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By , Financial Times, 09/30/2015

MarketMinder's View: “With central bankers in the UK and elsewhere routinely wading into areas of government policy, from corporate governance to structural reforms, critics fear these interventions might be a symptom over-reach by unelected technocrats.” Says one former BoE policymaker, “Over-reach like this … increases the risk that future governors get selected for their views on things other than money and finance.” And that, in turn, could increase the politicization of central banks, which history shows doesn’t end well. Setting aside any and all opinions about central bankers’ sociological views and statements on issues like climate change, we’re inclined to see this as an example of a risk we call government creep: the increasing tendency for regulatory agencies (including central banks) to make rules behind closed doors, outside the legislative process, and potentially blindside markets with radical change or create uncertainty. For now, it’s just a creeping (pardon the pun) trend to monitor, not a creepy (again) market-walloping risk, but if this escalates, that could change.

By , The Telegraph, 09/30/2015

MarketMinder's View: The European Commission’s proposed Capital Markets Union Action Plan, spearheaded by Financial Services Commissioner Jonathan Hill, aims to spur lending, broaden small firms’ and start-ups’ funding access, widen investors’ options and give financial firms more flexibility. Overall, there is a lot for investors to like here, but we’d caution on two fronts. One, this is only a proposal, and it could easily get watered down or killed in the European Commission’s groupthinky morass. Two, blue-sky reform plans are more structural drivers than cyclical, so even if these plans do come to fruition, don’t assume it means growth picks up instantly.

By , The Telegraph, 09/30/2015

MarketMinder's View: The European Commission’s proposed Capital Markets Union Action Plan, spearheaded by Financial Services Commissioner Jonathan Hill, aims to spur lending, broaden small firms’ and start-ups’ funding access, widen investors’ options and give financial firms more flexibility. Overall, there is a lot for investors to like here, but we’d caution on two fronts. One, this is only a proposal, and it could easily get watered down or killed in the European Commission’s groupthinky morass. Two, blue-sky reform plans are more structural drivers than cyclical, so even if these plans do come to fruition, don’t assume it means growth picks up instantly.

By , The Guardian, 09/30/2015

MarketMinder's View: Well, we disagree. In warning of the “risks” presented by low oil and commodities prices, the IMF’s warning amounts to a supranational organization officially stating something pretty much every media source has reported for long about a year. What’s more, it overstates the degree of “yield chasing” that actually happened and overrates the risk of a rate hike on Emerging Markets (EMs). It also pays short shrift to the fact many EMs benefit from low commodities prices.

By , The Guardian, 09/30/2015

MarketMinder's View: Well, we disagree. In warning of the “risks” presented by low oil and commodities prices, the IMF’s warning amounts to a supranational organization officially stating something pretty much every media source has reported for long about a year. What’s more, it overstates the degree of “yield chasing” that actually happened and overrates the risk of a rate hike on Emerging Markets (EMs). It also pays short shrift to the fact many EMs benefit from low commodities prices.

By , CNBC, 09/30/2015

MarketMinder's View: It seems your trip to the Smithsonian and/or Yellowstone National Park is safe! The government will not shut down at midnight, provided President Obama signs this legislation—a foregone conclusion. This probably sets up another row over the debt ceiling and continuing resolutions in two months, but remember, shutdowns and the debt ceiling just aren’t the risks many perceive them to be—a fact proven time and again in recent years.

By , CNBC, 09/30/2015

MarketMinder's View: It seems your trip to the Smithsonian and/or Yellowstone National Park is safe! The government will not shut down at midnight, provided President Obama signs this legislation—a foregone conclusion. This probably sets up another row over the debt ceiling and continuing resolutions in two months, but remember, shutdowns and the debt ceiling just aren’t the risks many perceive them to be—a fact proven time and again in recent years.

By , CNBC, 09/30/2015

MarketMinder's View: It seems your trip to the Smithsonian and/or Yellowstone National Park is safe! The government will not shut down at midnight, provided President Obama signs this legislation—a foregone conclusion. This probably sets up another row over the debt ceiling and continuing resolutions in two months, but remember, shutdowns and the debt ceiling just aren’t the risks many perceive them to be—a fact proven time and again in recent years.

By , Bloomberg, 09/30/2015

MarketMinder's View: Ok party people, what time is it? Time to set aside partisan politics to see the value in this article. With 2016 approaching, we fully anticipate the political circus heating up and many alleged issues to step to the fore. But before you get caught up in the drama surrounding each individual issue and whether or not the candidate has the right position on it, consider that it might be a “Washington Issue,” smartly defined herein as: “A Washington Issue is something that sounds terrible, has little meaningful impact on more than a handful of people, and most importantly, allows you to pretend that you are addressing a different, very difficult issue that would impact a large number of people if you actually tried to make meaningful change—people who might get angry and do something rash, such as voting for your opponent.” Eliminating carried interest taxation would add roughly 0.05% to Federal revenues. Moreover, as reported here, ending carried-interest taxation wouldn’t hit “hedge-fund guys,” which we bet is language the candidates are choosing to appeal to voters, making this even more of a “Washington Issue.” 

By , Bloomberg, 09/30/2015

MarketMinder's View: Yet more Japanese economic data are showing weakness—this time, industrial production, which fell -0.5% m/m in August, the fourth monthly decline in the last six months. Retail sales are also showing weakness, and export volumes were outright negative in August, falling a sharp -4.2% y/y. Import volumes also contracted. It is going to take one heck of a sharp upturn in September data to fend off a second consecutive quarter of negative GDP growth, which would indeed mark the “second recession since Prime Minister Shinzo Abe took government.” It would be the fourth since 2009. But what’s odd about the discussion in this article is most of the discussion presumes this would justify expanding Japan’s already huge quantitative easing program and launching more fiscal stimulus. Those are the exact things that have been done for most of the last three 15 years, and the former is an outright deflationary policy, as recent experience demonstrates. To us, that sounds like, “The beatings will continue until morale improves.”

By , The Telegraph, 09/30/2015

MarketMinder's View: Parallel to China-hard-landing fears, some worry China’s selling down foreign exchange reserves will cause global credit conditions to tighten. “Quantitative tightening,” they call it. But as this piece points out, this isn’t the negative some fear. Yes, China is selling US dollar-denominated assets (namely, US Treasurys) to support its currency. But US money supply is growing, and Treasury yields have fallen over the last year, evidence that buying pressure from the rest of the world is more than offsetting China’s selling. Also, as Fitch Ratings notes: “When central banks other than the Federal Reserve sell the dollars they have obtained from selling US Treasurys, those dollars remain circulating within the financial system - and could even end up reinvested in US Treasurys."   

By , Bloomberg, 09/30/2015

MarketMinder's View: Yes, in 1990, 1998 and 2011, stocks fell in August and didn’t immediately rebound. This is an interesting observation, not a blueprint with any predictive power. (Also, in 1990, the global bull began on September 28, and the S&P 500 turned around on October 11.) More downside might lurk, or today could be the start of a rollicking good rally—there is absolutely no way to know right now. Short-term swings are always impossible to time, and relative highs and lows are only apparent in hindsight. Don’t get sucked into noise about short-term moves, as it invites errors. Stay focused on your long-term goals, and stay disciplined.

By , CNN Money, 09/30/2015

MarketMinder's View: A preliminary reading of eurozone September inflation showed prices fell -0.1% m/m, which some suggest is bad news for the region’s economy. But that seems odd considering this “deflation” is largely due to a global commodity supply glut, which reduced energy costs. If deflation results from falling money supply or velocity, this would be a sign all is not well. Though it would also be a symptom of trouble, not a direct cause. Today, eurozone bank lending and money supply are expanding, as is the economy. While lower energy costs are bad for energy producers, they help consumers, industrials and even service firms. Separately, high unemployment does not necessarily mean “any (economic) recovery is likely to be weak.” Economic growth creates jobs, not the other way around. Besides, the region has now grown for nine straight quarters, even with high unemployment, and economic data suggest growth continued in Q3.

By , CNN Money, 09/30/2015

MarketMinder's View: A preliminary reading of eurozone September inflation showed prices fell -0.1% m/m, which some suggest is bad news for the region’s economy. But that seems odd considering this “deflation” is largely due to a global commodity supply glut, which reduced energy costs. If deflation results from falling money supply or velocity, this would be a sign all is not well. Though it would also be a symptom of trouble, not a direct cause. Today, eurozone bank lending and money supply are expanding, as is the economy. While lower energy costs are bad for energy producers, they help consumers, industrials and even service firms. Separately, high unemployment does not necessarily mean “any (economic) recovery is likely to be weak.” Economic growth creates jobs, not the other way around. Besides, the region has now grown for nine straight quarters, even with high unemployment, and economic data suggest growth continued in Q3.

By , Financial Times, 09/29/2015

MarketMinder's View: Many have long questioned China’s official economic data, suggesting party leaders manipulate statistics to make the economy look better than it actually is. They claim China’s economy isn’t growing at 7% y/y per official reports but instead at 6%, 5% or even 4%. Given China is the world’s second-biggest economy, this supposedly bodes poorly for global growth. This piece is a very even-handed discussion of all the factors at play here. Yes, communist leaders are politically motivated to reduce big economic swings, lest they cause social unrest. But it is almost impossible for the central government to manipulate data as much as some suggest: “The idea of getting tens or maybe hundreds of thousands of accountants and statisticians across China to march consistently in a crooked line — and to do that for a decade or more — sounds, to us, implausible.” Hence why monthly data have long reflected the economic slowdown, overcapacity in heavy industry, and very rocky trade flows. Nominal GDP also is quite volatile and seems to reflect reality on the ground. Real GDP, however, is another matter, and evidence suggests leaders change the inflation adjustment to massage growth rates as desired. By some accounts, 2014 real GDP growth was actually 3.9% using more accurate measures of inflation, though others claim output increased a bit more but still less than 7%. But even if China’s growth rate is somewhat slower than official reports indicate, it is likely nowhere near as bad as hard-landing proponents suggest. If it were, corporate executives doing business in China would have noted things like a big demand slowdown.

By , The Telegraph, 09/29/2015

MarketMinder's View: In case unrelenting fears over a slowing global economy are getting you down, here is some good news that isn’t getting much attention these days: UK banks are loosening their belts and lending more to businesses, easing a long-running headwind across the pond. Businesses use the funds to build new factories, expand vehicle fleets, upgrade computer systems and equipment and launch new projects. Homebuyers, who also enjoy easier access to credit, are locking in low mortgage rates, freeing up discretionary income to spend elsewhere.  All support future growth.

By , CNN Money, 09/29/2015

MarketMinder's View: We believe reports of the bull’s demise have been greatly exaggerated, though not for all the reasons discussed here. Seasonality is never a reason to be bullish (or bearish). As for the rest, investors certainly worry about a lot of things these days: the Chinese economy, plunging commodities, the Fed’s confusing messaging about the timing of rate hikes, stalled earnings growth, Emerging Markets debt, and now a big corporate scandal and politicians eyeing pharmaceutical price controls. But these issues are either widely discussed false fears, too company-specific, or misinterpreted—in other words, not fundamental negatives for the broad market. Huge, negative surprises move markets, and barring some big, bad and ugly factor developing over the near term that no one sees right now, the bull market likely has further to run, especially given fundamentals are much more positive than not.

By , CNBC, 09/29/2015

MarketMinder's View: The headline should really read, “Will bear market push investors to active funds?” because most of the management described here is indeed active, even if the investors/managers use passive funds. If you blend several niche index funds in an attempt to beat the market, you’re active. If you shift among index funds as your outlook changes, you’re active. Heck, whenever you buy an index fund, you have made an active decision about asset allocation, country selection, sector selection and style/size. So the titular question is basically a straw man, with little implication for investors.

By , CNBC, 09/29/2015

MarketMinder's View: The so-called death cross, which some claim portends more downside, happens when an index’s 50-day moving average drops below its 200-day moving average. The “four horsemen” aspect means all four major US indexes—the Dow Jones Industrial Average, the S&P 500, the Russell 2000 and now the Nasdaq—have death crossed in the last several weeks, their first in-unison death crossing since 2011. Folks, four arbitrary indexes triggering arbitrary, backward-looking technical indicators says nothing about where stocks are headed. It tells you what stocks have done—they’re in a broad correction—and past performance doesn’t predict future trends. Sometimes death crosses happen during bear markets, but other times they happen during corrections (short, sharp drops of -10% or worse), and stocks resume rising soon after, as they did in 2011. Market history is littered with false death-cross signals.

By , CNN Money, 09/28/2015

MarketMinder's View: Hey, Washington confuses us, too. However, the issues laid out in this piece—like a government shutdown and the debt ceiling—don’t confuse markets, which is what matters for investors. It is probably true that House Speaker John Boehner’s stepping down lowers the likelihood of a government shutdown in the immediate future, though it may arise again in December. However, even if a government shutdown, debt ceiling debate and Fed rate hike decision all converge around the winter holidays, investors shouldn’t necessarily anticipate getting coal in their portfolios. Government shutdowns aren’t bearish, debt ceiling fears are overwrought, and initial Fed rate hikes don’t kill bull markets. Think back to 2013. That October, the government shutdown and the debt ceiling fight dominated headlines simultaneously. And, two months later, while many still debated the economic impact of the double political squabble, the Fed announced it would taper quantitative easing (which some saw as tightening policy, even though it really wasn’t). Yet the bull charged on.       

By , Bloomberg, 09/28/2015

MarketMinder's View: Before reading this article, we suggest keeping a quote from legendary investor Benjamin Graham in mind: “In the short run, markets behave like voting machines, but in the long term they act like weighing machines.” Look folks, markets are volatile in the short-term—always have been, probably always will be. On a daily basis, they could be up or down for any (or no) logical reason. Trying to find meaning in day-to-day bounces is a fool’s errand. Now, this piece assigns recent market volatility to the Fed, making the popular—though misperceived—claim that the central bank’s “easy” monetary policy is responsible for propping the bull market up. However, evidence suggests the Fed isn't fueling stocks. Plus, it is also a fallacy to start predicting how the upcoming rate hike cycle is going to look—maybe it’s irregular, maybe it’s gradual and steady, but considering no one outside the Federal Open Market Committee has any inkling when the Fed will hike (and even they aren’t sure!) it’s impossible to say right now how hikes beyond that first one go.

By , Reuters, 09/28/2015

MarketMinder's View: Personal consumption expenditures—a more comprehensive gauge of consumer spending than the much-ballyhooed retail sales report, as it includes both retail and services spending (the latter of which comprises the lion’s share of total consumer spending)—rose 0.4% m/m in August, following July’s upwardly revised 0.4% m/m (from the first estimate of 0.3%). While backward-looking, it also confirms a large slice of the US economy is doing just fine.  

By , Bloomberg, 09/28/2015

MarketMinder's View: After Spain’s Catalonia (home to Barcelona) held regional elections Sunday, many headlines declared victory for pro-secessionists led by Catalan President Artur Mas—and called it a mandate for seeking Catalonia’s full independence. However, as this piece more accurately states, “They do nothing of the kind.” Yes, pro-independence parties won 72 of 135 seats, but this is actually down from the last two regional elections (in 2010 and 2012) and they didn’t get a majority of the popular vote, taking 48%. While the largest pro-independence party—Junts pel Si—will form a coalition with CUP (another pro-secessionist party), this partnership is likely weak and unstable: They agree on independence but not much else. However, as this take argues, that doesn’t mean defeat, either: “Full independence is not an immediate goal simply because it is not feasible without a broader consensus within Catalonia itself. Autonomy gains, though, are a much less divisive subject, and they are within reach.” With federal elections coming up soon, Spain’s politicians will be jockeying hard for votes—and Catalonia may be able to negotiate for some of the autonomy it lost several years ago.     

By , Bloomberg, 09/28/2015

MarketMinder's View: While we wouldn’t worry much about who is saying what here, the general theme seems about right to us. From roughly 2010 – 2014, there were huge spreads between US natural gas prices and prices in Europe and Asia. After US supply surged due to the shale revolution, prices plummeted. But there isn’t sufficient infrastructure in America to export natural gas in any meaningful quantity, so the market isn’t truly globalized. Hence, many producers rushed to retrofit a couple of export terminals. But when oil prices fell, global LNG prices followed—to the point that the spread, adjusted for shipping costs, is likely gone. In our view, there is ample evidence a global gas market would be beneficial, but it’s far from a reality today.

By , Bloomberg, 09/25/2015

MarketMinder's View: We highlight this because it is big news, splashed across every front page, and we feel it is our duty to tell you its market impact is roughly zero. Political personalities aren’t market drivers, and no market cycle has ever turned, for good or ill, because the Speaker of the House changed. What ultimately matters for stocks is whether Congress is gridlocked, and Rep. Boehner’s resignation won’t end the bullish gridlock stocks currently enjoy. Some speculate about how this impacts the likelihood of a government shutdown, but shutdowns aren’t negative. Stocks historically do fine during and after them.

By , The New York Times, 09/25/2015

MarketMinder's View: While this discussion tilts toward one firm, which is the subject of a recent SEC enforcement action, it also raises a key issue: Mutual fund fees are often multilayered and opaque, and figuring out how much you’re paying usually requires spending quality time with the prospectus, some graph paper and a calculator. Regulators seem concerned the lack of transparency allows some funds to skirt rules like those requiring funds to pay any marketing costs above what they collect through 12b-1 fees out of their own pocket, which is a big no-no. We’re all for sunlight in the fund industry and believe investors will benefit from more transparency, which could hopefully result in lower fund costs and allow investors to make more informed decisions. But only time will tell how this latest push shakes out. In the meantime, consider this article a timely reminder to carefully evaluate the total costs (and benefits!) of any investment you’re considering.

By , The Telegraph, 09/25/2015

MarketMinder's View: Those four reasons are: Underappreciated prowess in high-tech, specialized (and nicely profitable) manufacturing, one of the world’s most competitive economies, a dynamite service sector and amazing human capital. Advanced economies like the US and UK don’t need to rely on manufacturing. Factory-led growth is always more typical of developing nations. It’s a stage the US and UK moved past decades ago. We live in the future now!

By , American Banker, 09/25/2015

MarketMinder's View: This is a timely illustration of a risk we call “government creep”—the tendency for rulemaking to increasingly fall under the purview of regulatory agencies, who deliberate behind closed doors, out of the market’s eyesight, ultimately creating uncertainty and discouraging risk-taking. Setting aside the sociological implications, the story of the Consumer Financial Protection Bureau’s efforts to skirt a legal ban on their directly regulating auto dealers is a prime example of government creep, albeit on a small scale. The more incidents like this we get, the greater the chance regulators could impact stocks—something to keep an eye on.

By , The Washington Post, 09/25/2015

MarketMinder's View: Fed head Janet Yellen packed a bunch of goodies in the footnotes of her speech yesterday, and this has the full rundown and a handy interpretation of all the econ jargon. Yesterday, we covered one of these hidden messages, Yellen’s rebuttal to those who say the Fed should raise its inflation target temporarily, and we think she is spot on. Among the others discussed here, there are a couple we don’t quite buy, like the one attempting to quantify quantitative easing and near-zero interest rates’ economic impact since 2008 and estimate delayed effects that could kick in next year. You can’t do that without an airtight counterfactual, and it also fails to consider that the flattening of the yield curve was a negative. We also aren’t sold on the discussion of the 1970s, because the notion of a wage/price spiral was disproved years before that by Milton Friedman and others. But the chart illustrating why inflation is low is pretty great. And this takedown of those who believe the Fed should set an official unemployment target is dynamite: “The maximum level of employment is something that is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. Moreover, the maximum level of employment, the longer-run ‘natural’ rate of unemployment, and other related aspects of the labor market are not directly observable, can change over time, and can only be estimated imprecisely.” In other words: Setting an official target would invite monetary policy errors.

By , Bloomberg, 09/25/2015

MarketMinder's View: The latest numbers say GDP grew 3.9% in Q2, faster than the prior estimate of 3.7% as consumer spending and business investment was revised up. All good news, but also backward-looking and not terribly meaningful for stocks. Still, though, it’s another handy counterpoint to all those global recession fears.

By , Bloomberg, 09/25/2015

MarketMinder's View: For now, at least, it looks like Greece’s “bank jog” has stopped, whether due to capital controls or the peace of mind that comes with the third bailout and (at least for now) political stability. This isn’t a huge deal for global markets, but it is a sign of incremental progress in Greece, which is good for Greece and the broader eurozone as well.

By , Financial Times, 09/25/2015

MarketMinder's View: Yah, but as this piece also notes, the -0.1% y/y drop in CPI stems from falling energy prices, which are a big plus for Japanese businesses and households. “Core-core” inflation, which excludes energy as well as food, accelerated to 0.8% y/y. Mind you, we don’t think Japanese monetary policy is a positive, and they’d probably get faster growth and higher wages if the BoJ just got out of the way, but it’s a stretch to call an energy-driven CPI drop evidence of the BoJ’s shortcomings.

By , The Wall Street Journal, 09/25/2015

MarketMinder's View: In today’s installment of bond liquidity fears, evidently, some worry firms’ tendency to park their liquid assets in other firms’ corporate bonds could, well, here: “If interest rates rise quickly, the value of their lower-yielding existing bonds could plummet. A major market disruption could also make it difficult for companies to sell their holdings if they need the cash. Either could lead to write-downs or actual losses if they sell at lower prices than they paid.” And that would in turn be very bad for Corporate America and broader markets. Folks, this is not how this works. Non-bank corporations don’t face the risk of, you know, bank runs, so they don’t have to raise capital when times get tough, and they aren’t forced to fire-sale distressed assets. Plus, we’re talking about cash-rich companies here, one of whose cash reserves are bigger than some countries’ GDP. They have plenty of leeway to hold these bonds to maturity and keep collecting the interest payments. For more, see Matt Levine’s morning linkwrap at Bloomberg View.

By , The New York Times, 09/24/2015

MarketMinder's View: Well, unless they call a special meeting (which seems unlikely), the titular “forward guidance” would leave her with only October or December to get ‘er done. To which we say: Let’s get on with it. All this speculation and handwringing over the timing of a Fed rate hike is nonsensical to begin with, which is illustrated perfectly by the media blitz of coverage over Ms. Yellen’s speech at UMass today. Forward guidance and “transparency” plans about the Fed’s direction have proven to be less than useful information about what the central bank may-or-may not do.

By , MarketWatch , 09/24/2015

MarketMinder's View: Fed Chair Janet Yellen spent a footnote in her address today at UMass taking on critics who claim the Fed should boost its inflation target to either 3% or 4% and it seems to us she’s spot-on right here. The idea, according to proponents of boosting the target, is it would boost the public’s inflation expectations even further, spurring consumption. In addition, this would allegedly allow for rates to be higher during future expansions, reducing the “risk” rates must be cut to zero in a potential recession. Yellen, however, retorted by noting: “‘My interpretation of the historical evidence is that long-run inflation expectations become anchored at a particular level only after a central bank succeeds in keeping actual inflation near some target level for many years,’ she writes. [They have had no such success since installing the targeted 2% headline Personal Consumption Expenditures price index target in 2012.] ‘For that reason, I am somewhat skeptical about the actual effectiveness of any monetary policy that relies primarily on the central bank’s theoretical ability to influence the public’s inflation expectations directly by simply announcing that it will pursue a different inflation goal in the future.’” Let’s be clear folks: Most consumers don’t pay attention to the Fed. Surveys have repeatedly found Americans are totally unaware of even who the Fed head is, much less that they have an inflation target that isn’t zero.

By , Bloomberg, 09/24/2015

MarketMinder's View: This article reminded us of Saturday Night Live’s spoof of the Al Gore Presidential Campaign plan for social security—which featured Darrell Hammond repeatedly shouting “Lockbox!” Here, the theory is Brazil needs “Circuit breakers!”—a claim repeated over and over without defining them. All in all, the oddity of this is Brazil’s boom in the 2000s was born amid the very sort of collapse this article says they need to prevent. And it was born when investors saw “compelling risk-adjusted returns,” which is pretty much always when cycles turn. All in all, while better governance and reducing corruption would clearly help beleaguered Brazil, the headwind of a commodity collapse in a commodity-driven economy is likely going to mean weak conditions no matter what. For more, see this video clip of Saturday Night Live from 2000.

By , The Wall Street Journal, 09/24/2015

MarketMinder's View: With oil prices down more than 50% in the last year, oil firms’ revenues have been hit hard and many projects have been rendered unprofitable. This has gotten some bank regulators up in arms over the possibility oil patch defaults rise—and to some extent, they already have. However, regulators’ reaction to this seems pretty late to the party (considering markets have long since sent signals Energy borrowers were becoming far riskier) and rather counterproductive, given the oil industry needs access to capital to stay afloat. What’s more, banks have oodles of capital and should be easily able to weather defaults by fringe players in the shale. Heck, the last similar episode—cited here as triggering broad economic damage—was in 1986. While Energy-heavy countries and regions (like Texas) didn’t fare particularly well, the country as a whole kept growing until hitting a recession in 1991. 1987’s recessionless bear market wasn’t driven by oil, either.

By , The Wall Street Journal, 09/24/2015

MarketMinder's View: There is not a lot of direct stock market relationship here, but we enjoyed this mostly as a clear-minded discussion of the issues with presuming capitalism and market economies are inefficient to the point of needing an overhaul based on behavioral economics insights. “…Businesses sometimes profit by selling things consumers don’t really want. But more often businesses, from Starbucks to Apple, succeed by figuring out what consumers want before consumers themselves know. And while some will always profit from deceit, there is a whole new crop of businesses, from TripAdvisor and Angie’s List to Yelp, trying to profit by calling them out.” That, friends, is how capitalism works!

By , Bloomberg, 09/24/2015

MarketMinder's View:  After his reelection as LDP party head, Japanese Prime Minister Shinzo Abe has three more years at the helm of the country. In his official confirmation speech, Abe announced three arrows "refocusing on the economy" after his contentious national defense plans dinged his popularity. Thing is, media is treating this announcement as though it’s new, but these three arrows were already part of Abe’s plans (Sub-arrows? Darts?) and they are basically vague, nebulous things that don’t amount to much practically (and they largely prove Abe’s favorite number is three). They are: increasing the targeted size of Japan's economy by 100 trillion yen; increasing the birth rate; and boosting social security, given Japan's aging populace. The new target has no roadmap for reaching the goal, and the population parts are odd government policies with little actual economic impact, as demographics are only one small piece of a country's structural backdrop, not a cyclical factor.

By , AEI Ideas, 09/24/2015

MarketMinder's View: Here is a wonderful method for scaling the occasional concern in a far-flung nation—one we have frequently used. That’s sort of the opposite of the way the data are presented here, but this is very interesting nonetheless.

By , Bloomberg, 09/24/2015

MarketMinder's View: While it is a valid point to argue one problem with the Fed's "transparency" initiative is that the data points guiding policy aren't clear, this is nibbling around the fringes. The real problem is "transparency" about the direction of Fed policy is likely an unattainable goal with dubious value. Fed policymakers must be able to assess data as it arrives, and the economy doesn't necessarily move in straight lines—momentum doesn't apply. Hence, they need the ability to scrap earlier forecasts and move with data, so publishing a forecast seems more like a recipe for undermining credibility than establishing clarity about Fed direction. Finally, it all overrates Fed policy's importance because the typical rate hike won't much affect the economy or financial markets. Only when the Fed errs and overshoots will it have a major impact, and it would be odd for them to forecast that. But also, this article unwittingly reveals another error: Assuming the long-run natural rate of unemployment and the Phillips curve guide policy shows the Fed operates on a biased view of the economy debunked in the 1960s by Milton Friedman and in the 1970s by the 1970s, when inflation and unemployment were proven not to be linked.

By , Bloomberg, 09/23/2015

MarketMinder's View: Despite longstanding fears, the eurozone has now grown for nine straight quarters—and data thus far into Q3 point to this being the tenth. "While a Purchasing Managers’ Index for manufacturing and services slipped to 53.9 in September from 54.3 in August, the third-quarter average stood at the highest level in more than four years, according to a report published on Wednesday. New orders grew at the fastest rate in five months and a gauge for the amount of raw materials bought by manufacturers stood at a 19-month high, signaling increasing production in the coming months." This is bull market fuel—the eurozone’s reality is much better than most folks fear.

By , Bloomberg, 09/23/2015

MarketMinder's View: While we agree with a couple of these factors, they miss a few really key ones to identifying whether you’re working with a rat or a value-add adviser. After all, as noted here, Bernie Madoff was a fiduciary, and he had plenty of industry certifications. Those don’t differentiate at all. We like the recommendation to avoid jargon and award a point for that. However, we’d add the following and the first two are particularly important, glaring omissions in this article:

  1. Are the returns realistic? If they are saying you’ll get 15% over the long term with no downside (Madoff-esque claims), then run, because that’s impossible.
  2. Does the adviser take custody of the assets or use a third-party broker? And, relatedly, are your assets commingled with other clients or is the account in your name alone? If so, we’d suggest proceeding with caution.
  3. Is this person marketing exclusivity to you through an affinity group? (E.g., church/social group/etc.)
By , The New York Times, 09/23/2015

MarketMinder's View: Public Service Message: If you are working and have a 401(k) that you can contribute to after-tax, you should probably read this article. If not, then feel free to disregard and go on about your day merrily.

By , Bloomberg, 09/23/2015

MarketMinder's View: ECB head Mario Draghi recently said the bank needs more time to determine if they should increase bond purchases under the quantitative easing (QE) program they initiated earlier this year. We hope not, because contrary to Draghi’s assertion that ongoing growth and credit-market improvement “shows our policies are actually working,” we’d suggest this is happening despite QE, not because of it. For one, growth preceded ECB QE by about seven quarters, which isn’t a rounding error. There is a natural recovery afoot in Europe, and the ECB isn’t bolstering it through QE. Buying bonds reduces long-term interest rates, and since banks profit from the difference between short and long rates, QE discourages lending. The eurozone would likely benefit from the ECB not just holding off boosting QE, but eliminating it altogether. That lesson, folks, has already been displayed by the US and UK.

By , Barron’s, 09/23/2015

MarketMinder's View: We don’t agree with everything here, but this piece highlights an important point: In trying to be more transparent, the vast increase in Fed communication, often conflicting and unclear, actually increases investor uncertainty. When people hang on every word from central bankers, having multiple Fed members make media appearances expressing their personal policy views—which often differ from one regional president to another—only makes investors more confused and fixated on future Fed ramblings. Look, all the stuff in here about bullishness in polls and volatility is a big stretch. But we agree that while the aim of all this talk is transparency, all it has brought is more talk. More is not synonymous with clearer. The other thing is the entire effort to force transparency rather overrates the Fed’s impact. While yes, they can err and harm markets and the economy, their initial moves rarely do. And it is pretty unlikely they are going to give forward guidance that amounts to, “We plan to massively overshoot and invert the yield curve, then we aren’t going to act as the lender of last resort,” even though that’s when their decisions actually impact markets most.  

By , Bloomberg, 09/23/2015

MarketMinder's View: The inflation measure in question, the trimmed mean, is “like scoring ice skating at the Olympics”—calculated by throwing out the biggest contributor and detractor from headline inflation in an effort to reduce skew by discarding outliers (but without biased judges). Instead of the 0.3% y/y rise in the headline Personal Consumption Expenditures price index—the Fed’s target—the trimmed mean points to inflation actually running about 1.6%, close to the Fed’s 2% target rate. This might be an interesting factoid, but in our view it is just more useless speculation as to what the Fed will do based on one bizarre data point no one really follows. No matter how hard people try, it is virtually impossible to accurately predict how 10 different people will interpret a variety of metrics to decide when to raise rates. Besides, even if someone could do this, it probably wouldn’t help them anyway, as the path of rate increases will likely influence the economy much more than the timing of the first step.

By , Bloomberg, 09/23/2015

MarketMinder's View: Despite longstanding fears, the eurozone has now grown for nine straight quarters—and data thus far into Q3 point to this being the tenth. "While a Purchasing Managers’ Index for manufacturing and services slipped to 53.9 in September from 54.3 in August, the third-quarter average stood at the highest level in more than four years, according to a report published on Wednesday. New orders grew at the fastest rate in five months and a gauge for the amount of raw materials bought by manufacturers stood at a 19-month high, signaling increasing production in the coming months." This is bull market fuel—the eurozone’s reality is much better than most folks fear.

By , The Guardian, 09/23/2015

MarketMinder's View: Whatever you think of the politics in here, this piece hits the nail on the head that politicizing monetary policy is a bad idea, something history has frequently shown. Under Corbyn’s “People’s Quantitative Easing” plan (PQE), the government would instruct the Bank of England to create new reserves and buy bonds issued by a state investment bank, which would invest the funds in housing, transportation and other infrastructure projects. The problem is: Politics would likely muddy the waters of what should be a purely economic consideration (to the extent that is actually possible). Since politicians first and foremost want to remain in office, they will likely have the BoE print money when it suits them, not necessarily when the economy needs it. Maybe this article is right and politicians would print money to the point of hot inflation. But, to see the flaw here, consider the flipside: If Corbyn took power and enacted PQE—but lost power in the next election to the opposition—what’s to stop those politicians from instructing the BoE to sell the same bonds, tightening policy? What if that is exactly what the economy doesn’t need at the time? Central bankers may not be perfect, but making them subservient to politicians’ whims and popularity contests likely won’t improve monetary policy or the economy.

By , Bloomberg, 09/23/2015

MarketMinder's View: The preliminary reading for China’s Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI)—a survey measuring the percentage of firms that grew—came in at 47.0 for September, below expectations of 47.5 and the lowest level in over six years. This index has garnered a lot of attention lately as it has been below 50 for months, signaling contraction and stoking fears the world’s second-largest economy faces a hard-landing. And it’s true recent readings haven’t been stellar! But we’d suggest taking this data point with several grains of salt. PMIs measure the breadth of growth, not the magnitude, so if the 47% of firms reporting growth grew by a lot more than the 53% of firms contracting, overall growth could be brighter than the headline figure suggests. Also, unlike China’s official PMI, which has posted somewhat higher readings lately, Caixin’s survey includes small and private firms, which face tighter credit conditions because Chinese banks have long favored lending to large state enterprises. Finally, this gauge has spent a considerable amount of the last three years in contractionary territory, so this isn’t really very new. And that is planned! China’s government has long argued they would shift from a heavy-industry-led growth model to a services and consumption one. Manufacturing PMIs do not cover services, now the biggest slice of China’s economy, which remains in expansion.

By , Financial Times , 09/22/2015

MarketMinder's View: So there is a lot of sociology in this piece, which has a clear ideological bent. Please tune all of that out, as we did, because when you strip away the personalities, biases and labels there is a great discussion of why all the campaigning and noise surrounding the UK’s upcoming referendum on EU membership probably won’t have much influence on the outcome. Why? Psychology. “Burn away all these contingent variables and moving parts, and you are left with eternal human instincts. And one above all — loss aversion. Most referendums come down to the same two-part question: is the status quo basically tolerable, and can we be confident that change will leave us meaningfully better-off? The answers are most often ‘yes’ and ‘no’, so the status quo wins. This is not because advocates of change are wrong but because the evidential burden on them is too great. It is hard to prove that a particular course of action would benefit a plurality of voters more than stasis. And in rich, peaceful countries, most people can live with stasis.” Now, that isn’t to say Brits for sure vote to stay in the EU. It’s way too early to handicap, particularly since they don’t know what they’ll be voting on. David Cameron and fellow EU heads of government have only just broached the subject of renegotiating the Britain’s EU relationship. But it does provide a better baseline for analysis than anything based on personalities and short-term developments.

By , The Yomiuri Shimbun, 09/22/2015

MarketMinder's View: Now that Japanese Prime Minister Abe Shinzo is essentially a lame duck—he was recently re-elected as head of the Liberal Democratic Party, which imposes a two-term limit for party leaders—others in the party are already jockeying for position to replace him when he steps down in three years. Some are distancing themselves from his agenda, making it less likely they will support his proposed economic reforms , which already faced tough sledding. Without this political capital, it will be more difficult for Abe to take on long-standing, entrenched interests that are fighting to preserve the status quo.  Absent further economic reforms and with monetary and fiscal policy initiatives failing to improve Japan’s economy as officials had hoped, investor optimism for Japan seems misplaced.  

By , The Telegraph, 09/22/2015

MarketMinder's View: So the gist of this is that people are worried about Emerging Markets debt, public and private. The Financial Stability Board (FSB)—an international organization that monitors the global financial system and makes recommendations to minimize the chances of financial turmoil—warns firms are over-indebted and made a roundabout suggestion that banks should cap business loan growth. Historically they’ve had the opposite worry, that businesses couldn’t get enough credit, but with a Fed rate hike on the horizon, it is increasingly fashionable to worry about capital flight from debt (particularly dollar-denominated debt) in Emerging Markets. This is where BoE Deputy Governor Minouche Shafik comes in, warning global markets aren’t sufficiently backstopped to deal with this or future sovereign debt crises and suggested things like IMF stress tests to deal with it. All the proposals discussed here would create winners and losers, and they strike us largely as solutions in search of a problem. There is no global debt problem, folks. There is more debt now than, say, six years ago, both absolutely and as a percentage of GDP. But this is only because firms took advantage of historically low interest rates to lock in cheap financing. Most of these bonds and loans don’t have variable interest rates, so if rates rise from here, it doesn’t impact the affordability. Higher rates impact new loans only. (Yield fluctuations impact bond prices on the secondary market, but that doesn’t impact the borrower’s ability to repay.) As for the whole business loan growth cap, we fail to see how it would do anything other than increase corporate bond issuance, which seems like the opposite of what they want to achieve.

By , Financial Times , 09/22/2015

MarketMinder's View: So there is a lot of sociology in this piece, which has a clear ideological bent. Please tune all of that out, as we did, because when you strip away the personalities, biases and labels there is a great discussion of why all the campaigning and noise surrounding the UK’s upcoming referendum on EU membership probably won’t have much influence on the outcome. Why? Psychology. “Burn away all these contingent variables and moving parts, and you are left with eternal human instincts. And one above all — loss aversion. Most referendums come down to the same two-part question: is the status quo basically tolerable, and can we be confident that change will leave us meaningfully better-off? The answers are most often ‘yes’ and ‘no’, so the status quo wins. This is not because advocates of change are wrong but because the evidential burden on them is too great. It is hard to prove that a particular course of action would benefit a plurality of voters more than stasis. And in rich, peaceful countries, most people can live with stasis.” Now, that isn’t to say Brits for sure vote to stay in the EU. It’s way too early to handicap, particularly since they don’t know what they’ll be voting on. David Cameron and fellow EU heads of government have only just broached the subject of renegotiating the Britain’s EU relationship. But it does provide a better baseline for analysis than anything based on personalities and short-term developments.

By , InvestmentNews, 09/22/2015

MarketMinder's View: If Congress doesn’t fund the federal government for the fiscal year that begins on October 1, certain non-essential agencies (or parts of agencies) may be forced to close their doors. As this gets closer, we may get more market volatility as investors fear the potential ramifications of a “government shutdown,” just as volatility spiked in the run-up to 2013’s shutdown.  But stocks rose a bit during the shutdown itself, as they have during 11 of the 18 shutdowns since 1976. Markets are also overwhelmingly positive in shutdowns’ aftermath, as it becomes clear Congress’s shenanigans had virtually no impact on economy or corporate profits, not to mention the fact they are fleeting. We have no reason to believe it will be any different this time, assuming it even happens at all. For more, see our 9/10/2015 commentary, “Midweek Potpourri: Fund Flows, Tax Cuts and Budget Brinksmanship.”

By , Marketwatch, 09/22/2015

MarketMinder's View: With many stocks down this year, some investors may sell them to lock in losses, offsetting gains they realized earlier in the year, reducing their tax bill. This piece suggests this selling pressure may cause further declines in those stocks, prolonging the recent market correction. This seems like a stretch to us, as most investors who do engage in the practice buy other stocks (or ETFs) with the proceeds of the securities they sold. Heck, one fund could buy securities another fund sold for tax losses, seeing them as cheap value. Moreover, for every seller there is a buyer. If buyers bid up whatever investors want to sell for tax losses, then guess what, prices rise. It’s an auction marketplace, folks.

By , The Washington Post, 09/21/2015

MarketMinder's View: While this piece speaks specifically to younger investors, it shares several sensible nuggets for investors of all ages—especially older folks who have longer time horizons than they may initially anticipate. Namely, compound growth is a magical force that can radically increase your savings over time if you give it a chance. If you have a 20-year time horizon and earn, say, 7% annualized (which is below stocks’ historical long-term annualized return) on $100,000, then you nearly quadruple your money. Time is money, literally!

By , The Telegraph, 09/21/2015

MarketMinder's View: In the lowest voter turnout since modern records began—estimated around 55%-60%—former Greek Prime Minister Alexis Tsipras returned to office, with Syriza winning nearly 36% of the vote. This comes after another episode of unreliable polling, which had Syriza and center-right party New Democracy dead even (and other polls had New Democracy slightly ahead) before Sunday’s contest. Tsipras has indicated he will renew his coalition with the Independent Greeks party, suggesting some semblance of “stability” to the Greek political situation—though that term is relative. From here, Tsipras has to implement the reforms stipulated by Greece most recent bailout conditions, a task Greece has struggled with for much of its recent history. Passage and implementation of the full bailout looks like a tall order considering some divisions remain within Syriza, but this coalition is more stable than polls indicated and could keep Greek politics out of the headlines for at least the next several months.

By , The Wall Street Journal, 09/21/2015

MarketMinder's View: So one credit ratings agency downgraded France because of weakness in the country’s “medium-term growth outlook.” While we aren’t sure what constitutes the “medium-term”—six months? Two years? Four years and three months?—we do know sluggish French growth isn’t a big surprise or news. It’s actually more like business as usual. Ditto for weak purchasing managers’ indexes, which haven’t tracked France’s actual output for years. With The Conference Board’s Leading Economic Index (LEI) for France rising 0.4% m/m in June and remaining in an upward trend, France’s prospects are likely better than most folks believe—a bullish development.

By , Bloomberg, 09/21/2015

MarketMinder's View: While we agree sentiment has been pretty skeptical for much of this bull market—and that is a reason to be bullish, since it implies more wall of worry for stocks to climb—we don’t quite buy the theory that sellers are drying up and some massive influx of dry powder is about to drive stocks higher. We’re bullish, too, but the whole “dry powder” argument is largely myth. It takes only two buyers to have a bidding war, and it takes only one seller to, you know, sell. All it takes is one look at ETF and mutual fund flows to know plenty of folks are selling. And as for dry powder, stocks can rise whether or not sidelined cash moves into the market. If you sell one stock at market rate and use the proceeds to bid another higher, the market rises.  

By , Financial Times, 09/21/2015

MarketMinder's View: This isn’t a surprise for a price-sensitive sector like Energy, and it illustrates the headwinds still facing earnings in the sector. Producers overall have slashed exploratory efforts and focused on efficiency gains as oil prices have remained low since falling last year, with bigger players consolidating and cutting costs and some smaller companies teetering on the brink of insolvency. Note, however, these likely cuts refer to future investment, not immediate production cuts. Firms don’t want to swallow the high up-front costs of new projects, but they still have every incentive to squeeze revenues out of existing projects—some money coming in is better than none. With global supply thus still outpacing global demand, thanks in part to those efficiency gains and other external factors (e.g., countries like Saudi Arabia not willing to give up market share), prices will likely remain low for the foreseeable future, threatening profitability. In our view, Energy’s headwinds aren’t likely to temper in the near-future—better opportunities exist elsewhere.

By , The Yomiuri Shimbun, 09/21/2015

MarketMinder's View: In Japan, more folks disapprove than approve (51% vs. 41%) of Shinzo Abe’s cabinet for only the second time during his second stint as prime minister—largely due to his recent push of unpopular national security legislation. Couple this significant political capital expenditure on national defense issues with Abe’s lame duck PM status, and the likelihood economic and structural reforms—the type Japan needs for real sustainable growth—become reality is waning. While hopes remain high that Abe can deliver, we are skeptical Japan can meet those optimistic expectations. For more, see our 9/14/2015 commentary, “Investors’ High Hopes For Japan Are Too High.”   

By , CNNMoney, 09/21/2015

MarketMinder's View: No, not literally, that would be weird. At issue here is whether the Fed will allow market movement to dictate when and whether it will hike rates. Many have asked this since the Fed punted on hiking last week, with some cheekily suggesting the stock market—not Janet Yellen—is the real Fed chair. Now, “global equity market activity,” which the Fed cited as part of its rationale, likely does fall somewhere under that “data” umbrella the Fed considers when making decisions, though this isn’t a groundbreaking discovery. However, we reckon what stocks are doing is just 1 factor 10 different central bankers weigh when deliberating whether to hike. While this piece does raise a sensible point about the Fed risking its credibility by setting certain expectations and not meeting them, it also reads way too much into a single line of text—a detrimental practice for investors, in our view. For more, see our 9/17/2015 commentary, “The Fed Passes. Again.  

By , The New Zealand Herald, 09/21/2015

MarketMinder's View: Last week, New Zealand Trade Minister Tim Groser optimistically announced he’s “90% certain” the Trans-Pacific Partnership would be completed by year’s end. Contrast that with New Zealand Prime Minister John Key’s more guarded view of TPP progress, from a “high quality” deal to “at least it will be the very best we can do.” One Kiwi TPP opponent speculates this all suggests New Zealand will cave on some of its demands (e.g., dairy industry concerns) rather than ditch the deal. While New Zealand is just one participant in this 12-country negotiation, the Kiwis’ struggles exemplify why it is so difficult to reach big, multi-member trade deals—there is a lot of give and take, which leaves nobody completely satisfied. Also, it looks like they’ve finally set a date for the next round of supposedly “final” talks, on Saturday. So that’s a step forward, but Canada’s forthcoming election adds a big wrinkle. We’ll see what happens…

By , The Washington Post, 09/18/2015

MarketMinder's View: Yes, tune it out. It doesn’t matter for you, dear reader, whether the fed-funds target rate is between 0% and 0.25% or somewhere just higher. Marginal changes have negligible impact on bank lending, the economy and the interest rate on your bank account. “What matters to a retail investor with a time horizon of longer than a week isn’t what the Fed does or doesn’t do on a given day. It’s how well the U.S. economy and U.S. companies do over the intermediate and long term. You can’t figure this out by immersing yourself in Fed navel-gazing minutia. And you certainly can’t figure it out by paying attention to the people screaming at each other about what the Fed did.”

By , The Guardian, 09/18/2015

MarketMinder's View: Here is a comprehensive look at the major players and issues at stake in Sunday’s Greek election. Current polls indicate leftist Syriza and its leader, former PM Alexis Tsipras, are neck-and-neck with center-right opposition New Democracy, with neither poised to win outright. With both parties supporting the bailout program, the odds favor a pro-bailout government, though forming a coalition could prove challenging, and whatever administration results will probably be quite unstable. This does pose a risk to the bailout, though any impact from its disintegration would likely be minimal, considering Greece is relatively ring-fenced. An inconclusive election is also possible, but if it happened, they’ll likely just have another vote—just like they did after 2012’s inconclusive ballot.

By , The New York Times, 09/18/2015

MarketMinder's View: This is all very interesting, but it seems quite beside the point when you consider neither the Fed nor Emerging Markets central bankers are terribly worried about the knock-on effects of a rate hike on Emerging Markets (EM). The Fed didn’t punt because they’re worried it would hurt other countries. They chose not to hike because they’re worried extant slowdowns abroad could impact the US, making tightening a double whammy here. (We don’t see much evidence to support their case, but that was Chair Janet Yellen’s argument.) Plus, currency crises in Mexico and elsewhere in the 1990s happened because these countries were pegged to the dollar, an inherently unsustainable project. Few EM countries today have formal pegs. China and Malaysia come close, but they have fixed floats with plenty of market influence. (And China still has more than $3 trillion in foreign exchange reserves.) Moreover, this all assumes the dollar will soar after the Fed hikes. But markets discount all widely known information and move ahead of well-known events. The dollar has already strengthened amid rate hike talk. This reminds us of when everyone thought quantitative easing (QE) would weaken the dollar. (It didn’t.) It also reminds us of when everyone thought the end of QE would destroy Emerging Markets. (It didn’t.)

By , The Wall Street Journal, 09/18/2015

MarketMinder's View: One Fed guy (who isn’t a voting member this year) said something similar on Thursday, and when asked about the possibility at Thursday’s presser, Fed head Janet Yellen answered with a gracious speech that translates roughly as “uuuuuhhhhhhhhhhhhhhhhhhhhh no.” One guy’s opinion doesn’t represent an entire committee, in the US or UK. So even though Mr. Haldane is the BoE’s chief economist, we rather doubt his views represent the BoE majority—especially since neither BoE Governor Mark Carney nor anyone else on the Monetary Policy Committee have seriously discussed a cut. If the UK turned down, sure, maybe they would—and with the bank rate at 0.5%, they have room to cut whether or not you think the zero lower bound is a thing. But there also doesn’t appear to be any need to do so, considering the UK is still growing just fine, loan growth and money supply are picking up, and the yield curve is positively sloped.

By , Associated Press, 09/18/2015

MarketMinder's View: And July’s reading was revised up from a small contraction to zero. This commentary calls the two-month sequence a sign “economic growth could be moderating,” but considering the primary headwind in July was one-time regulatory changes in Florida and New York construction permitting policies, we have our doubts. The most forward-looking components, the interest rate spread and Leading Credit Index, are chugging right along. Plus, LEI is often variable in the short term. The long-term trend is more telling, and LEI is up in 16 of the last 18 months. Considering no recession in LEI’s 56-year history has begun while the index was high and rising, the continued upswing is a good sign growth should continue.

By , EUbusiness, 09/18/2015

MarketMinder's View: The fact Italy is even having a viable debate with Brussels over how to put a fiscal windfall to work shows just how far Italy has come since the depths of the crisis in 2011 and 2012. Back then, with interest rates soaring and big chunks of debt in need of refinancing, most feared Italy would be the next (and biggest) shoe to drop. Now, they’re haggling over tax cuts and other pro-growth measures. Just another sign of progress and the underappreciated positives at play in the eurozone.

By , The Wall Street Journal, 09/17/2015

MarketMinder's View: So this argues the Fed’s stated “concern about overseas developments, and their effect on the US economy” is somehow brand-spanking new and represents a worrisome change. But we don’t see much evidence this is true. The Fed has long looked overseas for risks (or drivers) to US growth and price stability. Foreign factors had a huge influence over monetary policy during the gold stock era, as cross-border gold flows had a big impact on US money supply. Moreover, when Fed head Janet Yellen discussed this verbiage during her post-meeting presser, she was crystal clear that the Fed is watching for knock-on effects on the US. They aren’t trying to stabilize China or anything. (Not that China needs stabilizing, but you get the point.) We’d chalk this one up as too much searching for meaning in Fed words.

By , Financial Times, 09/17/2015

MarketMinder's View: The theory here is that China devaluing the yuan by a fifth or more is a tail risk (an extremely improbable event with potentially dire consequences) that might skewer the US and, hence, world economy. And we agree, it’s unlikely the yuan falls suddenly by 20% or more. However, even if it did, the whole notion a 20% reduction in the cost of Chinese goods would quash the US economy is flawed. Instead of holding off their purchases, we’d be willing to bet consumption (volumes) would rise. That tends to be what happens when things go on sale, you know. As for the impact on inflation, there is scant evidence inflation (or deflation) are truly leading indicators of consumer behavior or the economy.

By , The Wall Street Journal, 09/17/2015

MarketMinder's View: Here is a very interesting, and entirely political, read on the upcoming Greek election. It seems many Syriza supporters were a bit put off by the party’s big U-turn and subsequent splintering and thus plan to stay home this time. That could very easily hurt Syriza and former Prime Minister Alexis Tsipras’ chances of consolidating power in this election, which was why he dissolved government a month ago. Anyway, it’s all political intrigue, as Greece’s political drama hasn’t materially affected eurozone markets broadly, and we believe it’s too small to wallop a bull market on its own.

By , The New York Times, 09/17/2015

MarketMinder's View: Here is a short post making a good point: You needn’t fret the ratings agencies. Their opinions are usually late to the game and don’t have any special insight market participants don’t already have. Hence the big collective yawn when Japan was downgraded this week.

By , The Wall Street Journal, 09/17/2015

MarketMinder's View: Pursuant to a mandate in 2010’s Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC studied the issue of requiring money-market funds to buy only highly rated debt, as determined by the ratings agencies. And the ruling is … (drumroll, please!) … they are striking the requirement and replacing it with a requirement funds limit the maturity of issues and select securities the firms themselves deem “minimal credit risks.” This is a positive step, in our view. The ratings agencies’ analyses have always been questionable, particularly considering the issuer pays them to rate debt—a potential conflict of interest. The raters argue it isn’t, but that seems a stretch when you consider human nature. While we don’t believe this materially makes money funds “safer” or what have you, we do believe the overall thrust eliminating raters’ enshrinement in laws and regulations is a plus.

By , The Wall Street Journal, 09/16/2015

MarketMinder's View: While we don’t agree that policy makers are “trapped,” we find the discussion here of the facts behind quantitative easing’s dis- or deflationary tendencies interesting. “Mr. Williamson examines the history of monetary policy following financial crises and argues that ‘there is no work, to my knowledge, that establishes a link from QE [bond-buying] to the ultimate goals of the Fed—inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation.’” Right on! However, this acts as though it’s some mystery, but as we’ve written, there is a century of theory suggesting the quantity of money is what stokes inflation. Despite common claims, the Fed doesn’t directly impact that. We have a fractional reserve banking system, which means the Fed can boost banks’ reserve credits, but the money supply only grows if banks lend. Under quantitative easing (QE), the Fed bought long-term bonds, pushing down long rates. With short-term rates pegged at zero, this reduced the difference between what banks pay to borrow money (short rates) and what they receive by lending it (long rates). Hence, banks lent less. The money supply grew slowly. Growth was sluggish. However, presuming the Fed’s inflation target keeps them locked in at zero makes big assumptions about how committed to that 2% target the Fed is—or what their forecast for PCE inflation might be. After all, monetary policy hits the economy at a lag.  

By , Marketwatch, 09/16/2015

MarketMinder's View: The Fed’s primary policy tool in 1937 wasn’t short-term interest rates, it was reserve requirements. When it saw banks held vast reserves above and beyond the legally required amount, the Fed became wary over possible inflation. Entering 1937, reserve requirements were in the teens. Over a period of months, the Fed jacked reserve requirements up to 33 1/3 percent, basically engulfing the excess reserves banks held—an overconfident move that presumed banks wouldn’t attempt to boost excess reserves anew. But, still feeling the Depression’s pinch, bankers were wary—they wanted extra reserves! So after each move, banks scrambled to reestablish their previous level of excess reserves—tightening money far more than the already extremely tight reserve requirement implied. Money supply collapsed, and the economy followed. A Fed rate hike, with US’s growing economy, healthy banks and robust private sector (outside commodities) isn’t nearly a shock on par with 1937. Today’s US economy can very likely handle the Fed lifting rates to something slightly higher than zero.

By , Bloomberg, 09/16/2015

MarketMinder's View: Why are they parking oil on tiny islands? Because traders expect prices to rebound. The fact markets expect higher oil prices over the coming year shows investors still don’t grasp the idea oil prices may remain low for a prolonged period—sentiment still hasn’t caught up to reality in the oil patch. Despite oil prices being half of what they were just over a year ago, firms (and countries) have many incentives to maintain production: breakeven prices have plunged for many US shale producers; some revenue is better than none (even if it’s half as much per barrel); and countries reliant on oil revenue continue producing because their budgets require it. Given global oil demand growth remains tame, oil prices appear poised to remain low for some time.

By , Calafia Beach Pundit, 09/16/2015

MarketMinder's View: US Consumer Price Index data came out Wednesday, and headline inflation remains very low—consumer prices fell 0.1% m/m in August. In recent weeks, we’ve seen any number of pundits argue this factor should lead the Fed to hold off on rate hikes. Look, again, we don’t know what the Fed will do. But we’d suggest this piece points out why headline inflation being low isn’t a risk if the Fed does hike: Ultra-low inflation is almost entirely the result of plunging oil prices over the past year. (Gas prices are down 23.0% y/y.) Excluding food and energy prices, CPI inflation is running about 1.8% y/y, in line with the long standing trend. Now, we don’t know to what extent the Fed agrees with the theory here that it “should be focusing almost exclusively on ex-energy measures of inflation”—its 2% target is headline PCE—we agree that focusing on headline inflation isn’t fruitful for investors or policymakers today.

By , The Wall Street Journal, 09/16/2015

MarketMinder's View: A survey of the largest US firms’ top executives found many CEOs believe the economy could suffer if Washington fails to pass a budget and raise the debt ceiling later this year. We doubt it. Washington has squabbled endlessly since 2009, including several hot debt ceiling debates and 2013’s government shutdown. They didn’t crimp growth then, and we don’t think it’s going to now. Ironically, America’s private sector—partly comprised of the folks surveyed—is what drives growth, and it is in perfectly fine health. These types of sentiment surveys are very unreliable in forecasting economic and market conditions, reflecting mostly conditions that have just happened in markets and the economy (hence the dip right after a stock market correction). But, for the record, the survey did put a number on how much CEOs think this partisan squabbling will ding growth:  “Separately, the CEOs forecast the economy will grow at a 2.4% rate over the next year, a slight 0.1 percentage point downgrade compared with their expectations three months earlier.”

By , Bloomberg, 09/15/2015

MarketMinder's View: This entire article operates from one central fallacy—and then layers on additional fallacies along the way. The main one is: The bull market has been artificially propped up by the Fed, through quantitative easing (QE) and the low overnight rates. However, while low rates and accommodative policy may have helped in 2008-2009, they have largely stunted economic growth and inflation since by flattening the yield curve. With rates at zero and the Fed buying long-term bonds under QE (until October 2014), the Fed was driving down the gap between short- and long-term rates. Banks fund themselves at short-term rates and lend to the public at long-term ones, profiting off the spread. Smaller spread = less profitable lending = less plentiful lending. That is born out by statistics like US M4 and loan growth, which were sluggish during QE, rising after its end was announced. If banks don’t lend, the Fed’s actions in buying bonds never hit the real economy. The rest of the fallacies: that a high cyclically adjusted price-to-earnings ratio means stocks are overvalued (it signaled that from 1996 – 2000, most of the 2000s bull and most of the current); that private firms may or may not have lofty valuations—(a matter of opinion and too small to indicate sentiment broadly); that bad debt in the Energy sector will blow up and shock stocks, (but it’s a widely known issue overstated here). But again, above all else, the issue with this article is the presumption the Fed has helped stocks. For much more on this, please see our 8/28/2015 commentary, “Stocks Don’t Need More QE.”

By , The Wall Street Journal, 09/15/2015

MarketMinder's View: S&P 500 profits contracted fractionally in Q2, falling 0.7% y/y, and analysts currently expect them to fall 4.4% in Q3. Should Q3 profits fall, even by a lesser amount, some claim it will put the US in an earnings “recession,” based on the frequently used definition of an economic recession being two straight quarters of falling GDP. This, in our view, is vastly overwrought. For one, taking analysts’ forecast 4.4% decline to the bank seems wildly premature, considering they forecast basically the same degree of decline in Q1 and Q2. When reality set in, Q1 earnings rose 0.9% and, while Q2 earnings fell, they fell by a much smaller amount. And even those figures are skewed downward by oil firms! Excluding Energy, Q2 profits grew 5.9% y/y, and Q3 profits are expected to rise 2.7%. For 2015 overall, profits are expected to increase a measly 0.8%, but excluding Energy they are set to climb 7.5% y/y. Folks, what we have here isn’t an earnings recession, but an Energy “recession,” which isn’t a recession. Also, while falling energy prices are bad for Energy firms, they are good for consumers and energy intensive industries: Lower energy costs are helping many non-Energy firms’ bottom lines.  

By , New Zealand Herald, 09/15/2015

MarketMinder's View: Tim Groser, New Zealand’s Trade Minister, recently stated he’s 90% certain the Trans-Pacific Partnership (TPP)—a twelve country free-trade agreement—will be finalized by year’s end. We hope so! If it happens, it would be a huge positive, creating a free-trade zone spanning 40% of global trade. But we don’t share his optimism, unfortunately, as many obstacles remain. As this piece points out, autos, dairy and intellectual property remain contentious issues. An October 19 Canadian election may add another wrinkle, as a less TPP-friendly administration could win. In the US, presidential candidates from both parties are pushing a protectionist agenda, and Congress may be wary of passing something so charged as an election approaches. We’d love for Groser and his compatriots to be right, but even if they aren’t, the lack of a big positive is not a negative. Global trade is still much freer, on balance, than it was as recently as a few decades ago.

By , CNN Money, 09/15/2015

MarketMinder's View: US retail sales edged up 0.2% m/m and 2.2% y/y in August, and with discretionary spending on items like new cars rising 0.7% over July, consumption seems to be on fine footing. Heck, those headline figures would be higher if you excluded sales at gas stations (heavily influenced by gas prices), which fell 1.8% in the month. We wouldn’t read too much into this, though, as retail sales do not measure all consumer spending. Services spending is the other component and constitutes the lion’s share of expenditures in the US. But more importantly, though consumer spending is one sign of where the economy is right now, it doesn’t tell you where it’s going. With The Conference Board’s Leading Economic Index in a solid uptrend, growth looks likely to continue.

By , The Telegraph, 09/15/2015

MarketMinder's View: Well, this is one credit-rating agencies’ opinion, yet commentary from Emerging Markets central bankers indicates they aren’t overly concerned about a rate hike. What’s more, most of this analysis presumes not that the possible Fed hike this week will cause outflows from Emerging Markets and trouble repaying dollar-denominated debt, but that a faster-than-expected tightening cycle through 2017 (based on the Fed’s dot-plots) will wreak havoc. Folks, don’t take the dots at face value. There is no evidence the Fed’s projections are even remotely set in stone. And either way, the dollar has already strengthened significantly, so a rate hike may have little impact on it, as it may have already discounted tighter policy.

By , The Wall Street Journal, 09/15/2015

MarketMinder's View: The theory here is morning is the worst time because the difference between the price a buyer pays for a stock (the bid price) and the price a seller receives (the ask) is much bigger shortly after the market opens than it is later in the day. While possibly true, this difference in bid-ask spreads amounts to “only pennies a share.” Folks, we get that this article suggests this is one of those retail investor vs. the big guys things that many see as a matter of fairness, but we have to say: If the time of day you trade makes the difference between successfully reaching your goals, chances are there is a much bigger problem with your strategy than what the clock said when you pressed, “sell.” (We are also a little skeptical of the notion retail investors usually place trades the night before, which seems anecdotal and off to us.) That said, though, we give this article one point for indirectly highlighting the drawbacks of making emotional, knee-jerk reactions to current market conditions or the latest news. Selling stocks into a panic usually ends up being a poor investment decision. But this has almost nothing to do with varying bid-ask spreads throughout the trading day, and everything to do with avoiding the pitfalls of behavioral errors in investing.

By , CNBC, 09/15/2015

MarketMinder's View: And THIS sign is . . . investors are allegedly confident the market will rise over the near term. Which leads some to draw the standard comparison between now and 2000, pointing out that people were confident then in the face of high valuations. Folks, there is a big difference between guarded optimism—where investors rationally believe the bull market likely has further to run—and full blown pie-in-the-sky euphoria, where they see outsized gains far ahead while ignoring deteriorating fundamentals. The latter was 2000. Today looks more like the former. We simply don’t buy the notion that, “[Investors are] worried but they’re thinking they’ll get out,” signals a bubble. Bubbles are when investors aren’t worried but should be. To use the article’s own words, a bubble is precisely not when a “valuation confidence index showed investors believed equities have not been so overvalued since 2000, when the dot-com bubble burst.” If folks widely think stocks are overvalued, you don’t have a bubble. Finally, the Cyclically Adjusted Price-to-Earnings ratio (CAPE)—a metric comparing current stock prices to the past ten years of inflation-adjusted corporate profits—is meaningless for the future direction of stocks. Markets care about what profits will be going forward, not what they were in 2005, 2008 or 2011. That backward-looking bias is why CAPE sent sell signals in 1996, 1997, 1998 and 1999, all great years to be in stocks. It did the same for most of the 2000s bull and much of the present. Current valuations are more or less consistent with stocks’ long-term average; not outlandishly high.

By , Bloomberg, 09/14/2015

MarketMinder's View: We have several quibbles and qualms with this piece—for example, that “easy” monetary policy from central banks around the world will keep propping up the global bull market and expansion. Stocks don’t need the Fed, BoE, ECB, BoJ or any other central bank’s help to rise higher. However, from a high level, there are a couple sensible points here, too. For example, we agree stocks are the ultimate forward-looking indicator, though they can be quite erratic and volatile in the short term. Or that stock market corrections don’t really tell you anything about the economy’s direction, since they aren’t fundamentally driven (unlike bear markets). And that gauges measuring the economy (e.g. GDP) can’t tell you where stock prices will go since they’re backward-looking. 

By , Bloomberg, 09/14/2015

MarketMinder's View: If we told you that in a random group of 35 stocks, less than half have a lower value a year later, you likely wouldn’t be very surprised. After all, even during bull markets, not every stock rises. Well, that’s the record for companies that went public via initial public offering (IPO) last year—about 40% are now below their IPO price and an index tracking companies for a year after they go public is now down 20% since January 2015. We present this as a friendly reminder to investors not to get sucked in whenever the next hot IPO starts garnering headlines. As the old saw goes, IPO stands for it’s probably overpriced

By , The New York Times, 09/14/2015

MarketMinder's View: We’ve seen a lot of analysis and theories predicting when the Fed will hike rates for the first time since 2006—an unnecessary and impossible exercise—but this takes the cake. The theory here: You might be able to divine how ten different Federal Open Market Committee members will vote based on the average annual inflation rate when they were ages 18-35, on the notion these were their “formative years” and colored their view of policy risks and choices. We guess that is one possibility—personal histories are important! But folks’ views change constantly based on new information and experiences. As the article admits, “It is, of course, impossible to get into people’s heads and know what truly motivates them to advocate the policy choices they do.” Folks, there is no need to overthink this: an initial rate hike hasn’t killed a bull markets or economic growth in history, and we have no reason to think the next hike (whenever it happens) will be the first. For more, see Todd Bliman’s column, “The Fruitless Folly of Forecasting the Fed.”     

By , Yahoo! Finance, 09/14/2015

MarketMinder's View: While this piece looks at last year with some rose-colored glasses—investors seemed pretty skeptical then, too—it does highlight today’s prevalent dour sentiment, especially with markets correcting recently. Ironically, though, the increased skepticism this article documents typifies bull markets, rendering the titular question unnecessary. That is part and parcel of why we say this looks more like a bull market correction than a bear market, which usually starts with devil-may-care euphoria. We can’t (and won’t) pinpoint the exact timing, but we believe the bull will soon resume its ascent and continue rising higher. For more, see our 9/11/2015 commentary, “Skeptical About the Future.”

By , The Wall Street Journal, 09/14/2015

MarketMinder's View: This is a flawed analysis, pure and simple. The use of 52-week highs as the high-water mark causes bear markets to not only be included with corrections, but double counted, greatly lengthening the time to prior peak. The vast majority of the longer recoveries shown are bears (2000, 1973, 2007, 1969, 1981, 1987, 1962 and 1966). It also doesn’t include all the corrections, like 2006’s. Seems to us this would look quite different if you eliminated the double-counting and omission of fast bouncebacks like those. But anyway, this presumes averages have predictive power, which the dispersion between long-and-short rebound time here shows is fallacious.

By , The Australian, 09/14/2015

MarketMinder's View: Australia has a new prime minister, as former Communications Minister Malcolm Turnbull defeated the incumbent Tony Abbott in a backroom Liberal-National conservative coalition party leadership vote today. Turnbull won as party members expressed doubts that Abbott could win a scheduled federal election next year, giving the country its fourth prime minister since 2013. Though little is currently known about Turnbull’s policy agenda, it isn’t likely to fundamentally alter the country’s near-term prospects. The headwinds Australia’s resource- and commodity-heavy economy faces still persist, so while this development is interesting for political pundits, the market impact here is likely limited. Also, consider: This is basically the norm for Australia in recent years. Turnbull is the fifth Aussie PM since Kevin Rudd first attained the post in 2007.

By , CNNMoney, 09/14/2015

MarketMinder's View: Yep, today’s slower Chinese growth is neither a surprise nor a new development. China has been slowing for years now and recent data are in line with longstanding trends. Lower industrial production, export and manufacturing numbers aren’t reasons to worry—they’re expected, with the government making the long transition to services- and consumption-based growth. Whether China is growing at 7%, 6.8% or even closer to 5% as several experts have argued, there are few signs the economy is heading for a crash, dragging the world down with it.  

By , CNNMoney, 09/11/2015

MarketMinder's View: …And US debt shrugged and yawned. This one starts with a fallacy and doesn’t look back. “It’s no secret that China is the largest holder of US debt,” it claims, yet the largest holder of US debt is actually—drumroll—the US! The Treasury owns over 27% of it. The Fed and US investors, together, own about a third. Foreigners own the rest, with China in pole position and Japan just behind them. But China owns just 7% of the total outstanding, give or take. Moreover, China isn’t “dumping” debt. They sold $94 billion of their foreign exchange reserves, presumably in the form of US Treasurys, but that still leaves them with over $1 trillion. Treasury yields fell in August, evidence China selling isn’t the risk many presume. There is a buyer for every seller, and Treasurys are in high demand. As for all that stuff about China’s holdings being a nuclear timebomb or whatever, we don’t buy it. One, if China dumped all their Treasurys, the yuan would soar and destabilize China’s economy, probably triggering social unrest—exactly what officials are trying to avoid. Two, if China dumped all their Treasurys, US secondary-market yields would rise temporarily, but bargain-hunters would very likely bring them back down again, spying a great chance to get the world’s most stable, liquid security at a firesale price. If that happens quickly enough, the US government would never even feel the slightest impact of China’s sales, because they only pay at-issued (primary market) rates. We don’t need China to finance our debt. Plenty other institutional and individual investors will be happy to fill the void. This is a false fear of the highest (lowest?) order.

By , The Wall Street Journal, 09/11/2015

MarketMinder's View: This rightly points out high-yielding fixed income alternatives come with high risk, and indeed, it is important to discover that before you leap! But this completely overlooks the most important question, which is: Why do I own bonds? Many folks own fixed income not for yield alone, but to dampen expected short-term volatility and help sustain cash flow needs in retirement. If that’s you, high-yield alternatives like direct loan funds probably won’t fit the bill, as their higher risk (relative to, say, US Treasurys and investment-grade corporate bonds) means they are subject to higher short-term volatility. Always remember your goals and needs, and you’ll likely find yield-chasing isn’t a wise move.

By , Bloomberg, 09/11/2015

MarketMinder's View: Just a great look at the significance of Japan Post’s forthcoming IPO, a landmark event in Japanese economic reform 15 years in the making. The Wall Street Journal once dubbed Japan Post “the bank that ate Japan,” and this is why: “Japan Post's long journey to the private sector began in 2001 when Junichiro Koizumi, [current Prime Minister Shinzo] Abe's mentor, was prime minister. In his drive to end the cronyism and complacency that plagued the Japanese economy, Koizumi went right to the source: the savings institution within a postal system that then employed over 400,000 people. Japan Post was the piggy bank wayward politicians used to fund pet projects, many of them white elephants, which helped feed an explosion in public debt.” The initial selloff is small, leaving about 90% of the company in state hands, but it should nonetheless introduce accountability and—most importantly—it should spur Japan’s other banks to compete and consolidate, which could boost lending and Japan’s overall competitiveness. Right now, with net interest margins so small thanks to Japan’s ginormous quantitative easing (QE) program, banks are largely sitting tight. But if shareholders can goad Japan Post to morph from government financing machine to actual lender, other banks will have to follow suit, much to Japan’s benefit. None of this is guaranteed to happen, and we think it’s far too premature to rush headlong into Japan given, again, the state remains in charge (and Japan has myriad other competitiveness issues). But still, reform has to start somewhere, so, gold star.

By , The Telegraph, 09/11/2015

MarketMinder's View: There is a big word missing from the headline, and that word is: forecast. Because Non-OPEC output is still surging, and those allegedly huge US production cuts since June are a) rough guesstimates rather than final tallies and b) “cuts” to levels that are still way higher than a year ago. Extrapolating that to a 400,000 barrel-per-day fall in output next year seems a stretch, particularly since rig count is rising again and oilfield investment ticked up the last couple months. Not to mention the fact shale producers have made big efficiency gains, reducing their breakeven price and maintaining incentives to keep pumping. In short, nothing here is set in stone, and we don’t consider one agency’s forecast a good reason to pile into Energy stocks.

By , The Wall Street Journal, 09/11/2015

MarketMinder's View: This is the latest, perhaps most striking evidence this correction hasn’t featured much of an investor freak-out, which is a tad unusual. It could mean a few things, and we point them out simply as food for thought. One, it could mean more downside is in store, and the correction doesn’t end until we get a mass capitulation. Two, it could mean investors are overall more optimistic than in recent years, and we’re entering the phase of maturing bull markets where increasingly confident investors bid stocks higher, driving big returns (similar to the late-1990s). Three, it could mean we get another correction soon as the market tries to throw folks for a loop. To us, this correction looks a lot like 1997’s, which was followed by a monster correction in 1998—which still had amazing full-year returns despite the autumn drop. Corrections are unpredictable and can strike at any time, for any or no reason. So stay on your toes, and remember no bull market moves in a straight line. Volatility is normal, and big wobbles often accompany big returns.

By , The Wall Street Journal, 09/11/2015

MarketMinder's View: Yes, but you can easily look to trade partners, data from private firms and statements from executives whose firms do business there to see what they say is afoot. None of these, nor official data, show a marked change from the longstanding trend of slowing, but still solid, economic growth. For more, see our 8/26/2015 commentary, “Corporate America’s View of China.”

By , Bloomberg, 09/11/2015

MarketMinder's View: No. All the alleged parallels here are false fears that weren’t predictive then or now. October 1987’s crash wasn’t caused by high valuations or spiking volatility. Actually, a bear market began that August, as euphoric investors overlooked a liquidity shortage. Liquidity today is abundant, and low-and-stable long-term interest rates pretty much globally are your proof. Every alleged negative this piece cites for today is either misinterpreted, too small to whack markets, or discussed to death and therefore devoid of surprise power.

By , Bloomberg, 09/11/2015

MarketMinder's View: We aren’t judging the merits of socially responsible investing or anything related to gender. But claiming this tactic will boost returns because it may have over short windows of time isn't how investing works. We’d chalk this up as a nifty observation, not actionable information.

By , Bloomberg, 09/11/2015

MarketMinder's View: This won’t tell you when the next recession will hit. But it does show where sentiment is—optimistic enough that few see the expansion ending in the next year, but pessimistic enough that over half the economists surveyed believe it will hit by 2018. That doesn’t mean it will or won’t, but the fact we don’t have 31 of 31 economists saying the next downturn is, say, five years or more away suggests we aren’t anywhere near the baseless euphoria that typically accompanies market peaks.

By , The Telegraph, 09/11/2015

MarketMinder's View: This admission leaves many fearing Mr. Corbyn’s likely ascension as Labour Party leader (we’ll know for sure Saturday) could increase the chances the UK leaves the EU in the forthcoming referendum. As ever, we consider politics without ideological bent, and we prefer no party or politician in any country. So we’ll simply say this: The leader of Her Majesty’s loyal opposition, whoever it may be, will have some influence in the referendum campaign. But you can’t know what their stance will be based on one vote 40 years ago. Heck, you can’t even know whoever wins the Labour leadership Saturday will still be leader during the referendum campaign. Intra-party coups happen (See: Thatcher, Margaret and Heseltine, Michael). Moreover, the entire issue of “Brexit” remains too early to handicap considering Prime Minister David Cameron hasn’t begun renegotiating Britain’s EU relationship in earnest yet, and the renegotiated relationship is what Brits will be voting on. Also, voters will have many, many issues to consider, above and beyond what any politician says on the referendum campaign trail.

By , Financial Times, 09/11/2015

MarketMinder's View: This article almost completely ignores how markets work and is thus of little to no use for investors. It gets half a point for acknowledging forward-looking stocks have probably already discounted a rate hike, considering investors have discussed it to death for a year now, but it loses 50 for assuming credit and currency markets will be caught unaware and their reaction could in turn spur stocks to wobble. Folks, all similarly liquid markets are equally liquid and forward-looking and discount widely known information near-simultaneously. You can’t use bonds to forecast stocks, and all markets on Earth know a rate hike might come as soon as next week. We could see volatility, but regardless, history shows no initial rate hike in history has ended a bull market.

By , The New York Times, 09/10/2015

MarketMinder's View: This perhaps will sound callous, but exchange-traded funds (and mutual funds) aren’t and weren’t designed to reduce volatility, they were designed to inject instant diversification for investors who can’t afford to buy enough stocks to get diversification efficiently without a product. That there was a temporary dislocation in the ETF’s prices relative to their underlying assets is an unfortunate reality, but as Bloomberg’s Matt Levine put it recently, “The exchange-traded fund is a very clever device for using market mechanisms (hedging market makers, creation/redemption) to build a single security that tracks a broader portfolio in real time. It works, you know, ninety-nine-point-whatever percent of the time. It would be awesome if it worked 100 percent of the time. But those market makers are not wrong to widen their spreads when they can't trade the underlying, are they? Sometimes stocks are kooky, and it's plausible that ETFs would concentrate and magnify that kookiness. A big problem in financial markets is that if you build a thing that works ninety-nine-point-whatever percent of the time, you will attract people who rely on its 100 percent reliability.” To use an analogy (eek!), a single mechanical failure that causes a plane crash doesn’t prove air flight is fundamentally flawed.

By , CNN Money, 09/10/2015

MarketMinder's View: The presumption here is that there is “too much uncertainty coming from China” for the Fed to hike rates. We’d respectfully suggest there is always uncertainty coming from somewhere around the world, and there is never certainty in economics (or markets). We’d be much happier if the Fed just got on with it and hiked already. The notion that an economy at record highs and growing 3.7% annualized in the latest quarter, with 5.1% unemployment, a long uptrend in The Conference Board’s Leading Economic Index and 10-year rates at 2.2% can’t handle fed funds above 0% - 0.25% is dubious in our view.

By , Bloomberg, 09/10/2015

MarketMinder's View: After today’s US import price data showed a -1.8% decline in prices overall, driven by falling energy and food prices, the newswires were alive with fears of a deflationary spiral causing prices to fall, which leads consumers to hoard cash in the expectation of lower prices ahead, which causes prices to fall further, and so on. For one thing, there are scant few examples of deflationary spirals actually happening outside literature. Deflation is much more often a) the welcome byproduct of surging production tied to a technological advance (see fracking, US or Industrial Revolution, the) or b) the byproduct of other negative factors, like a bank panic quashing money supply and velocity. And again, here, this is based on transitory factors. As we wrote earlier this summer, expect noise in inflation tied to energy and commodities for some time. Don’t overthink it.

By , Reuters, 09/10/2015

MarketMinder's View: Ireland’s economy grew 6.7% y/y in Q2 2015 after growing 7.0% y/y in Q1, among the fastest clips in the globe presently. Ireland was bailed out in 2010 following the collapse of its banking sector, and the IMF/EU/ECB troika of creditors required them to enact austerity measures as a result. Add this to Spain’s recent growth surge and Portugal’s domestic demand-led recovery, and the argument austerity kills growth is getting harder and harder to make. Take note, Greece!

By , Bloomberg, 09/10/2015

MarketMinder's View: Here is a sign of the times sentiment-wise: Just months ago, folks fretted Germany was following the rest of Europe into a deflationary abyss. Today, after growth accelerated, folks now fret monetary policy is too easy in the eurozone for Germany, risking overheating because growth is presently above “potential GDP”.* This is just an example of the fact people are still clinging to pessimism about the eurozone, even when it is very, very hard to justify. *Potential GDP is a made-up number that economists figure an economy should be growing at. Actuality often doesn’t cooperate with such ivory tower models, though.

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

MarketMinder's View: Equity-like growth with less-than-equity-like volatility is the Holy Grail of investing. It also doesn’t exist, so you should probably stop looking. Here, the major fallacy is the presumption certain stocks are less volatile (stock-like) than other stocks. But stocks are stocks! All stocks are stock-like! Volatility is simply a measure of how much a stock’s price has moved in the recent past, but past performance and stock-like behavior isn’t predictive.

By , The Guardian, 09/09/2015

MarketMinder's View: Total exports of goods and services, in value terms, fell -5.2% m/m in July, which is pretty lousy indeed. Manufacturing output, meanwhile, fell -0.8% m/m. But before you start fretting the end of the UK’s expansion and the strong pound taking a toll, consider: Both of these metrics have floundered for years, without derailing the broader economy. Plus, it is too early to say whether July’s pullbacks are the start of a new decline or simply part of that long-term jagged trend. Considering global demand is healthier than many presume and most UK leading indicators still point higher, we think the outlook is better than many presume.

By , Financial Times, 09/09/2015

MarketMinder's View: This argues Fed tightening will jack up long-term interest rates, making it harder for an allegedly over-indebted Corporate America to service its debt and raising the risk of corporate bond defaults. A couple things about this. One, higher rates impact firms only if they issue debt at those higher rates. Most firms have locked in funding at cheaper rates, so it isn’t an issue until they go to float a new bond. Two, US firms by and large aren’t overstretched. Yes, they have borrowed a lot, but cash balances are also at all-time highs. They’ve simply used healthy balance sheets as collateral to back cheap financing, so they can invest aplenty without tapping reserves. That makes them better-positioned for when the next downturn inevitably hits, not worse off. Three, while we agree some smaller revenue-starved Energy firms will probably have trouble repaying interest and principal, that has more to do with ultra-low oil prices than it does potential rate rises. And four, rates aren’t guaranteed to rise and stay high. Last decade, the Fed hiked at 17 straight meetings, but long rates rose only half a percent, with most of the rise coming toward the end of the tightening cycle. Long rates and the fed-funds rate aren’t joined at the hip.

By , Bloomberg, 09/09/2015

MarketMinder's View: This article is a cogent, short, easy-to-understand take on why Japanese Prime Minister Shinzo Abe’s plan to slash corporate tax rates isn’t sufficient to truly unleash Japan’s economy—and why today’s rally (possibly triggered by that tax cut) seems overblown. Here is a snippet: “The logic behind the move, however, seems shaky. Thanks to the weak yen (down 33 percent since late 2012), big Japanese exporters are enjoying record profits. Yet instead of pouring that money into fresh capital investments or wage increases, they're hoarding $2 trillion of cash. Before they spend more, executives need to have confidence in long-term growth -- that if they fatten paychecks now, they won't regret the decision five years from now. There's little reason to believe lower taxes will ease their doubts.”

By , The Telegraph, 09/09/2015

MarketMinder's View: While this is a bit too dour on the UK’s manufacturing sector and doesn’t quite acknowledge the benefits of having a service-driven economy, it does make some very nice points about how UK industry can thrive (and is already doing so) in our globalized world. Companies might not assemble goods in the UK, but they do locate their product design and research and development in Britain, bringing significant innovation to the country (and, in doing so, creating new technology hubs). Plus, heavy industry has an increasingly large service arm. “It is in any case quite wrong to think of the modern manufacturer as solely about the process of turning base metal and biomass into saleable products. Most manufacturers today contain some service element. According to [a recent] report, some 39pc of UK manufacturers with more than 100 employees now derive value from service activities. … Value is progressively shifting from traditional manufacturing to idea-intensive businesses and industries. These tend by their nature to be more service based.” With strong human capital and free markets, the UK is well positioned to benefit from these evolving trends.

By , Bloomberg, 09/09/2015

MarketMinder's View: Production might improve, thanks to all the efficiency gains UK oil producers have sought in recent months, but North Sea fields remain unprofitable: “‘This great industry of ours is facing very challenging times,’ Deirdre Michie, Oil & Gas U.K.’s chief executive officer, said in a statement. ‘Exploration for new resources has fallen to its lowest level since the 1970s’ and few new projects are gaining approval from ‘hard-pressed’ companies, she said. The decline in crude prices of more than 50 percent over the past year has forced the oil industry to review projects and reduce operating costs. The U.K. North Sea is one of the world’s most expensive areas to operate and resources that were first tapped in the 1960s are depleted. Employment supported by the industry has shrunk by 15 percent since last year and the lobby group predicts more reductions. ‘Last year, more was spent than was earned from production, a situation which has been exacerbated by the continued fall in commodity prices,’ Michie said. ‘A continued low oil price will inevitably cause companies to reflect on the long-term viability of their assets.’” Chalk this up as one more reason we wouldn’t go bottom-fishing in Energy stocks yet—and take it as an early warning UK business investment might wobble a bit.

By , Bloomberg, 09/09/2015

MarketMinder's View: We are of two minds about the news S&P has downgraded Brazil’s sovereign debt to BB+, the country’s first non-investment grade rating in seven years. Our one mind tells us, “Brazil’s problems are well known—corruption scandals, stagflation, recession, faltering commodity prices—so this is pretty late to the game.” But our other mind says, “Hold on. Their deficit is only 0.5% of GDP and S&P is supposed to rate sovereign debt on the likelihood of default. Doesn’t seem like Brazil is so spendthrift!” But then we remember it’s a credit-rating agency and you rarely learn anything of value by following their ratings. So this all seems like par for the course.

By , Xinhua, 09/08/2015

MarketMinder's View: Chinese imports tanked in August when measured in value terms, heightening fears about plunging Chinese demand. Yet as this shows, much of the decline came from falling commodities prices, which a tally of import values can’t account for. In volume terms, year-to-date imports of crude and refined oil rose 9.8% y/y and 4.1% y/y, respectively, between January and August, yet total import values fell -14.6% y/y in the same window. Now, these are just two data points, but in our view, they suggest things aren’t as bad in China as many presume. Cheaper inputs are actually a boon to Chinese manufacturers and service providers.

By , CNBC, 09/08/2015

MarketMinder's View: This article makes two points, and both are wrong. Point one claims stock buybacks hollowed out business investment, citing the dollar amount of buybacks and the fact the average age of fixed assets two years ago was 22 years. We kinda think all-time-high-and-rising business investment proves this thesis wrong. So does the fact firms largely use borrowed funds for buybacks and most investment, not earnings or cash on hand. Point two argues retail investors can’t capitalize on stock buybacks and seems conflicted over whether buybacks even boost returns. We’re apt to call that a straw man, as chasing buyback targets just isn’t a sound tactic. It’s a gimmick. Buying a company when it announces a buyback means trading on widely known information, which does you no favors. We suggest viewing buybacks at a higher level, seeing them as (a) a more tax-efficient way for firms to return cash to shareholders and (b) a wonderful force reducing stock supply, which (all else equal) supports higher prices.

By , The Wall Street Journal, 09/08/2015

MarketMinder's View: We see little here of actual use for long-term investors. One, it encourages folks to time short-term volatility, which is usually a fool’s errand. Two, it encourages folks to base decisions on past price movement, even though stocks don’t move on past performance. Look, we agree downturns are a fine time to buy. But there is a difference between fiddling with your portfolio during a short, rocky, sentiment-driven correction and buying in near the bottom of a longer, deeper, fundamentally driven bear market, when there really is blood in the streets. Timing a correction usually whipsaws people. We think folks are best off staying cool, whether that means steeling themselves against fear—or guarding against greed.

By , The New York Times, 09/08/2015

MarketMinder's View: There is a lot of sociology and partisan politics in this piece, so we start by reminding readers our political commentary is intended to be nonpartisan and free of ideological bias, as bias is deadly in investing. We highlight this article simply as a reminder that Congress has a couple weeks to pass a spending agreement and avoid a government shutdown, and as is often the case, there are some big stumbling blocks. So debate could easily go down to the wire, and we could get another shutdown. Regardless, though, the impact on stocks should be minimal. For example, in 2013, we went 16 days with a shut-down government and the bull market didn’t end. Since 1976, returns during and after shutdowns are largely fine.  

By , EUbusiness, 09/08/2015

MarketMinder's View: Wheeeee! Q2 eurozone GDP was revised up from 0.3% q/q to 0.4%. And for a bonus: Q1 GDP was revised up from 0.4% to 0.5% after Ireland’s data were included. Now, these are all welcome developments, though backward-looking, and some argue things will deteriorate from here due to China’s slowdown. But slower growth in China doesn’t necessarily mean slower growth elsewhere. Some eurozone nations trade heavily with China, but even in export powerhouse Germany, which counts China as its fourth-largest external market, exports to China are just 6.6% of total exports. Growth in other end markets can offset slower demand growth in China. Even if the eurozone does slow, growth needn’t be gangbusters for the bull market to continue. Stocks move on the gap between reality and expectations, and expectations in Europe are ultra-low.

By , Bloomberg, 09/08/2015

MarketMinder's View: “Electronics, auto parts and clothes from Asia are streaming through the second-busiest U.S. port at record levels, signaling retailers’ confidence in the economy and consumers’ eagerness to buy. The Port of Long Beach -- which is poised to overtake neighboring Los Angeles next year to become the No. 1 shipping gateway in the country -- had a record month in July, with cargo volume up 18 percent from July 2014. Figures being released later this month will show unprecedented traffic again in August, and early signs in September are ‘very very encouraging,’ Jon Slangerup, the Long Beach port’s chief executive officer, said in an interview at Bloomberg’s offices in New York last week.”

By , The Wall Street Journal, 09/04/2015

MarketMinder's View: Well, here is a roundup of takes on the August jobs report, and as the title indicates, most of them immediately began interpreting the news in light of the potential for a Fed rate hike. Now, we aren’t suggesting anything here is actionable for investors. Rather, we find it interesting that for all the thought and analysis that has gone into projecting how ten different Fed governors will interpret an extremely backward-looking report and whether it will influence their decision to vote (or not) to raise interest rates, there is no firm conclusion or consensus. One analysis summed that up well, saying it’s, “basically a coin-flip event.” We agree, and we’d only add that fretting unpredictable and historically feckless initial Fed rate hikes probably isn’t the best use of time. For more, see Todd Bliman’s column, “The Fruitless Folly of Forecasting the Fed.”   

By , CNBC, 09/04/2015

MarketMinder's View: Oh boy, we have more than six counterpoints for all the misperceptions in this piece. However, from a high level: 1) Valuations don’t tell you where stocks are headed. At best, some (e.g. the forward price-to-earnings ratio) can give you a rough indication of where sentiment currently is, but many popular gauges are very backward-looking. Today’s forward P/E is right around its long-term average after recent volatility knocked it down from being slightly above. All this is based on aggregate S&P 500 data too, so the “financial engineering” that allegedly is lowering the figures is a nonfactor. 2) Actually, earnings beat analysts’ projections, which is what matters most. But also, the headline number is low because of the Energy sector—excluding Energy, earnings rose 5.9% y/y in Q2. 3) Umm, Brazil, Australia, Russia and Canada are struggling because their respective Energy sectors comprise a big slice of their economies. Japan’s economic struggles have lasted decades, so that’s not new news, and the eurozone has actually been growing for nine straight quarters. While China is slowing, this is part of a three-year long trend and recent readings are in line with earlier. Moreover, it isn’t because China is “debt disabled” (whatever that means), it’s because the government is shifting emphasis from heavy industry-led growth to services. 4) Hmm, so even though the ISM manufacturing PMI fell from the prior month, it’s still over 50—and readings over 50 indicate expansion. Oh and US GDP headed south? Not only was Q2 GDP recently revised up from 2.3% to 3.7% (seasonally adjusted annual rate), growth prospects look good with The Conference Board’s Leading Economic Index (LEI) in a long uptrend. Sounds like it’s headed north, if by north you mean growing. 5) Yes, some countries have reported some not-so-hot trade figures, particularly South Korea. Not only are there some mitigating factors here (e.g. falling oil prices), short-term trade data are volatile—longer-term trends suggest overall, global trade is growing. 6) The Fed hasn’t materially supported the current bull market with counterproductive measures like quantitative easing, so we don’t see how it can promise to stop doing so. Seems to us that recently volatility is most likely a correction, Oh, and also, we believe we’re in a sentiment-driven correction, not the beginning of a bear market.

By , Bloomberg, 09/04/2015

MarketMinder's View: This story highlights some interesting points about how oil producers operate—specifically, that they can’t always cease long-term projects (even costly, uneconomical ones) because of present prices. Oil prices are volatile, especially in the short term, and companies perform “stress tests” to determine the lower limits of profitability. Now, it seems many didn’t anticipate oil prices would see the lows they have, but grinding projects to a full halt could actually be a bigger financial hit than carrying on with the project and recouping at least some cash. With the projects discussed here projected to add another half a million barrels per day in Canadian output, global oversupply seems unlikely to abate soon. 

By , Bloomberg, 09/04/2015

MarketMinder's View: This is a mixed bag. The first point is sensible enough: Volatility is indeed “normal” (though we quibble that a lack of volatility is “abnormal”—something that is unpredictable doesn’t operate on a regular timing pattern). We’re less convinced about the wisdom of dollar-cost averaging and limit orders. First, buying periodically in a 401(k) isn’t dollar-cost averaging. It is, you know, the law, because 401(k) contributions must come from salary deferral. Outside that, dollar cost averaging means intentionally stashing cash for a spell and putting only a small bit in from time to time. That may work out great for funds added in the last month! But what about over the preceding six years? We’re also ambivalent on the last point. We don’t think you should simply take the “set-it-and-forget-it” approach to your portfolio, but we agree it is important not to react to negative market volatility, no matter how uncomfortable it may be—taking your money out of stocks may rob your retirement money of the growth it needs to meet your long-term goals. For more, see our 8/31/2015 commentary, “Dry Powder Doesn’t Pay.”   

By , Bloomberg, 09/04/2015

MarketMinder's View: The "action" this article calls for is mostly structural reform targeting greater integration within the eurozone fiscally and creating a single financial market. And, hey, maybe those would help. But the thing this take completely overlooks is the fact the eurozone is and has been growing for nine quarters. That growth precedes the ECB's quantitative easing program. It is broad, too, with 15 of 17 countries that have reported data expanding (France was flat, Ireland and Luxembourg haven’t reported yet, and Finland was alone in the red). And there isn't any sign that lets up soon, with The Conference Board's Eurozone Leading Economic Index rising nicely (up 0.3% m/m in July, its ninth straight monthly rise).

By , The Wall Street Journal, 09/03/2015

MarketMinder's View: Now here is a sensible take on China, indeed! While we don’t agree with all of it (like all the talk of opaque Chinese data, which isn’t new), the general thrust is spot on—fears China’s economy “is heading off a cliff” are overwrought, suggesting the recent market move is merely a correction. As we’ve frequently written lately, there are basically zero data points (from China or elsewhere) suggesting China’s economy has changed course from years-long trends. Yes, growth is slowing, but it has been since 2011. Yes, manufacturing purchasing managers’ indexes (PMIs) are dipping in and out of contraction, but they have since 2012. And all this is against a backdrop of a government attempting to shift growth toward services and away from heavy industry, infrastructure and export-driven growth.

By , Bloomberg, 09/03/2015

MarketMinder's View: “While the Institute for Supply Management’s non-manufacturing index eased to 59 from 60.3 the prior month, it was higher than projected and marked the second-highest reading since 2005, the Tempe, Arizona-based group’s report showed Thursday. Figures above 50 signal expansion, and the Bloomberg survey median forecast called for 58.2.” The gauge, which tallies the breadth of growth in an industry group including the US’s dominant Services industry, remained solidly expansionary. Forward-looking new orders also remained strong, suggesting growth at Services firms is poised to continue.

By , The Wall Street Journal, 09/03/2015

MarketMinder's View: It would not surprise us if there were more fear-inducing volatility ahead—correction lows can’t be identified in real time, as they are driven by investors’ fleeting whims. But basing this on a comparison of the levels of the St. Louis Fed’s Financial Stress Index from October 2008 to now and saying, “Hey, we don’t see nearly enough panic” presumes the fundamental backdrop today is remotely reminiscent of the financial crisis. It, ummmm, isn’t. The economy is not cratering, credit markets aren’t frozen, and the US government isn’t haphazardly forcing some big banks (Lehman) to fail while inexplicably bailing out others (Bear). Moreover, stocks are down only about 10% from the recent all-time high, which is a correction, not the -40%+ bear market seen in October 2008.  The better comparison would be to 2010, 2011 or 2012—market corrections occurring against a growthy fundamental backdrop—which doesn’t look so detached from today. Finally, this all presumes a wonky index a government body created actually registers investor sentiment, despite being based on the faulty VIX and MOVE indexes. It doesn’t.

By , Reuters, 09/03/2015

MarketMinder's View: We agree with this article’s bullish bent on the US economy, but this isn’t quite right: “The U.S. trade deficit fell in July to its lowest level in five months as exports rose broadly, signaling underlying strength in the economy amid concerns about a global growth slowdown.” Imports fell -1.1% while exports grew 0.4%. That lowers the trade gap, for sure, but it isn’t a positive sign because imports signify domestic demand. The trade deficit narrowed a lot in 2008. Was that a good thing? Now, don’t overthink this—there is a bevy of positive data suggesting the economy is in fine shape. Just don’t get suckered into thinking things like employment and a shrinking trade gap are positives showing the economy is growing.

By , CNN Money, 09/03/2015

MarketMinder's View: Here is the underlying fallacy…errr…thesis in this article: “A weak currency can eventually spark more economic growth in these two ways: 1. A weak currency makes exports cheaper -- and more attractive -- to foreign buyers. 2. It makes imports more expensive and less attractive to citizens, who are then more inclined to buy local. Those two actions boost trade, fuel local demand and help economic growth.” Yes, a weaker currency may make exports more cost competitive if (and only IF) exporters slash prices commensurate with the drop in currency value. But also, it makes imported components more expensive, and very little in today’s globalized world is 100% the product of one country alone. And, what’s more, there is a big difference between an action that gooses GDP and one that gooses the economy. Reducing imports gooses GDP but isn’t economically positive (in part because many imports are components or equipment used to manufacture goods later sold). But also, there is absolutely zero evidence jacking up the price of goods folks buy (imported or no)—either by reducing currency values, increasing sales taxes or slapping on tariffs—is growth enhancing. Oh by the way: There is ample evidence right now that devaluing a currency isn’t a ticket to prosperity. Japan devalued severely, yet its growth (and export volumes) aren’t exactly desirable. The UK and US have strong currencies and have grown at the forefront of the developed world.

By , CNBC, 09/03/2015

MarketMinder's View: This is all based on the Shiller Price-to-Earnings ratio, or cyclically adjusted price-to-earnings ratio, CAPE. We’ve discussed the flaws with the CAPE many times before, noting it is extremely backward-looking, comparing 10 years of (oddly) inflation-adjusted earnings to current stock prices. Earnings from Q3 2005 are not relevant to what happens over the next 12-18 months, pure and simple. But also, this report bizarrely acts as though the CAPE is designed to be an indicator of cyclical turning points, which its founder has elsewhere stated it isn’t. So this whole theory is a bit odd and flip-floppy.

By , MarketWatch, 09/03/2015

MarketMinder's View: Let’s hope not, because the eurozone would benefit more from long rates climbing, boosting the yield spread. But that also isn’t what he did here—he actually increased the share of each country’s debt the ECB can buy from 25% to 33% without increasing the size of the bond buying program overall. Seems to us mostly like a way to get around relatively tight eurozone bond supply in order to implement the ongoing program fully. Foreseeing this as an increase to bond buying is speculating on an unpredictable matter that is commonly misperceived as a positive.

By , The Guardian, 09/03/2015

MarketMinder's View: Yes, it slowed, but to a still-quite-healthy 55.6. New orders were also expansionary (56.2), suggesting the UK’s dominant services sector is poised to continue growing.  

By , The Wall Street Journal, 09/03/2015

MarketMinder's View: We won’t opine on whether the IMF will or should include China’s yuan in its global reserve accounting unit, the Special Drawing Right. This is a matter of zippo importance to global stocks, because it has no real economic meaning. (It is not, contrary to the claims of some, a threat to the dollar for the reasons we discussed here.) However, we generally think the take included here—that the recent devaluation of the yuan is a step toward markets and a continuation of China’s on-again, off-again reforms—is correct.

By , CNBC, 09/03/2015

MarketMinder's View: Don’t be fooled, this isn’t about the possibility China’s government will be overthrown or some conspiracy theory regarding the US government. (Sorry if that dashes your hopes, and happy to help if it comforts you.) It’s about the “regime” of stocks’ long-term returns of about 10% not repeating going forward, ostensibly because real GDP isn’t likely to grow at a 3% clip, inflation is too low, and stocks have outpaced the combination of those two metrics for too long. However, there isn’t any reason stocks should rise at the same pace as nominal GDP or real GDP. GDP is the flow of economic activity occurring in a given time period. Stocks measure the accumulated value of a business or businesses. They don’t measure the same things. GDP also isn’t a pure private sector metric (it subtracts imports from growth and treats government spending as permanently additive to growth). Private firms sell imports for profits and get taxed (funding spending), so we doubt they would agree with either of those factors. Finally, inflation would only benefit some select firms with the power to pass costs on to consumers, boosting profits. When in history has this actually even, you know, worked?

By , The Telegraph, 09/03/2015

MarketMinder's View: Eurozone composite PMIs showed the region’s recovery continued in August, ticking up a notch to 54.3 from 53.9 in August. Even France, the titular “let down,” posted an expansionary 50.6 reading. All in all, growth continues.

By , Bloomberg, 09/02/2015

MarketMinder's View: The thesis for oil causing the next recession is that low oil prices may result in deflation, causing consumers to spend less as they perpetually await even lower prices. But inflation below 0% doesn’t mean prices for all things are down, just things whose costs are oil-dependent, like gasoline. Even if prices do broadly fall, the notion of a deflationary spiral is a myth. Spain spent all last year proving that, as retail sales jumped while prices fell. Deflation sometimes accompanies recessions, but it doesn’t cause them. It simply reflects a pullback in broad money supply or velocity. But with bank lending expanding and a growing money supply, this is not the case right now.

By , Reuters, 09/02/2015

MarketMinder's View: Yes, but it only fell from 31.88 million barrels per day in July to 31.71 mbpd in August, a drop in the bucket compared to the total global supply glut. Until the gap between production and demand starts closing, oil prices will likely remain low. Not good for Energy companies and oil-reliant nations, but good for the rest of the economy and oil importers.

By , Bloomberg, 09/02/2015

MarketMinder's View: In a correction, when sentiment drives trading, there is no such thing as a “magic bullet.” Doesn’t matter whether stock demand comes from companies buying back their own stock or bargain-hunting individual investors. That just isn’t how markets work. The notion buybacks cushioned the decline and are this bull market’s primary driver also misses how markets work. The market doesn’t need a magic bullet to avoid further declines—continued economic growth and guarded investor sentiment provides enough fundamental support to keep the bull market alive, no matter where demand comes from.

By , CNN Money, 09/02/2015

MarketMinder's View: As this piece points out, risk and return are two sides of the same coin—to achieve higher returns you must accept the risk your investments may decline in the near term, and if you want low risk, you have to accept lower returns. But for investors in retirement, a healthy allocation to stocks is not necessarily all that risky. Stocks may rise or fall over short periods, but over longer periods—consistent with most retirees’ investment time horizons—stocks almost always grow. We would quibble, though, with the assertion your tolerance for short-term market declines should dictate your portfolio’s long term asset allocation. It’s an important consideration, but selecting an allocation that maximizes the chances your portfolio provides for your long-term needs is equally, if not more important. 

By , CNBC, 09/02/2015

MarketMinder's View: Yah, well, first-evers do happen, so this isn’t a useful observation. Especially considering the VIX has been in existence since only January 19, 1993. There have been a whopping three rate hike cycles since then, so the data set is a wee bit lacking. But either way, the fact the Fed almost never began raising rates in the past while the VIX was high is just random trivia. Besides, who knows whether the Fed people will even look at the VIX on September 15 and 16 or, if they do, how they’ll interpret it. The fact they’re talking about a rate hike when inflation is a hair above zero—well short of their 2% annual target—should tell you all you need to know about Fed predictability. Those guys and gals aren’t boxed in by rules or assumptions. Finally, whether the Fed starts hiking rates this month or not means precious little for stocks anyway, as bull markets have historically persisted long after initial rate hikes.

By , The Associated Press, 09/02/2015

MarketMinder's View: The supposed signs discussed here aren’t really things that tell you the likelihood the current correction (markets are down about 10% from their high) will become a bear market (a 20%+ market decline). Heck, we mostly think it’s a misnomer to say corrections morph into bear markets, as their characteristics differ wildly. Corrections start with a bang and are entirely sentiment-driven, often accompanied by a big false fear (like China today). Bull markets usually start with a whimper as small downticks and tentative rallies lull investors into complacency, helping them ignore deteriorating fundamentals. So this collection of random, arbitrary factoids about corrections, bear and bull markets is based on a flawed premise. We guess knowing how often bear markets occur and how long bull markets last on average can be helpful, but those averages are made up of lower and higher numbers, and the long-term average tells you nothing about when the current bull will end. The 1990s bull ended up being one of the longest in history—had you exited stocks in 1995 or 1996 just because the bull was longer than average, you would have missed big gains through 2000. As for right now, we think this is a correction, not the start of a new bear market. For more, see our 8/24/2015 commentary, “Navigating a Choppy Stock Market.”

By , The Fiscal Times, 09/02/2015

MarketMinder's View: Wait, let’s get this straight: Stocks have fallen, and if they fall more, they’ll keep falling? And we’ll have a recession? That is the argument here, and sorry, but that is not how markets work. Past performance doesn’t predict future returns—not now, not ever. And while stocks are a leading indicator of economic activity, bull market corrections aren’t. They’re sentiment-driven shakeouts. Deeper, longer, fundamentally driven bear markets usually precede recessions, and this doesn’t appear to be a bear market. It has all the hallmarks of a correction—quick, sharp and sentiment-driven—a normal feature of bull markets. The so-called “death cross”—when stocks’ 50-day moving average drops below the 200-day moving average—isn’t predictive either. Yes, they occur during bear markets, but they also frequently occur during corrections—often at the correction’s end, just before the sharp rebound. Also, in our view, monetary policy initiatives in 2011 did not “save” the economy from recession, as there were no signs output was headed for contraction in the first place. Heck, considering Operation Twist (the Fed selling short term bonds and buying long term bonds) flattened the yield curve, we’d argue the economy grew despite the Fed. Finally, that the CBOE Volatility Index is currently at levels consistent with recessions does not necessarily signal a recession in coming. It just means option premiums are elevated due to recent market volatility.

By , CNBC, 09/01/2015

MarketMinder's View: The idea here is that the Fed can’t begin raising rates this month because it would cause investors to panic further amid volatile equity markets, flattish corporate profits and a slowing economy. While a rate hike might rattle investors—especially when fear is already elevated—it seems a stretch to say the Fed will not do what they think is best for the economy (assuming they believe a September rate hike is the right course of action) just because it might further increase market volatility over the near term. Besides, the article’s expectation of trouble in September largely hinges on seasonality—that September is the most frequently negative month of the year! (Falling about half the time.) And that a bad August presages a bad September. Folks, that’s all trivia—markets do not operate according to calendars or schedules. As for corporate profits, the Fed has known for a while Energy firms’ losses have flattened headline earnings so far this year, so why would this only now affect their rate hike decision? And while the Atlanta Fed’s GDPNow model currently predicts 1.2% GDP growth for Q3, it didn’t foretell the 3.7% Q2, either, instead showing 2.2% growth after Q2 ended. Are we to now believe it will be so much more accurate a month before quarter end? Second, GDP has been bouncy from quarter to quarter throughout every expansion ever. Wobbling down a bit in Q3 (should this happen) would be right in line with this trend and doesn’t mean the Fed “missed its window” to hike rates, whatever that even means. And anyway the Fed meets before that comes out. As ever, they’ll do what they do when they do it.

By , Reuters, 09/01/2015

MarketMinder's View: China’s official manufacturing Purchasing Managers’ Index fell to 49.7 in August, adding to fears China is headed for a hard landing. But in our view, this isn’t the big warning sign some suggest. Chinese officials cited several one-off factors that contributed to the weak reading: Several factories shut down to improve air quality in advance of military parades planned for Thursday, a huge chemical plant explosion in the port city of Tianjin crimped activity, and a strong el-Niño pattern brought inclement weather. But even with all that, the manufacturing slowdown is consistent with China’s longstanding trend of deceleration as it transitions from heavy industry to consumption. Also, Western countries’ measures of business activity with China largely confirm that while growth is slowing, it is still quite healthy on an absolute basis. For more on this, see our 8/26/2015 commentary, “Corporate America’s View of China.”

By , Reuters, 09/01/2015

MarketMinder's View: China’s official manufacturing Purchasing Managers’ Index fell to 49.7 in August, adding to fears China is headed for a hard landing. But in our view, this isn’t the big warning sign some suggest. Chinese officials cited several one-off factors that contributed to the weak reading: Several factories shut down to improve air quality in advance of military parades planned for Thursday, a huge chemical plant explosion in the port city of Tianjin crimped activity, and a strong el-Niño pattern brought inclement weather. But even with all that, the manufacturing slowdown is consistent with China’s longstanding trend of deceleration as it transitions from heavy industry to consumption. Also, Western countries’ measures of business activity with China largely confirm that while growth is slowing, it is still quite healthy on an absolute basis. For more on this, see our 8/26/2015 commentary, “Corporate America’s View of China.”

By , Bloomberg, 09/01/2015

MarketMinder's View: It should come as no surprise that Canada’s economy is sputtering, given its large weighting in energy and other natural resources whose prices have plunged over the last year. And, given the fact April and May monthly GDP were already known, we’ve long expected a second consecutive quarter of declining output. But at about 2% of global output, it is very unlikely Canada drags down the non-commodity heavy parts of the world any more than similarly sized Russia and Brazil haven’t. And what’s more, it isn’t like Canada is all of a sudden a clone of (also cold) Russia. It has healthy consumers, a solid Financials sector, open borders and close proximity to the US, which is growing nicely. Those factors likely mean  the stronger regions and Canada’s consumers make this a mild, mostly industry specific, downturn. There were already signs of this in Q2. Consider: “Canada’s economy got a boost in the second quarter from international trade and continued support from consumer spending. Household consumption growth quickened to 2.3 percent from 0.5 percent in the first quarter, led by automobiles. Exports rose for the first time in three quarters with a 0.4 percent gain, while imports fell by 1.5 percent.”

By , Reuters, 09/01/2015

MarketMinder's View: China’s official manufacturing Purchasing Managers’ Index fell to 49.7 in August, adding to fears China is headed for a hard landing. But in our view, this isn’t the big warning sign some suggest. Chinese officials cited several one-off factors that contributed to the weak reading: Several factories shut down to improve air quality in advance of military parades planned for Thursday, a huge chemical plant explosion in the port city of Tianjin crimped activity, and a strong el-Niño pattern brought inclement weather. But even with all that, the manufacturing slowdown is consistent with China’s longstanding trend of deceleration as it transitions from heavy industry to consumption. Also, Western countries’ measures of business activity with China largely confirm that while growth is slowing, it is still quite healthy on an absolute basis. For more on this, see our 8/26/2015 commentary, “Corporate America’s View of China.”

By , Financial Times, 09/01/2015

MarketMinder's View: Here is the biggest news from the Emerging Markets of the day, if not week: India is backing off its demands foreign institutional investors and companies to pay back taxes, called the Minimum Alternate Tax. This seems like the correct call, particularly since the government’s attempt to enact it spooked foreign investors and triggered outflows. Reversing the decision should give more clarity.

By , The Wall Street Journal, 09/01/2015

MarketMinder's View: So the US Energy Information Administration is out with a long-awaited report assessing the benefits and costs of allowing US crude oil exports for the first time since 1975. And their findings (drumroll, please!): “Petroleum prices in the United States, including gasoline prices, would be either unchanged or slightly reduced by the removal of current restrictions on crude-oil exports.” Which is in keeping with our own analysis here. Ultimately, allowing oil trade in a more globalized market would benefit the US and global economies, as well as consumers.

By , Fusion, 09/01/2015

MarketMinder's View: We suspect the title’s suggestion is intended to be tongue-in-cheek, and that very few in the US would actually support outright banning media claims that “Stocks Rise/Fall on XYZ alleged cause” just because there is ample evidence these are mere supposition by a reporter. However, there is a very sensible point here: Daily stock market fluctuations are random, and it’s most often folly to attempt to identify the cause. Investors would be better served to tune out reports such as “Markets jumped today because X” or “Markets are tumbling today because Y.” Instead, better to focus on remaining disciplined during turbulent times, and avoid the classic behavioral mistakes—buying and selling at the wrong times—that cause many investors to put their goals in jeopardy. That said, we believe in rugged individualism—it is up to every investor individually to decide what is worth their time and what isn’t.   

By , Reuters, 09/01/2015

MarketMinder's View: The headline could have read, “US Factory Sector Continues to Expand Despite Fears of Global Slowdown.” While the media made much of the lowest ISM manufacturing PMI reading since May 2013 (51.1) and a slowdown in new orders to 51.7, it’s worth noting both those figures are expansionary, and slower PMIs don’t always translate to slower actual growth. Moreover, this expansion isn’t being led by manufacturing—services are in the catbird seat, and they are growing quicker.

By , The New York Times, 09/01/2015

MarketMinder's View: The Fed’s presumed spinelessness is based on the presumption the Fed has started towards a rate hike or tightening, only to back off after volatility strikes and Wall Street, which allegedly benefits from continued near-zero interest rate policy, shouts. This whole article operates on the premise low rates are good for stocks and higher rates bad, but there isn’t any evidence this is actually true. The 1990s bull, the biggest in history, survived two separate rate hike cycles. The 1980s bull saw multiple hikes, too. We’ve already seen quantitative easing end, and markets yawned. Rate cuts, which we saw in 2008 and 2001, also didn’t spur big bull markets. Heck, we’d argue a rate hike would be good for stocks. Rates, in isolation, aren’t meaningful. The yield spread (difference between short- and long-term rates) is, because it determines loan profitability and, hence, availability. The US economy can very likely handle short-term rates slightly above zero and, should this happen, it would zap widespread fears of rising rates quashing the US expansion—pushing more investors toward optimism and increasing their willingness to bid stocks up. The Fed may or may not be less inclined to raise rates soon than they were a month or two ago—who can say. Ultimately, we too think the Fed should just get on with it and begin raising rates. Just not for any of the reasons discussed here.