t even economic issues, forward-looking or, in some cases, real. Both arguments in point two are fairy tales. And point three—misperceived about quantitative easing as it is—illustrates just how much of a self-important wonkfest Jackson Hole really is.

By , The Telegraph, 08/19/2014

MarketMinder's View: “Direct manufacturing costs in the UK have improved by up to 10 percentage points compared to other Western European countries thanks to stable wages and improved productivity over the past decade.” This, along with strong property rights, relative ease of doing business and enviable geographic positioning make the UK a strong candidate to attract not just manufacturing, but R&D, distribution and other satellite operations—a longer-term positive.

By , MarketWatch, 08/19/2014

MarketMinder's View: The hunt for clues on when the BoE will raise rates continues. The latest “clue”: if some policymakers disagreed with the BoE’s decision to keep rates unchanged at its most recent meeting, evidently, it means rates rise sooner rather than later. This is about as silly as all the other supposed tricks for predicting central banks’ moves. It is impossible to game when a rate hike will occur. Human brains aren’t market functions, and forward guidance is subject to change, as evidenced by BoE Governor Mark Carney’s constantly flip-flopping messaging.

By , The Reformed Broker, 08/18/2014

MarketMinder's View: The thesis here is good solid sense: If you have a long time horizon and need your money to grow, stocks have historically done a marvelous job, outpacing bonds and other liquid alternatives during almost all 30-year rolling periods. But we’d add two caveats. One, the data used as evidence go back to 1802—but the Cowles Commission has verified equity market data going back only to 1926. Two, staying out of stocks entirely during the one window when bonds beat stocks wouldn’t make sense at all. Stocks still grew over that period, and they would have carried an investor toward his or her goals.

By , CNBC, 08/18/2014

MarketMinder's View: It’s a huge, unsubstantiated leap from “investors are selling US-focused equity mutual funds” to “investors are sitting on the sidelines.” Fund flows don’t show where the money goes instead. Maybe investors bought individual stocks. Maybe they bought ETFs—ETF fund flow data show huge US and foreign equity net inflows in June and July. Which doesn’t at all square with the “folks are freaking over the Fed and Ebola” sentiment in the rest of this piece. 

By , Reuters, 08/18/2014

MarketMinder's View: Setting aside the huge fallacy that is the assumption the global economy is “off track,” this piece looks at recent economic headwinds the wrong way. The problem isn’t a lack of stimulus. The problem is central bankers keeping a lid on the quantity of money. The US and UK tried to boost borrowers’ demand by lowering long-term interest rates, but in doing so, they flattened the yield curve—the proxy for banks’ profit margins—and squashed supply. The ECB’s impending stress tests have done the same in the eurozone: Demand isn’t the problem there, either—banks are deleveraging and hoarding cash like crazy until they know whether they pass or fail. In both cases, making it easier for banks to lend is the solution—more transparent regulatory policy in the eurozone, and steeper yield curves in the UK and US (already bearing fruit here!).

By , St. Paul Star Tribune , 08/18/2014

MarketMinder's View: "According to the wire fraud charge to which Holt pleaded guilty in April, his scheme to defraud clients began in 2005 when he started diverting their funds into bank accounts that he controlled so he could spend the money on himself. Holt hid his activities from clients by sending ‘portfolio fact sheets’ to them that appeared genuine but contained false entries to make it appear the investments were sound. He later used a website in the same manner.” How can you avoid becoming a Ponzi scheme victim? For one, never give your adviser custody of your assets. Housing them at an unaffiliated third-party broker-dealer, where they’re in an account in your name, will prevent shady advisers from stealing them. For more, see our 8/15/2014 commentary, “Crooks’ Common Threads: Three Red Flags to Watch Out For.”

By , MSN Money, 08/18/2014

MarketMinder's View: While this highlights some of the US economy’s less-appreciated achievements, it errs in assuming US markets should be visibly reacting to war, Ebola and perceived economic turmoil in Europe, China and Japan. To that, we ask, why would that ever be the case? Ukraine and Iraq are 0.2% and 0.3% of the global economy. Sanctions don’t hit trade enough to tip the world into recession. The Ebola outbreak isn’t an economic issue. Germany contracted because imports grew faster than exports. China’s hard landing is a myth. Japan’s deep contraction stemmed from a sales tax hike. None of these have the power to upend trade, growth and earnings globally. They’re all just part of the proverbial wall of worry bull market normally climb.

By , EUbusiness, 08/18/2014

MarketMinder's View: As we recently wrote, though Russian sanctions will impact some producers, they don’t present a big enough risk to trade to derail the bull. If it takes a 14% fall in shipments to Russia and an 8% fall to Turkey, that tells you the Russian relationship just isn’t make-or-break for the region as a whole.

By , The Wall Street Journal, 08/18/2014

MarketMinder's View: Their critiques seem pretty on point to us: If you make it harder for investors to get out of a money market fund when its internal liquidity buffers falter, then investors have an incentive to flee as soon as things start looking remotely dicey, which accelerates the very problem the rules aim to prevent. In our view, it’s all a solution in search of a problem, though the changes are small and limited enough that they shouldn’t lead to the hollowing out of the entire industry. For more, see our 7/27/2014 commentary, “The SEC Does Some Things to Money Market Funds.”

By , The Wall Street Journal, 08/15/2014

MarketMinder's View: Cash isn’t trash, but the advice in this article sure is. Sure, if you have a short-term need for your money—if you’re saving to buy a home in a year or two, or put in a new pool, for example—then it makes sense to keep a big chunk in cash or something similarly liquid. But if you have a long time horizon for your money, holding cash isn’t an “opportunity.” It’s a drag. Every dollar your cash could be earning if it were invested is money lost. During a bull market, there is nothing to gain from sitting on the sidelines. That buying opportunity may never come. For more, see Todd Bliman’s 6/9/2014 column, “The Cost of Trying to Time Corrections.”

By , The Guardian, 08/15/2014

MarketMinder's View: Believe him if you want, but let’s consider Mark Carney’s track record as BoE Governor. A year ago, he said he wouldn’t even think of hiking rates until unemployment was down to 7%—something the bank forecast for late 2016. In February, he dropped the unemployment threshold when it hit 6.9% two and a half years early. In April and May, he said they won’t hike till sometime in 2015. In June, he said folks were nuts for thinking rates wouldn’t rise till 2015. Who knows what he’ll say next month.

By , Slate, 08/15/2014

MarketMinder's View: Can it? Who knows—being a government-sponsored financial services firm didn’t really turn out so well for Fannie Mae and Freddie Mac, after all. Should it? We think not. Look. Just because everyone’s doing postal banking doesn’t mean the US should, too. Adding a government-sponsored (and, let’s face it, backed and guaranteed) entity to US banking—one that can charge below-market fees because it has that government edge—distorts competition. If this were so good, then why do most observers agree one of Japan’s biggest problems is its bloated postal bank, Japan Post? Why have past governments tried so hard to get rid of it?

By , EUbusiness, 08/15/2014

MarketMinder's View: A Russian invasion is terrible for the Ukrainian people. But it will take much, much more than Russia invading a non-EU, non-NATO state representing 0.2% of the world economy for conflict to put the bull market at risk. We’re talking a World War III-like escalation, the chances of which are infinitesimal.

By , The Wall Street Journal, 08/15/2014

MarketMinder's View: The port in question was occupied by armed rebels for nearly a year. Now it’s back under the state’s control, boosting Libya’s export capacity by 220,000 barrels per day. Another positive for global oil markets, and another reason why we shouldn’t see severe disruptions if ISIS were to threaten Iraq’s oil infrastructure.

By , The Wall Street Journal, 08/15/2014

MarketMinder's View: We aren’t really sure why anyone would be surprised by this. China still puts a ceiling on bank account deposit rates. China also went to great lengths to bump up lending, but they didn’t raise traditional loan quotas. So of course banks will funnel the excess liquidity to the economy through wealth management products. And of course there will be sky-high demand. That’s just how the rules and incentives are aligned. There also isn’t much evidence this is a huge risk for China—see last year’s commentary on wealth management products for more.

By , India Times, 08/15/2014

MarketMinder's View: A worthy dream! Here’s a less worthy dream: “We should strive to be a nation that doesn’t import, but exports. I urge the youth to reduce dependence on imported products.” Alright, let’s take this one to the extreme: There is no way India—nor any country—can survive on zero imports. One, you need resources and energy—India isn’t exactly rich in either. Two, killing imports drives prices higher, hurting the many folks already struggling under India’s high inflation rate. Three, importing refrigerated food storage and transport technology would be a really good way to fight rampant malnutrition. Four, some countries are just better at making things than others. Instead of seeking complete self-reliance, India would benefit far, far more over time from finding its comparative advantages and integrating more into the global economy.

By , Bloomberg, 08/15/2014

MarketMinder's View: While we wouldn’t exactly credit so-called corporate raiders for the US’s 80s and 90s booms, this makes a number of keen observations about the many inefficiencies of Corporate Japan—and opening the country to private equity buyouts probably would help shake things up some. Though, Japan’s long-term success depends more on whether the government is willing to address the many causes of its malaise. Reforming corporate governance and modernizing the labor code would be huge helps and accomplish many of the goals this piece would target with leveraged buyouts. So far, though, there aren’t many indications Prime Minister Shinzo Abe has the drive or ability to see these politically difficult changes through.

By , Financial Post, 08/15/2014

MarketMinder's View: Here’s a good reason not to freak out over every terrible-looking economic statistic. Sometimes the stat-heads realize they forgot to update their systems and accidentally left out several tens of thousands of new hires. And then they fix it, and everything looks much better.

By , The Telegraph, 08/15/2014

MarketMinder's View: On a year-over-year basis, the UK’s revised Q2 growth rate puts it atop the G7. Hear, hear! And the high-and-rising Leading Economic Index suggests plenty more in store.

By , The New York Times, 08/15/2014

MarketMinder's View: This is all very speculative for a rule that hasn’t been finalized and takes effect in 2018. It’s good to be aware of! It just might impact credit availability and banks’ earnings! Or they might just use the long phase-in timeline to build even bigger loan loss reserves before the rule takes effect, giving them more flexibility before it’s the law of the land. It’s entirely possible the rule’s biggest impact is on paper. For now, this just doesn’t seem to have the destructive power the mark-to-market accounting rule wielded in 2008.

By , The Wall Street Journal, 08/14/2014

MarketMinder's View: Everyone knows gold is a portfolio insurance against geopolitical risk. So why haven’t prices jumped this year even though Russia is sponsoring war in Ukraine, ISIS is carving up Iraq—where the US is conducting air strikes—and Israel and Hamas are at it again? Why has gold been in a bear market since the Arab Spring, falling through Egypt’s and Syria’s struggles and all China’s maritime squabbling with Vietnam and Japan? Supply is up and demand is down! Yes, gold, like all commodities, trades on supply and demand. It isn’t a safety blanket (see that bear market), inflation hedge or anything else remotely magical. It’s a commodity with limited industrial use and strong ties to the jewelry market.

By , EUbusiness, 08/14/2014

MarketMinder's View: Quarter to quarter, growth across an 18-country bloc can vary greatly—that’s the only real takeaway at this point since this “flash” reading uses an incomplete data set and gives few details. Headlines try, citing everything from the “Putin factor” to low inflation, warning of a Japan-style lost decade. But it’s all just noise. The story in the eurozone is the same as it has been for a while now: Banks are deleveraging, which makes it hard for the region’s many small businesses to finance growth. Looking ahead, though, the widely feared deflationary doom spiral seems unlikely. The Conference Board’s Leading Economic Indexes for the eurozone, France, Germany and Spain still point to uneven, but continued, growth.  

By , The Wall Street Journal, 08/14/2014

MarketMinder's View: We don’t think you need to be an Ivy League professor and/or government economist to know that if you tax something, you tend to get less of it—most folks implicitly know and practice that lesson on their own. Which is why we always found it a bit strange that Japan’s government thought the sales tax hike was a magic solution to its rising debt load. Especially when they seemed to recognize the tax hike would hurt growth—and planned fiscal stimulus to try to offset it. Seems to us like they should bank on lower tax revenue as well. But so far, they don’t seem to have connected the dots—part two of the tax hike is still tentatively scheduled for next October. Unless, of course, the economy isn’t in an “upturn” then, but how would they measure that? Especially when consumption tends to rise ahead of a tax hike as demand is pulled forward, which would pretty likely put the economy on an upswing before next October? For more, see today’s cover story, “Into the Abenomics Abyss?

By , InvestmentNews, 08/14/2014

MarketMinder's View: We can think of many more, but for the sake of brevity: helping you prevent emotion from interfering with decision-making; helping you understand why certain investments will help you reach your goals more than others; helping you battle dangerous behavioral errors; helping you identify specific financial goals and objectives; helping you know when and how you’re hurting yourself; walking you through market volatility; and helping keep your strategy consistent with your goals on an ongoing basis. For more, see Elisabeth Dellinger’s column, “Robots, Marie Antoinette and You.”   

By , The Wall Street Journal, 08/14/2014

MarketMinder's View: This piece is full of fallacies, but here are the top (bottom?) five. 1) Investors weren’t euphoric in 2008. That bull market was cut short well before sentiment ran its usual course. 2) The Fed isn’t and hasn’t been supporting stocks. 3) There is no such thing as “riskier stocks.” Stocks are stocks. 4) If “anxiety levels have grown since the spring of 2013,” then why does everything from headlines to surveys to fund flows suggest sentiment is warming? 5) Markets can fall just fine when people are “acting cautiously,” whatever that even means. Emotions can always turn and trigger a sell-off for any reason—or no reason. Some big, fundamentally negative surprise could erupt.

By , Daily Finance, 08/14/2014

MarketMinder's View: Maybe rising wages do bump up firms’ labor costs, and maybe that does squeeze margins a bit! But there is no evidence this would put the bull market at risk. Historically, bull markets have weathered slowing—and occasionally negative—earnings growth just fine. It’s actually a fairly common occurrence during the latter half of a bull.

By , The Wall Street Journal, 08/14/2014

MarketMinder's View: This illustrates two big hurdles China must clear in order to have a functioning, liberalized financial system. One, savers and investors need to be aware of and accept the risk of loss. Two, other financial services, like loan insurers, need to do their job so the system can function in an orderly manner. When an insurer skips town without paying after a loan it guaranteed defaults, and investors thus lose money in a product the banks mis-advertised as “safe,” problems inevitably arise. China is making some progress—shadow lending products are now required to carry disclosures warning of the risk of loss—but it has a long road of reform ahead of it. For more, see Joseph Wei’s 08/07/2014 commentary, “China’s Balancing Act.”

By , MarketWatch, 08/14/2014

MarketMinder's View: Well, the advice here from the adviser seems more sound to us except the fact that he seems to buy into a financial unicorn: passive investing. We say, “seems to buy into” because the specific advice offered in the very next question—that young people should buy only small-cap stocks because they have higher returns—completely ignores the unicorn he just recommended you ride(?) to retirement. If you believe markets are too efficient to be beaten in the long run, it is contradictory to believe one type of stock will outperform over the long term. That belief hinges on market inefficiency, which is an odd place for someone pounding the table on passive to end up. So, lesson: Don’t just assume advice is perfect because it comes from a well-credentialed source. Consider the philosophy behind it and whether the theory matches reality. 

By , Yahoo! Finance, 08/13/2014

MarketMinder's View: An excellent post showing the fallacy of mean reversion. And that is: the mean is only the mean because some figures are much bigger than it and some smaller. Fearing the bull will die due to heights or age or that a correction is “overdue”* because we haven’t had one in a while all commit this same, basic error. (*Corrections cannot be overdue as they do not operate on a schedule.) For more, see Todd Bliman’s commentary, “The Cost of Trying to Time Corrections.”

By , The New York Times, 08/13/2014

MarketMinder's View: So there is an interesting angle to this story and an overwrought fear, all wrapped up in one. The interesting part is the increasingly diverse sources of funding smaller European firms are using, probably in no small part due to the major deleveraging of eurozone banks. Simply put, capital is crucial and if these companies can’t get it via their most common traditional means (a loan), it seems they’re more willing to tap capital markets than they were before. As for the overwrought fear part, this makes you think that the reason for the credit crisis in 2008-2009 was excessive junky loans that went bust. That is a common, but incorrect, view. Certainly some firms were overleveraged, and there were some bad loans. However, the true culprit was FAS 157, an accounting principle that greatly magnified the losses far beyond what was justified by actual defaults, and a haphazard US government that applied incorrect prescriptions to the wrong ailment. For more, see former FDIC head William Isaac’s testimony to Congress delivered on March 12, 2009.

By , The Reformed Broker, 08/13/2014

MarketMinder's View: This may be the shortest article we’ve ever featured here, but hey, when you’ve made your point clearly, you’re done, and it’s ok to stop. Regional conflicts are an overhyped risk to stocks. Need more words on this? See our 07/30/2014 commentary, “The Myth of the Monetary Airbag.”

By , Bloomberg, 08/13/2014

MarketMinder's View: Yeah, but those are headline prices, which include food and energy—volatile categories the ECB has a limited ability to influence with monetary policy. Excluding those factors, Spanish prices were flat, which is another way of saying they didn't drop at the fastest pace since the 2009 credit crunch. It is also another way of saying the cause is quite different. Then: Deflationary bank panic crushing credit growth globally. Now: Energy supply growth outpacing demand growth. See? Different. For more, see our 08/08/2014 commentary, “Should the ECB Go Big?

By , The Wall Street Journal, 08/13/2014

MarketMinder's View: There are extenuating circumstances here leading economists to believe this is a temporary blip and not something bigger—namely, April’s sales tax hike from 5% to 8%, which likely pulled forward significant consumer and business spending in to Q1. However, some of the figures here—like falling exports—seemingly allude to the fact Abenomics’ aggressive monetary easing to weaken the yen, thereby improving export’s price competitiveness, has had little lasting impact. Now, one way to analyze this is to look at the first half of 2014 relative to the first half of 2013, which shows GDP rose slightly on a year-over-year basis—pretty meager growth, and all very backward looking. Other, forward-looking gauges like presently falling LEI suggest this may be more than just a blip. Investors overweighting Japan should take note.

By , Bloomberg, 08/13/2014

MarketMinder's View: Yep—US oil output is up by 3 million barrels (or almost an Iraq) compared to the average annual output from 2005 - 2010. That has no small impact on global supplies, and considering demand growth has been slow, slack prices aren't surprising. But the whole article also smacks of "energy independence," which is more a political meme than an economic term. Energy markets are global, and if there is a supply shock in the Middle East, it will likely have some influence on prices here even if we don't import a drop of oil.

By , The New York Times, 08/13/2014

MarketMinder's View: So a repurchase agreement or repo is a funding tool banks and brokers use in which they sell a security with an existing agreement to buy it back, usually in a very short span of time (overnight, a week, etc.). Was there a shock in the repo market that affected Lehman and other brokers in 2008? Yes. Would more capital and less reliance on the repo market have averted the crisis? Nope. This is another instance where regulators are playing whack-a-mole with aftereffects of the panic and not addressing the causes: the dastardly unintended consequences of FAS 157 and a haphazard government trying desperately to deal with them. After all, one of the Financials sector’s primary functions is to make capital available by converting short-term money into long. Funding will nearly always come from short-term areas, and that’s regardless of whether repo is the specific transaction used.

By , The Telegraph, 08/13/2014

MarketMinder's View: These data stretching back to 1914 are suspect, but the theoretical point is sound. “The lesson is that ‘portfolio patriotism’ – sticking to shares listed in your own country – isn’t the best way to invest. But it is common. In 2010 American investors had 72pc of their portfolios allocated to US shares, despite Wall Street accounting for about 43pc of the global stock market. British investors were more diversified but still had half of their money in UK-listed companies, even though the London market accounts for just 8pc of global shares.”

By , The Wall Street Journal, 08/13/2014

MarketMinder's View: A few conclusions here seem a bit wide of the mark. For one, these data are backward-looking and the article, which goes on to discuss pretty much the whole year-to-date in retail sales even more so. There aren’t many, if any, forward-looking conclusions to draw from that. And two, retail sales and consumer spending aren’t synonymous, as these do not tally services consumption.

By , Reuters, 08/13/2014

MarketMinder's View: It seems Argentina has contempt for US District Court Judge Thomas Griesa’s threat to hold the country in contempt of court if it doesn’t stop claiming it hasn’t defaulted. Which is really more entertainment than analysis, though you could argue the same about the direct effects of the story more generally. A nation with no access to global capital markets defaulting, tied to legal ramifications from an earlier default, is neither big nor surprising. But this article does illustrate one thing: The court has limited ability to actually enforce its ruling. Let’s assume Argentina is found to be in contempt. Does anyone expect Cristina Fernandez de Kirchner to show up in shackles?

By , Bloomberg, 08/13/2014

MarketMinder's View: Well, yes, a rising Swiss franc versus the Brazilian real or Chinese yuan likely does make Swiss goods modestly pricier in those nations. But it also lowers Swiss firms' input costs, to the extent they may be imported from places with weaker currencies. Finally, given available counterfactuals (Japan, where a weak yen didn't spur hot exports) and Spain (where a strong euro didn't crush them), we think you should be a wee bit skeptical of this as a real headwind for Swiss exporters.

By , Xinhua, 08/13/2014

MarketMinder's View: Well, as the old saying goes, one man’s ban can be another man’s boom, providing that boom doesn’t bomb. OK, we admit it: We included this article mostly because we find the headline funny (well done, headline writer!), and the fact it is Chinese state-run media sourcing Russian state-run media and a US financial blog written by an anonymous author using a Hollywood-inspired nom-de-plume. Beyond that, a Russia/China special economic zone to advance trade likely has little effect on the Chinese economy overall.

By , MarketWatch, 08/13/2014

MarketMinder's View: Here are some keys to avoiding being a victim of a fraud: 1) Do not buy into strategies offering luscious, lofty returns and no negativity 2) do not give your adviser custody of the assets and 3) do not buy investing strategies so jargony and flashy you can’t hope to understand them. This one violates all three of those points. “The Bitrans raised $500 million between 2005 to 2011 from investors after claiming the fund had returns of between 16% and 23% over eight or more years of managing money from family and friends — and no down years. The 69-year-old father and his son claimed the fund used a ‘complex mathematical trading model’ developed by Bitran in his MIT research on optimal pricing theory, when in fact the money was invested in ‘funds of funds’ which relied on other hedge funds to invest, including Madoff’s firm, said prosecutors.” It’s a sad-but-true factoid that investors do not seem to have learned very much from the Madoff scandal. The only thing lacking here is affinity group marketing. But you don’t have to look hard to find a recent example of that, too.  

By , The Wall Street Journal, 08/12/2014

MarketMinder's View: Kinder Morgan’s reorganization highlights a pitfall of Master Limited Partnerships (MLPs). While people may jump into MLPs because of their expected tax incentives, this deal shows these benefits are … well … limited in the long run: “Because Kinder Morgan Energy Partners is organized as a partnership that benefits from substantial deductions, the taxes on its substantial quarterly payouts were deferred. When the units are sold or exchanged—as they will be in the reorganization—the deferred taxes come due.” Like all investments, MLPs have pros and cons—and it’s important for investors to understand them beforehand. For more, see our 11/26/2013 commentary, “MLPs and Your Portfolio.”

By , The Guardian, 08/12/2014

MarketMinder's View: Sorry, no central bank can “solve” the “problem of excess financial volatility.” They. Aren’t. That. Powerful. The global stock market is about $32.8 trillion. The UK alone is $3.3 trillion. The BoE’s balance sheet is about $680 billion—and it’s only that big because of quantitative easing. They’d have about as much success as Japan and Taiwan did at smoothing daily gyrations (which would be none). Plus, the tactical approach suggested here is hogwash. Buying stocks when the cyclically adjusted P/E, or CAPE is low and shorting when it’s high? When there is zero evidence CAPE has any correlation with cyclical turning points? Would the BoE have made a killing selling short when CAPE reached a high in January 2004 (27.65), 44 months before the bull ended? Seems like a recipe for disaster for public finances, if you ask us.

By , The Wall Street Journal, 08/12/2014

MarketMinder's View: If your investment thesis is, “I am going to buy the stuff that central bankers are buying because they are like, mega-powerful,” our advice is: Think again. Also, if your thesis is stocks have only been rising because of central bank manipulation, think again. The BoJ has been buying ETFs linked to the TOPIX and Nikkei since December 2010, but cumulatively, Japanese stocks are lagging the world since. Folks, markets are efficient discounters of widely known information, and it is widely known the BoJ announced four years ago it would buy ETFs. This neither puts a floor under stocks nor serves as a materially bullish driver. The same goes for Japan’s pension fund upping its equity allocation. Widely known factoids are not the stuff bull markets are made of.

By , The Wall Street Journal, 08/12/2014

MarketMinder's View: It seems a stretch to say a pending accounting rule change is about to catch banks with their pants down. It’s not that bankers are unaware of the forthcoming rule, which would require them to book expected losses over a loan’s entire lifetime upfront and boost loan loss reserves. They’re just waiting for the finalized rule and guidance before they start prepping for implementation. Which seems pretty sensible, if you ask us—why make business changes before you know exactly what you need to change?

By , The Wall Street Journal, 08/12/2014

MarketMinder's View: This is interesting, but it probably isn’t the “death knell” for the Foreign Account Tax Compliance Act, or FATCA for short. Most of the disclosure agreements the US signed with other countries are designed to supersede national law—the fine print likely defends against charges like this. The chances this or other disclosure agreements get overturned are miniscule. For more on FATCA, see our 03/28/2014 commentary, “FATCA Follies.”

By , The New York Times, 08/12/2014

MarketMinder's View: No. But not for the reasons suggested here. This piece argues “living wills” don’t make sense because they are “unrealistic”—pointing to banks’ complex corporate structures and the current bankruptcy code, and arguing one or both must change. But in our view, the problem isn’t banks’ structures or the way Chapter 11 is written. The problem is with the exercise of living wills itself. Simply, banks today don’t know what either they or the next crisis will look like in the future. What’s the point in writing a plan, setting firm expectations, and then having to deviate from it? How does that inspire confidence during a bankruptcy? Plus, if creditors and shareholders have a blueprint outlining exactly how they’ll get whacked, wouldn’t that accelerate capital flight and exacerbate the risk of failure if things look rocky?

By , The Telegraph, 08/12/2014

MarketMinder's View: Let’s be clear: German investor confidence being hit by geopolitical jitters does not mean Germany’s economy is taking a beating. Confidence surveys measure people’s feelings. They don’t measure output. Nor do they reflect people’s future actions—people often say one thing and do another. A better gauge of the future is The Conference Board’s Leading Economic Index, which is currently rising.

By , The Korea Times, 08/12/2014

MarketMinder's View: In 1995, Korea implemented a daily price limit for stocks because regulators thought it would help protect against “extreme volatility.” How does it work? If a stock’s daily price rises or falls beyond the set limit, trading halts. But the curbs have proven to be something of a turnoff for foreign investors, who prefer more flexible markets. Raising the cap on price movement from 15% to 30% in either direction might not mean much for Korean stocks’ long-term performance, but it is a key step toward a freer market. (Though, we’d point out other countries do fine without a stock-specific volatility cap.)

By , The New York Times, 08/12/2014

MarketMinder's View: This is anecdotal, but it illustrates the shale boom’s potential to revitalize places that have been in the doldrums. The Pittsburgh International Airport has been sort of a ghost town since US Air removed its hub, and the airport is in sorry financial shape. But now, thanks to plans to tap the shale reserves sitting under the tarmac, its fortunes are about to change: “After the drilling, which uses hydraulic fracturing, or fracking, begins in earnest and the natural gas royalties kick in, the airport will receive about $20 million a year, a hefty portion of an operating budget currently below $91 million.”

By , The Wall Street Journal, 08/11/2014

MarketMinder's View: Why are fears of “secular stagnation” so unfounded? Technology! Technological advancement is one of the biggest drivers of long-term growth, and it ain’t slowing down. And as this piece highlights, a lot of the benefits don’t show up in traditional economic stats: “Dealing with altogether new goods and services is not what these numbers were designed for, despite heroic efforts by Bureal of Labor Statistics statisticians. The aggregate statistics miss most of what is interesting. Here is one example: If telecommuting or driverless cars were to cut the average time Americans spend commuting in half, it would not show up in the national income accounts—but it would make millions of Americans substantially better off.” Also not captured in GDP? Commerce that happens through vehicles like Etsy and Uber. Perhaps one day, our stats will evolve along with technology. But for now, this is just another reason folks shouldn’t consider GDP a complete measure of economic output.

By , The Telegraph, 08/11/2014

MarketMinder's View: One: If you assume a few weeks of corporate bond fund outflows means the market has peaked, you assume investors are wonderful market-timers—something history has proven wrong again and again. Two: Corporate bond markets aren’t a leading indicator for stocks. Three: Corporate bonds and equities have different performance drivers. Four: As this piece even states, bubbles happen when prices detach from fundamental reality. That isn’t the case today. Yes, corporate bond yields are low, but spreads over Treasury yields—a better measure of how investors are pricing relative risk—are about where they were in the 1990s. Firms are even more cash-rich today than they were then.

By , The Wall Street Journal, 08/11/2014

MarketMinder's View: There is some downright solid sense in this article, which asks provocative questions about your investment strategy. The first, “What information or insights do I have, that others don't, that make me think I can outsmart the market?” is totally correct. This isn’t about blowing the doors off the market. It’s about avoiding the error of investing based on widely known information. For example, if you sell out based on information so commonly known that there are many news articles written on it (think of any of the geopolitical hotspots in play today), you could easily be making an error. We also are fans of the question, “If I were starting today from scratch, would I buy the portfolio I currently own?” because of its inherently forward-looking nature. If you own a bunch of stocks because of embedded taxes, past performance (whether you expect it to continue or reverse course) or for any reason other than what you expect it to do in the future, then friends, this question is for you. The other question we are less high on. In spirit, it’s fine. But folks, here is a news flash: You can greatly underperform the market by buying and holding index funds. And this is how: The recipe given here is that you can invest “in a diversified mix of index funds” to improve performance versus most active managers. But your choices of index funds and the weights you assign are active decisions. All you’ve eliminated is the least important part of portfolio management (in our view): Stock picking.

By , CNN Money, 08/11/2014

MarketMinder's View: Maybe! But maybe not! As we’ve written before, corrections don’t have due dates: That we’ve surpassed the average amount of time between corrections doesn’t mean one is coming any day, minute or second. Corrections can happen any time for any reason (or no reason), and they begin and end without warning—trying to time one is a fruitless endeavor, in our view.

By , The New York Times , 08/11/2014

MarketMinder's View: This places altogether too much importance on the “living wills” required by Dodd-Frank. The financial system functioned fine for decades without banks having written policies and procedures outlining just how shareholders and creditors will get whacked if they go under. Besides, how a bank handles a crisis will depend on the actual nature of the crisis. Banks today have no idea what they will look like. What if they design plans today that the Fed blesses, then deviate massively when push comes to shove? How is that any better than the current system?   

By , EUbusiness, 08/11/2014

MarketMinder's View: Poland wants buyers for apples, France wants buyers for peaches, Finland wants buyers for milk … hey! Here’s an idea! Why don’t policymakers just accelerate the US/EU free-trade-agreement-in-progress known as the Transatlantic Trade and Investment Partnership? That would really peeve old Putin, too! In the meantime, while Russia’s embargo will hurt some local agriculture, it isn’t anywhere near big enough to derail the bull market. And if it does spur the EU and US toward freer trade with each other over time, then that’s a pretty nice silver lining. For more, see our 8/7/2014 cover story, “Putin’s Feeble, Timid Trade War.”

By , Bloomberg, 08/11/2014

MarketMinder's View: This entire piece is based on the fundamentally flawed belief stock returns shouldn’t be more than five times GDP growth. Um. Why should the returns of publicly traded corporations be tethered to an arcane statistic that includes government spending and subtracts the imports many of them process and resell? Beyond that, this is just another misguided call for the Fed to intervene in markets and pre-empt a bubble. We think that’s just asking for trouble, considering central banks’ pretty woeful track record at identifying bubbles in the first place. If you think they can do this without inflicting any collateral damage, we have some oceanfront property near Phoenix that might interest you.

By , The New York Times, 08/08/2014

MarketMinder's View: Yep, it could mean either—an M&A wave isn’t inherently brilliant or terrible. Investors should be choosy and evaluate each deal on a case-by-case basis. No doubt some deals are accretive, allowing firms to invest more for a better return, benefiting shareholders and the economy alike. But some will probably bomb. For now, though, we think the biggest market-related takeaways from the M&A wave are twofold: 1) Most deals are financed largely with cash and debt, not stock issuances, which keeps share supply tight. 2) More deals appear to be quality than slop—usually, when you near a market peak, you get far more slop than not (similar to IPOs).

By , The Telegraph, 08/08/2014

MarketMinder's View: Not really? If folks fretted a true, region-wide banking contagion, the selloffs would be much, much more broad—not confined to a few small, closely held Portuguese and Italian banks. Seems to us investors are just punishing banks with holding structures similar to the doomed Banco Espírito Santo, which went under due to corporate governance issues at its parent company. This isn’t a eurozone-wide bank solvency issue. It’s a pretty predictable after-effect of BES’s demise. For more, see our 8/5/14 commentary, “Banco Espírito Santo Gets a Bail-in.”

By , The Wall Street Journal, 08/08/2014

MarketMinder's View: Uhhhhhhh … how can you have an “exodus” when there was a buyer for all of those $7.1 billion in junk bond fund outflows? Seems to us some retail investors are overreacting to myths of a high-yield bubble while others smell a buying opportunity. Just normal market behavior and largely noise—not a sign of a bubble bursting. If you assume otherwise, you assume retail investors are perfect at timing market inflection points, which pretty much all of history disproves. For more on junk, see our 7/9/2014 commentary, “Are Markets High on Yield?

By , Xinhua, 08/08/2014

MarketMinder's View: The 14.5% y/y surge in exports is no doubt welcome news for policymakers trying to nudge Chinese growth toward this year’s target, though as usual, we’d caution y’all against getting thrilled over one hot month. As for the -1.6% y/y fall in imports, it appears tied to falling copper imports—not surprising given the recent scandal over shadow banks using imported copper as collateral in shady financing deals—and other commodities. Seems about right for a government cutting back on infrastructure investment—probably not a sign of weakening demand or stalling progress toward a consumption-driven economy.

By , The Telegraph, 08/08/2014

MarketMinder's View: But some see a dark side to China’s trade update. It’s certainly worth noting the 92% rise in “non-specified exports” and questioning whether Hong Kong exporters are back to their old tricks of hiding illegal capital outflows in false customs bills. The government claims they cracked down on this last year, but you never know. As for the other claim here—that China is “draining global demand”—that’s just bizarre protectionist illogic. China has run huge trade surpluses for years, and the world has done fine. It just means consumers have more choices. Some do opt for cheaper Chinese goods, but others value local craftsmanship and quality. Competition is a beautiful thing.

By , Bloomberg, 08/08/2014

MarketMinder's View: This highlights two things—one consciously, one unwittingly. The conscious one: Russia's economy has more to lose from protectionist backlashes. The unconscious one: Imports are good because they keep prices lower through competition. The latter point is basic economics that many in the financial press frequently either overlook or avoid in their lust for anything that will make GDP rise. (See Café Hayek proprietor Don Boudreaux's similar line of thought here.)

By , The Wall Street Journal, 08/08/2014

MarketMinder's View: Because localized conflicts just don’t shave enough off global commerce or corporate profits to sink stocks. You can see this through pretty much the entirety of market history since World War II.

By , Bloomberg, 08/08/2014

MarketMinder's View: In an interesting development, the ISDA ruled all credit default swaps on Banco Espírito Santo’s debt will transfer over to its new “good bank,” Banco Novo. That means junior bondholders who owned CDS contracts believing they’d get at least some reimbursement after being “bailed in” to the bad bank are out in the cold. This isn’t great news for bondholders, but it does give markets more insight into how future bail-ins might go down. Though, it might also lead to even higher interest rates on subordinated debt, which would make banks’ fundraising more expensive.

By , The Telegraph, 08/08/2014

MarketMinder's View: Most of the confusion stems from the fact 73% of Brits surveyed never even heard of forward guidance. That’s good news, in our view. Fewer folks paying attention to BoE Governor Mark Carney’s botched (and wrongheaded) attempts to telegraph future monetary policy moves means fewer folks deciding he lacks credibility. The UK should benefit from its people overlooking the sideshow on Threadneedle Street.

By , Bloomberg, 08/08/2014

MarketMinder's View: A baby step, but a step is a step. This reform has been in the pipeline for a while, but its future looked iffy when former Prime Minister and convicted felon Silvio Berlusconi pulled his support in March. Its passage suggests current PM Matteo Renzi has the political capital he needs to steer tough measures through Parliament, but whether this translates to full electoral reform and deeper economic reform remains to be seen.

By , The Wall Street Journal, 08/08/2014

MarketMinder's View: If this goes through, it would nearly double the Suez’s capacity by 2023. Which is, you know, a long time from now. And not a driver of global trade or Egyptian growth in the near term. But as long-term structural improvements go, it’s a nice one.

By , The Washington Post, 08/07/2014

MarketMinder's View: Russian PM Dmitry Medvedev promised the retaliatory ban on western agricultural imports would show the world “the path of sanctions is a dead-end.” And he’s right—for Russia! US agricultural exports to Russia were less than 0.8% of total US agricultural exports in 2013. Europe will feel a bigger pinch—Russia accounted for 10% of EU agri-food exports last year—but the amount in question is still only 0.4% of total EU exports. Peanuts. Russia, however, will have to fill a big food shortfall. Medvedev claims local producers and Brazil can make up for the rest of the west, but that seems ambitious. There is a reason Moscow gets about one-third of its food from the embargoed nations. This probably goes about as well for local consumers and producers as trade barriers always go (which is, well, badly). For more, see today’s commentary, “Putin’s Feeble, Timid Trade War.”

By , Bloomberg, 08/07/2014

MarketMinder's View: We fail to see how taking a measured approach to managing monetary policy for a bloc of 18 diverse economies with divergent growth and inflation rates is “dithering.” We also aren’t sure why everyone is calling for more, more, more! from ECB chief Mario Draghi when two of his “extraordinary” measures—the LTRO and TLTRO loan operations—don’t start until September. Especially considering monetary policy moves usually hit the economy at a big lag. As for the clarion call for quantitative easing (QE), that would probably do the opposite of what people want. In the US and UK, QE flattened the yield curve, discouraging bank lending and reducing money supply—hence slowing inflation even more.

By , The Wall Street Journal, 08/07/2014

MarketMinder's View: This has been a long time coming. Last year, Mexico ratified a constitutional amendment ending the ban on private investment in its energy industry. This week, its Congress passed the secondary legislation to open the industry. There are still restrictions: Private and foreign firms won’t have full control or ownership of their projects. They’ll officially be contract-workers for the state, with production-sharing agreements and royalty licenses. But they’ll also operate as direct competitors to the state-run monopoly, which is a big improvement. Not just for firms involved—Mexico’s people will benefit tremendously from more efficient energy markets.

By , The Wall Street Journal, 08/07/2014

MarketMinder's View: Wait. So if the S&P 500 stays above its 200-day moving average, the bull will run on and on. But if it slips beneath, look out below. How can those both be true? If trading above the average is bullish, then why would it ever slip under? This illogic tells you everything you need to know about this (and other) technical indicators: They don’t predict the future. Past performance never does.

By , The Telegraph, 08/07/2014

MarketMinder's View: Not really. What Italy’s return to recession really shows is what the world has long known: The eurozone is a heterogeneous bloc of 18 economies with 18 sets of local drivers, conditions and headwinds. Some are growing, some aren’t. As for the debt angle, while Italy’s debt-to-GDP ratio is rising, Italian interest rates are way, way down (and the country has a primary surplus). If Italy could roll over hundreds of millions in maturing debt at the crisis’s apex in 2012 without going under, we have a strong hunch it can do so now.

By , The New York Times, 08/07/2014

MarketMinder's View: And the discussion over corporate tax inversions continues. But we have a few questions. 1) The eurozone is a single-currency free-trade zone with a central bank that acts as sole bank regulator, and there are political bodies to coordinate actions. Yet even they can’t agree to charge a single corporate tax rate. With that in mind, what is the likelihood we get a transatlantic rate? Or global? 2) If so many big US firms pay no tax—and there are no extenuating circumstances—then why would they invert? Is there any logical answer other than the observation 30 big companies didn’t pay any taxes on $160 billion in profits might be a bit of a skewed statistic? 3) If Americans deduct mortgage interest and reduce their individual tax burden by doing so, are they unpatriotic? What about those who claim income as royalties? Why aren’t politicians calling for the closure of these loopholes that cost the US billions upon billions in tax revenue every year? Ultimately, the fix for these issues is the same: Simpler, flatter tax codes with fewer loopholes and lower rates. For more on this topic, see our 07/17/2014 commentary, “Economic Patriotism or Protectionism.”

By , Bloomberg, 08/07/2014

MarketMinder's View: The growing number of Americans renouncing their citizenship as the Foreign Account Tax Compliance Act (FATCA) takes effect is a sociopolitical issue, not an economic one. The larger FATCA-related risk was protectionism, but after four years of haggling over disclosure agreements with over a hundred nations, it seems pretty safe to say FATCA shouldn’t lead to the balkanization of international finance. For more on this topic, see Christo Barker’s 3/28/2014 column, “FATCA Follies.” 

By , AEIdeas, 08/07/2014

MarketMinder's View: “Thanks to the shale oil revolution, the US has added more than 3 million barrels of oil per day to the domestic oil supply, which is equivalent to the entire daily oil production in all of Europe (3M bpd), and more than the daily oil output in UAE (2.8M bdp), Kuwait (2.6M), Mexico (2.5M) and Venezuela (2.35M).”

By , Bloomberg, 08/06/2014

MarketMinder's View: It’s true the US dollar’s share of global foreign exchange reserves is down since 2001, but dollars held in official reserves are up—the pie is just getting bigger, and the advent of the euro has taken some market share. That being said, it’s tough to argue there is a real negative from rising dollar holdings around the world. If dollar selling has been so rampant in 2014 tied to Hong Kong, Russian and Chinese actions, what is the explanation for the dollar being up year-to-date versus a trade-weighted basket of currencies? Why is it up markedly since 2011, when the theory the world was about to ditch the dollar was rampant?

By , Bloomberg, 08/06/2014

MarketMinder's View: Regulators to banks: “You’re so vague!” Banks to regulators: “You’re vague!” Regulators to banks: “Be more transparent!” Banks to regulators: “You be more transparent!!!” That pretty much sums up the value living wills have brought to the financial system at this point, and that looks unlikely to grow materially looking ahead. After all, “Too Big to Fail” wasn’t really the issue that drove the crisis. It was an accounting principle that brought unintended consequences regulators haphazardly tried to address. “Too Big to Fail” doesn’t tell you anything about what’s imperiling that big bank in the first place—and in this case, the factors were system-wide.

By , Roll Call, 08/06/2014

MarketMinder's View: OK, party people: It’s time to set partisanship aside for another look at the powerful political driver likely shaping stocks this year. Speculation abounds regarding a potential Republican sweep wresting control of the Senate similar to the Democratic sweep in 2006, but this will take near flawless campaigning by them. Here is one reason that is unlikely to happen: “Republicans controlled the House, the Senate and the White House going into the 2006 midterms, so it was easy for Democrats to blame everything on Bush and his party. The current control of Congress — a Republican House and a Democratic Senate — makes it easier for each party to point fingers at the other for the country’s shortcomings.” With that said, the similar track of Bush and Obama popularity at this point is a factor we’re watching for signs of a potential sweep. Our principal expectation of the result? Slightly more gridlock.

By , Reuters, 08/06/2014

MarketMinder's View: Let’s play Correct the Quote with Economics! “The US trade deficit narrowed more than expected in June as petroleum imports dropped to a 3-1/2 year low, suggesting that trade was less of a drag on second-quarter economic growth than initially thought.” Well, actually, all that suggests is demand for imported oil was down in one month, which says more about domestic energy than the economy. And with imports excluding petroleum falling, the report actually showed somewhat weaker demand in June. That GDP treats imports as a negative doesn’t mean they are economically negative.

By , The Washington Post, 08/06/2014

MarketMinder's View: What should investors take away from this politically popular issue? In our view, it isn’t anything to do with lost tax revenue, economic patriotism or the answer to the (otherwise noteworthy) question, “What level of corporate inversions constitutes a rash, considering the relatively dinky amount of tax revenue lost to the practice over the past decade?” Rather, it is two-fold: One, a restriction on certain overseas mergers could be seen by trading partners as a curtailment of one of America’s most important exports: capital, and they may not respond favorably. Two, it isn’t likely to happen, thanks to gridlock. For more, see our 07/17/2014 cover, “Economic Patriotism or Protectionism?” 

By , The New York Times, 08/06/2014

MarketMinder's View: Italy posted its second consecutive contractionary quarter in Q2, with GDP dipping by -0.2% from April through June. This is all according to the preliminary release that shares absolutely no details, so it’s impossible to tell what caused the dip at this point. And it also allows for pundits to show their creativity! One thesis, included early herein, is Italian exposure to Russia is the culprit, “provoking concern that violence in Ukraine and tension with Russia could be pushing the broader eurozone back into recession.” Omitted from this thesis? The fact Italy has grown in only 1 of the last 12 quarters (Q4 2013). We are pretty sure Russian tensions and Ukrainian violence couldn’t cause Italy GDP to fall before they existed. Pretty sure. Does that mean they aren’t part of it now? No, but it’s a pretty good reason to be skeptical of that notion. For the same reason, one shouldn’t exaggerate Italy’s impact on the global stock market—Italian GDP has been falling for most of this expansion. We doubt investors are really that surprised Q2 dipped. Perhaps a naysayer would suggest Italy’s GDP performance in earlier quarters is old news; too backward-looking to matter to stocks moving forward. Which is 100% right. And the same critique applies to Q2. 

By , Daily Finance, 08/06/2014

MarketMinder's View: Stocks are stocks. The risk and reward characteristics are largely the same, whether dividend yields are high, low or zero. If a stock price falls dramatically and the firm paid a dividend, backward-looking dividend yields will by definition rise. This doesn’t mean the firm is higher risk going forward, though, because (sing it with us!), past performance doesn’t indicate future returns. But the argument here is disproven by the decline the article notes in high yielders in the last year or so: That this supposed low interest rate fuelled rush into high yielders may be imaginary. If folks are champing at the bit for yield, why would the high-yielding stock prices shown here have “lost about a third of their share price since mid-2013?” 

By , The Dilbert Blog, 08/06/2014

MarketMinder's View: If your financial professional is merely picking stocks for you and adding no other value whatsoever, there is some truth in this piece—there is no magic to picking stocks, and anyone telling you otherwise is dangerous to your financial health. However, if you have quality help, reality differs. The fact is most investors make critical errors before they ever get to picking a stock—including selecting arbitrary, bizarre and incorrect asset allocations for their goals, assuming unreasonable returns, not diversifying enough, timing the market, and presuming you can get capital preservation and growth. Then, after they decide on what allocation to use, what returns to expect and how to diversify, most investors go right on to violate all of that based on greed and fear. Being a money manager is much less about picking securities and much more about managing the investor. P.S.: Advisor is the incorrect term, a marketing label created by Wall Street because stockbroker didn’t sound good any more, itself a marketing label created because someone thought customer’s man didn’t sound good any more. Adviser implies the person is a registered investment adviser, a regulatory difference.

By , Reuters, 08/05/2014

MarketMinder's View: Wheeeeeee! Though, we’d be hypocrites if we didn’t point out that this is just one month, and monthly indicators are always pretty volatile—the longer-term trend is what matters, not the monthly gyrations. Still, a strong service sector Purchasing Managers’ Index (PMI) is nothing to sneeze at, and robust new order growth augurs well for future production.

By , The New York Times, 08/05/2014

MarketMinder's View: Potential GDP is academic fantasy—fuzzy theory, not reality. Potential GDP crossed with each component’s historical average contribution to growth is doubly so—a fairyland mean-reversion argument. There is not one iota of real-world evidence supporting the thesis that housing, durable goods, government spending and business investment on equipment should be contributing $845 billion more to annual GDP.

By , Korea Times, 08/05/2014

MarketMinder's View: It appears South Korea’s government is reconsidering plans to encourage business investment by taxing the heck out of corporate cash reserves—a tax is still in the works, but at a reduced rate, and officials will offer direct incentives for investment alongside it. How effective this will be, however, remains to be seen—Korean firms aren’t just holding cash to be stingy. They have business reasons for doing so. They could just change their cash management strategy to avoid the tax and choose not to invest simply to receive as-yet-unspecified perks. Plus, the incentives would reward firms that invest in domestic production vs. overseas facilities. But major exporters, by definition, are major foreign investors. It’s just hard to see this one playing out the way officials envision.

By , The New York Times, 08/05/2014

MarketMinder's View: Depends how you define “resiliency.” It seems a stretch to assume Banco Espírito Santo’s collapsing over a company-specific corporate governance issue would have brought down the eurozone two years ago—counterparty risk is too spread out. But we do see signs of improving sentiment—investors are sure as heck more resilient. Instead of viewing it as a sign of broader eurozone weakness, as this piece points out, folks are largely seeing it “as an idiosyncratic, isolated case.” For more, see our “Banco Espírito Santo Gets a Bail-in.”

By , Bloomberg, 08/05/2014

MarketMinder's View: We’re a tad confused on how an accelerating PMI could “keep alive concerns about the outlook for the recovery”—especially when the PMI’s keepers claim the numbers imply accelerating GDP growth. We guess this just goes to show how narrow and open to interpretation PMIs are—which is why we’d never read too much into them, whether they look great or wobbly. The only takeaway here, in our view, is eurozone growth probably continues. (And The Conference Board’s eurozone LEI would agree.)

By , MarketWatch, 08/05/2014

MarketMinder's View: Though these are all nice factoids, they’re more like “seven signs the economy was rock solid in this year’s first half.” None tell you what lies ahead. If you want a glimpse at the future, we think your best bet is The Conference Board’s Leading Economic Index, which you can track here (and which is in a long uptrend).

By , The Telegraph, 08/04/2014

MarketMinder's View: The EU and Portugal’s approach to winding down Banco Espírito Santo might not be perfect (what bank resolution process ever is?), but we struggle to see how they “failed” when they largely stuck to the new EU bank bail-in blueprint. Yes, senior bondholders were spared, but officials followed the pecking order established last summer—shareholders and junior bondholders took enough losses that senior bondholders didn’t have to be bailed in for the “good bank” to qualify for a lifeline. And yes, that lifeline came partly from the Portuguese state, but only because the EU’s official fund won’t be up and running for years. There may yet be unintended consequences, but for now, the bail-in decision should help shore up confidence by remaining consistent with prior guidelines. For more, see our 08/05/2014 commentary, “Banco Espírito Santo Gets a Bail-in.”

By , The Wall Street Journal, 08/04/2014

MarketMinder's View: Well, yes, Argentina chose to default. But they had a pretty big, perverse incentive to do so—default had few (if any) repercussions economically, and it rallied nationalist fervor and political favor with citizens. This saga tells you nothing about creditworthiness of Emerging Markets nations, which—judging from spreads between their yields and comparable US Treasurys—investors still require a premium to own. For more on high-yield debt in general, see our 07/09/2014 commentary, “Are Markets High on Yield?

By , MarketWatch, 08/04/2014

MarketMinder's View: Comparing total corporate debt to GDP isn’t any more meaningful than comparing total stock market cap to GDP (which isn’t meaningful at all). GDP isn’t the private sector! Plus, total debt outstanding doesn’t matter nearly as much as the cost of that debt. With most of it issued at ultra-low rates—fixed rates, not variable rates—it’s plenty affordable. And it’s well collateralized by the nearly $2 trillion in liquid assets on corporate balance sheets in the US, per the Fed. Some of the proceeds have funded stock buybacks, but a heckuva lot has gone into investing for the future. Business investment (which doesn’t include buybacks), notched another new high in Q2.

By , The Economist, 08/04/2014

MarketMinder's View: This piece highlights some of the cons of designating asset managers as “systematically important financial institutions” (SIFIs). From the fact their balance sheet risk is minimal to the many potential unintended consequences that could arise, if regulators, “now bear down on funds or fund managers, they may simply create another problem somewhere else.” Though, we’d also say the same about some of the alternate solutions suggested here. For more, see Elisabeth Dellinger’s column, “Too Big to Fail: Money Management Edition.”

By , The Wall Street Journal, 08/04/2014

MarketMinder's View: The ECB isn’t the one dieting here. It’s the eurozone banks, which chose to repay the ECB’s LTRO loans early—that’s why the ECB’s balance sheet has shrunk lately. But the ECB is about to launch two new LTROs, which probably props its balance sheet right back up again. Though only time will tell whether these boost lending (and growth) much.

By , The Telegraph, 08/04/2014

MarketMinder's View: It’s true the US shale boom hasn’t been great for US Energy firms lately—oil prices aren’t high enough to make shale exploration and production terribly profitable. But it has benefited the economy overall, and oil prices aren’t static. Whether shale makes sense for Britain will depend on prices and exploration costs, and it’s premature to guess today what those will be. But if firms think the endeavor makes sense, they’ll go for it.

By , Bloomberg View, 08/01/2014

MarketMinder's View: Well yah, the biggest banks tend to have the lowest borrowing costs. But is that because everyone thinks the government will ride to the rescue if they go under? Or is it because they have the biggest capital buffers and the most transparent, well-known contingency plans in place? And how much “risky behavior” can low funding costs really incite when pretty much every rule the Fed has thrown at big banks since 2008 puts the kibosh on what most folks consider “risky”? Look, we aren’t trying to say Dodd-Frank worked (whatever that even means), but the GAO’s study—as requested by Senators Sherrod Brown and David Vitter—assumes way too much causality here. Of course, they also err in assuming too-big-to-fail was the problem in 2008, but that too may be due to the requestors as much as the GAO itself. If that’s the true, then why were the pure-play investment banks, regional lenders like IndyMac and thrifts like WaMu the majority of the crisis’s victims, and megabanks the solutions?

By , The Wall Street Journal, 08/01/2014

MarketMinder's View: This illustrates what’s wrong with the lion’s share of professional writing about personal finance. It encourages folks to rely on hypothetical straight-line growth calculations that ignore things like market volatility. It assumes future market returns will be lackluster purely because the last few years have been pretty hot. It tells you it’s ok to base big life-impacting financial decisions on arbitrary assumptions. And it ignores key factors like how you invest your retirement assets—whether you tilt more towards equities or fixed income will have a huge influence on your long-term total return, which in turn has a big bearing on how much you need to save. Don’t get us wrong—saving is important, and many folks don’t save enough—but this article has more mythology than useful advice on the matter. 

By , The Wall Street Journal, 08/01/2014

MarketMinder's View: Well, it’s always too early to call any inflection point when you only maybe have half of it. These things are never clear until you have a lot of hindsight. That’s why it’s too early. Not because the market supposedly reacted in supposedly weird ways to its own movement (huh?) and various economic news tidbits. But this is all a foolish exercise. Short-term volatility is normal! No bull market goes straight up. Whether or not this dip ends today, Monday or sometime in September doesn’t matter for long-term investors. What matters is whether this bull market is likely to continue over the next year or so—and to us, all available evidence says it is. Regardless of how much short-term noise arises along the way. For more, see today’s cover story, “Myopic Media Mind Tricks.”

By , The Wall Street Journal, 08/01/2014

MarketMinder's View: Well, it’s always too early to call any inflection point when you only maybe have half of it. These things are never clear until you have a lot of hindsight. That’s why it’s too early. Not because the market supposedly reacted in supposedly weird ways to its own movement (huh?) and various economic news tidbits. But this is all a foolish exercise. Short-term volatility is normal! No bull market goes straight up. Whether or not this dip ends today, Monday or sometime in September doesn’t matter for long-term investors. What matters is whether this bull market is likely to continue over the next year or so—and to us, all available evidence says it is. Regardless of how much short-term noise arises along the way. For more, see today’s cover story, “Myopic Media Mind Tricks.”

By , The Telegraph, 08/01/2014

MarketMinder's View: Banco Espírito Santo’s (BES) troubles—including its recent losses and capital shortfall—aren’t evidence of eurozone-wide banking trauma. They’re a company-specific corporate governance issue. BES took a big loss because of its large exposure to its parent companies’ debt. That has nothing to do with Portugal’s economy or the banking system’s health. It also doesn’t have much contagion-causing power. Now, it does perhaps throw a wrinkle into the new EU banking union as an early test of their bank resolution process. If BES fails in the eyes of the ECB, will officials let the bail-in procedure play out, or will they intervene? Time will tell, but this question—and the potential implications of either choice—could drive uncertainty some.

By , Bloomberg , 08/01/2014

MarketMinder's View: With output and new orders on the rise, the long-feared hard landing has as much in common with the Loch Ness Monster and Bigfoot as ever. 

By , The Wall Street Journal, 08/01/2014

MarketMinder's View: Why would Argentine President Cristina Kirchner let her country default? Because the political upsides (patriotism!) swamp the economic downsides. The local reaction today—good cheer as everyday life continues—is worlds away from the situation on the ground when Argentina defaulted on $100 billion of debt in 2001. For Argentina, economically, post-default life is the status quo. The event has few repercussions for Argentina and even fewer for the world. For more, see Elisabeth Dellinger’s 07/31/2014 commentary, “Argentina Defaults. World Still Turns.

By , The Korea Times, 08/01/2014

MarketMinder's View: It probably won’t, because the “wealth effect” is a myth. Home prices don’t influence consumption. Why would knowing you might get more money if you sell your house in a decade have any bearing on how much you sell today? Disposable income is the primary driver of household spending, and neither a housing boom or rent controls will much help matters there (especially since rent controls tend to lead to higher rents, but that’s a topic for another day).

By , Xinhua, 08/01/2014

MarketMinder's View: That path is clear: Deposit insurance and market-driven interest rates. Private banks will have plenty of demand for loans—small and medium businesses should line up in droves. But if they can’t get funding and can’t make a viable return on those loans, then all the demand in the world won’t ensure their survival. The onus here is on China’s government to make good on their big reform plans. If they do, China will benefit over time.

By , CNBC, 08/01/2014

MarketMinder's View: So this is a whole lot of searching for meaning in a down day. A down day. Like one down day. Extrapolating based on the recent past—especially when it’s based on one day—is a big potential behavioral error in action. Whatever happens in the days ahead, rest assured: It won’t be because of yesterday’s market movement or because stocks hit or broke through some magical level of support.


By , Bloomberg, 08/01/2014

MarketMinder's View: While global markets would benefit from an agreement to simplify customs procedures and drop some trade barriers, this isn’t a negative—it doesn’t increase protectionism. It’s more the absence of a long-term positive. It also illustrates why we’re skeptical over other potential big trade deals like the Trans-Pacific Partnership and EU/US free trade agreement. Big deals with multiple parties—each with their own interests—are exceedingly difficult and rare.

By , The Street, 08/01/2014

MarketMinder's View: Look, it’s perfectly fine to be skeptical of official government statistics. But it’s jumping the shark to substitute your own estimate of unemployment, particularly one that offers no data source and seems to note more political considerations than economic facts. The U6 unemployment rate—which includes unemployed and underemployed workers—is currently at 12.2%. It seems—and this is unsourced, so we can’t know for sure—that the 18% rate noted in the article is arrived at by adding 3 percentage points for unemployed undocumented immigrants and another 3 percentage points for … college students. The former is a guesstimate by definition; the latter aren’t unemployed. The rationale for including college students—they emerge unemployed and crushed by debt—is mythology. The unemployment rate for folks with a college degree hasn’t exceeded 5.3% since 1992 and median student debt is about $13,000—manageable, and a much more telling statistic about student debt levels than the often-published mean, which is upwardly skewed by the less than 3% of borrowers with more than $100,000 outstanding.

By , The New York Times, 08/01/2014

MarketMinder's View: Now this is how you analyze unemployment data—dig into real underlying components, not make-believe arbitrary assumptions, and find rational takeaways from the longer-term trends. And whaddaya find? “Nothing about these numbers should change your basic assessment of how the economy is doing, unless you had some outlandish view of how the economy was doing to begin with. Gradual, steady expansion in the job market, and the economy more broadly, continues apace.” We’d only add a friendly reminder that employment is a late-lagging confirmation of growth, not a forward-looking indicator.