|By Jonathan Fahey, Associated Press, 12/31/2013|
MarketMinder's View: It’s a common misperception that energy use correlates with economic growth—as this shows, however, electricity use has fallen even as the US economy has grown to new heights. So the next time anyone tells you falling electricity or oil usage means a recession is nigh, remind them of the many efficiency gains we’ve achieved.
|By Phoebe Sedgman and Debarati Roy, Bloomberg, 12/31/2013|
MarketMinder's View: We recommend investors not get wrapped up in what gold is or isn’t doing: Gold isn’t wealth protection, an inflation hedge, a safe-haven investment or taper victim—it’s a commodity! Its price is driven primarily by supply and demand, and other drivers are limited. Hence returns are volatile and unpredictable (plus, gold has been in a bear since 2011). Better options likely exist for long-term growth investors.
|By Staff, EUBusiness, 12/31/2013|
MarketMinder's View: Another positive for the eurozone: Spain still faces headwinds (slow growth, bank deleveraging, etc.), but that its financial system successfully exited its aid program suggests pockets of improvement exist—a positive many don’t expect.
|By Aaron Eglitis, Bloomberg, 12/31/2013|
MarketMinder's View: It’s easy to see why Latvians aren’t jazzed about having to contribute to eurozone bailout mechanisms, but “on balance, euro adoption is good for Latvia”—and the eurozone! Both likely see reduced barriers to trade, increased economic activity and more opportunity for growth overall—benefiting everyone, even if Latvia’s inflation rises some in the process. For more, see our 3/14/2013 commentary, “Latvia Likes the Euro (Lats).”
|By Carlo Piovano and Elaine Kurtenbach, Associated Press, 12/31/2013|
MarketMinder's View: In our view, investors appear overconfident in Prime Minister Shinzo Abe’s stimulus efforts and economic policy plans. The weak yen hasn’t provided a net benefit, and Japan’s economy likely won’t be a world leader unless meaningful structural reform passes. Investors seem to have high hopes on this front, but looking at current politics, sweeping reform seems unlikely—a probable disappointment for Japan’s investors moving forward.
|By Staff, Bloomberg, 12/31/2013|
MarketMinder's View: How this plays out remains to be seen—too many new IPOs without a corresponding increase in demand could create a supply glut, creating headwinds for overall Chinese stock performance. But a successful reintroduction of IPOs in Chinese markets, boosting the private sector and funding options for businesses, is likely a positive for the country long term. Dropping the IPO ban and streamlining the process of going public should also help China be more of a global market force.
|By Stephen Gandel, CNN Money, 12/31/2013|
MarketMinder's View: This is short, but it includes a number of misperceptions and groundless assumptions, like claiming the gradual wind-down of a program that didn’t boost the economy or financial markets will cause a new financial crisis. It won’t: Rising long-term interest rates likely encourage more bank lending, business activity and, consequently, economic growth. What this gets right, though, is investors are nervous—with one foot in skepticism and one in optimism, leaving plenty of room for a healthy economic environment to beat too-dour expectations.
|By Staff, The Guardian, 12/30/2013|
MarketMinder's View: While London’s high home prices hog headlines, real estate throughout the UK is recovering. As with the US, housing continues to be a positive economic tailwind across the pond. For more, see Akash Patel’s 11/27/2013 Research Analysis, “Heating Up—A Look at UK Housing.”
|By Randall Woods, Bloomberg, 12/30/2013|
MarketMinder's View: Raising the tax on Brazilians’ debit card transactions abroad is just a form of protectionism and one step away from capital controls—two items that helped create the very “problem” this tax hike aims to “solve.” Brazil would likely benefit far more from a government that lowers trade barriers, avoids the temptation to monkey with foreign investment caps and intervenes less overall.
|By Catherine Boyle, CNBC, 12/30/2013|
MarketMinder's View: While France would benefit from competitiveness-enhancing reforms, these aren’t necessary for France’s economy to grow or its markets to do well—cyclical can trump structural. If anything, the lack of reform combines with items like the titular tax on high earners to lower expectations, making it easier for reality to surprise to the upside as big French multinationals continue benefiting from the global expansion. For more, see Emily Dunbar’s 12/9/2013 column, “Great French-Pectations.”
|By Richard Davies, ABC News, 12/30/2013|
MarketMinder's View: In our view, this doesn’t so much present evidence of an “economic divide” as it does Americans’ popular misconceptions about the state of the economy. Facts say all Americans have benefited from continued growth and cheaper energy costs—that not everyone feels this is the case doesn’t mean it isn’t true, it just means sentiment is out of sync with reality.
|By Simon Nixon, The Wall Street Journal, 12/30/2013|
MarketMinder's View: While some risks remain for the eurozone, the region has done better than most expected this year. Looking ahead, many folks expect a Japan-style funk of deflation and stagnation, yet economic fundamentals suggest otherwise, and the region seems poised to keep surprising the herd—a positive force for markets. For more on the eurozone, see our 12/17/2013 cover story, “French Dip, Irish Cream.”
|By Robert J. Samuelson, The Washington Post, 12/30/2013|
MarketMinder's View: Four and a half years into this cycle—and two years after GDP surpassed its previous high—it seems a bit late to be waiting for a recovery to take hold. The US is well past recovery and into expansion! Looking ahead, we agree continued business spending and the housing recovery likely keep providing tailwinds, though this doesn’t depend on “confidence.” Wariness isn’t self-fulfilling—people frequently tell consumer sentiment pollsters one thing and do another.
|By Staff, EUbusiness, 12/30/2013|
MarketMinder's View: This would certainly be a noteworthy step forward, but considering Greece is also lobbying for a third sovereign default, it may be a touch premature.
|By Katie Little, CNBC, 12/30/2013|
MarketMinder's View: While pending home sales disappointed, this isn’t a sign of weakening housing—it seems mostly tied to tight supply and lousy weather in the Northeast and Midwest, where weak results were concentrated. Looking ahead, with supply still low and demand still high, the housing recovery should continue—and keep providing an incremental economic tailwind.
|By Jim Tankersley, The Washington Post, 12/27/2013|
MarketMinder's View: Low savings rates didn’t cause the financial crisis in 2008—and they aren’t unsustainable. The savings rate is wacky. It doesn’t include 401k contributions or investments in brokerage accounts, and it subtracts “owner-imputed rent”—an estimate of what homeowners would pay to rent their own homes, aka, money not actually spent.
|By Alexandra Scraggs, The Wall Street Journal, 12/27/2013|
MarketMinder's View: One, stocks don’t need new buyers to keep rising. It’s an auction marketplace—stocks rise when buyers are willing to bid up the value of a company’s future earnings. Two, a “modest level of individual-investor enthusiasm” isn’t a ceiling on stocks. It’s the opposite! It simply means there is still plenty of wall of worry for stocks to climb.
|By Staff, Reuters, 12/27/2013|
MarketMinder's View: And core-core, which excludes food and pricey energy, hit a 13-year high of 0.6% y/y. However, this doesn’t mean Japan is in the clear. Higher prices pinch if wages and salaries don’t rise, and we’ve yet to see a broad increase. Firms still face a rather unfavorable business climate, and without structural reform, it will be difficult for them to make the adjustments needed to boost investment overall, not just in employees.
|By Christopher Thompson, Financial Times, 12/27/2013|
MarketMinder's View: This is a good sign sentiment remains detached from reality. Many investors still don’t appreciate this bull market’s fundamental drivers, instead thinking it’s artificially propped up by Fed policy. That sets the stage for more positive surprises—and more bull market.
|By Szu Ping Chan, The Telegraph, 12/27/2013|
MarketMinder's View: A 7.6% growth rate for the world’s second-largest economy would be a-ok. Sure, it’s slower than in recent years, but in dollar terms, it’s still a big contribution to global GDP.
|By Murray Coleman, The Wall Street Journal, 12/27/2013|
MarketMinder's View: For many investors, having significant equity exposure during retirement does increase the likelihood they don’t run out of money. However, most folks’ “Achilles’ heel” isn’t a bear market early in retirement—it’s making emotional portfolio decisions during any market environment at any point. Having a long-term strategy based on your long-term goals—and staying disciplined through the market’s ups and downs—seems far more fruitful than trying to get cute with asset allocation changes over time. The strategy described here—dialing back equity exposure early in retirement, then gradually increasing it—ignores the power of compound growth.
|By Wang Yiqing, China Daily, 12/27/2013|
MarketMinder's View: While financial reform hogs headlines, agricultural reform speaks more directly to the huge political challenges China’s leaders face as they try to modernize the economy. Peasant farmers number in the hundreds of millions, and they’re increasingly unhappy with their lot in life. Modernizing production, raising incomes in the agricultural sector and creating jobs for displaced farmers occupies significant attention in Beijing, which is one reason financial reform progress hasn’t quite matched expectations this year.
|By Chikako Mogi and Takashi Hirokawa, Bloomberg, 12/27/2013|
MarketMinder's View: Don’t get us wrong, Japan would benefit tremendously from a broad, deep corporate tax cut. But applying it selectively within special economic zones likely just creates winners and losers without doing much for Japan’s overall competitiveness. Incremental, localized reforms alone won’t put Japan at the forefront of the global economy, and investors who expect otherwise likely end up disappointed.
|By Staff, Reuters, 12/27/2013|
MarketMinder's View: The new system is a bit weird—new, private mobile providers will have to buy service in bulk from the state-run providers, then resell it to consumers. But competition is competition, and the preliminary effort to open the market is noteworthy.
|By Pierpaolo Barbieri and Niall Ferguson, The Wall Street Journal, 12/27/2013|
MarketMinder's View: As this shows, Mexico is poised to benefit tremendously from this year’s many free-market reforms. All levels of society see improvements in their standard of living, and global trade partners and foreign investors should gain many new opportunities.
|By Staff, Jiji Press, 12/27/2013|
MarketMinder's View: We wouldn’t get too jazzed over Japan’s retail sales numbers—they look good, but they’re likely due to Japanese consumers making major purchases ahead of next April’s sales tax increase.
|By John Wasik, Reuters, 12/26/2013|
MarketMinder's View: Hot funds rarely stay hot for long, and deciding to buy or sell a fund based on its past performance alone is sheer folly. But that doesn’t mean indexing is the best way to avoid “performance chasing”—many investors who use index funds fall prey to the same behavioral errors that drive investors to swap mutual funds. Fear and greed make drive bad timing. For more investing tips, see Mary Holdener’s recent column, “Gut Check.”
|By Szu Ping Chan, The Telegraph, 12/26/2013|
MarketMinder's View: Like many long-term forecasts, this extrapolates current trends and policies decades into the future, without considering the many changes and unknown variables almost certain to surface. For example, in the late 1990s, Germany was called the “sick man of Europe”; now, it’s the eurozone powerhouse. What matters more for investors is what happens over the next 12-18 months relative to expectations.
|By Sarah Portlock and Josh Mitchell, The Wall Street Journal, 12/26/2013|
MarketMinder's View: While it’s certainly true business investment and housing have picked up steam lately, capex hasn’t been anywhere near the drag this piece suggests. The biggest detractor from headline economic growth is falling government spending. Private sector components, including business investment, have long looked far healthier, and they’re still chugging right along. For more, see our 12/20/2013 cover story, “Fruitful Fundamentals.”
|By Staff, Xinhua, 12/26/2013|
MarketMinder's View: A strong Chinese push for free trade is welcome news—the more freely goods and services flow worldwide, the more global economies and markets tend to benefit. However, this likely isn’t a near-term economic driver. Announcing plans to broaden trade ties with the rest of Asia is different from reaching actual agreements—trade talks tend to develop slowly as countries negotiate over various special interests.
|By John Gittelsohn, BloombergBusinessweek, 12/26/2013|
MarketMinder's View: Markets are forward-looking—the eventual tapering of quantitative easing has been widely discussed ever since the Fed first mentioned it in May, and interest rates have risen in anticipation.
|By Matthew C. Klein, Bloomberg, 12/26/2013|
MarketMinder's View: The definition of a “monetary phenomenon” is simple: too much money chasing too few goods and services. Inflation is falling because, as this points out, broad money supply isn’t rising quickly, and what money there is isn’t doing much chasing. The reason isn’t employment—decades of evidence show employment and prices aren’t linked. Rather, monetary aggregates are weak because Fed bond buying flattened the yield curve, discouraging bank lending. As the program ends and the yield curve steepens, banks should become more eager to lend, giving businesses access to more capital and stimulating growth—with modest inflation a side effect. For more, see our 12/18/2013 cover story, “The Fed’s Deflated Logic.”
|By Joel Rosenblatt, Bloomberg, 12/26/2013|
MarketMinder's View: The Volcker Rule’s unintended consequences are starting to surface. When regulators decided to take aim at the biggest banks by banning proprietary trading, they might not have anticipated the rule would cause near-term losses for small community banks. While this issue is nowhere near sweeping enough to have a broad market impact, it likely isn’t the last wrinkle we’ll see as banks interpret and adopt the new rules.
|By Paulo Trevisani, The Wall Street Journal, 12/26/2013|
MarketMinder's View: While Brazil’s tax hikes probably create winners and losers within the country, fiscal policy moves in one Emerging Market shouldn’t much impact global growth or markets.
|By Simon Rabinovitch, Financial Times, 12/24/2013|
MarketMinder's View: Yes, the People’s Bank of China did step in and inject liquidity, bringing rates down some. But the recent tight conditions aren’t rare in China. In fact, they happen with some regularity and are basically China’s communist rulers attempting to assert greater control over the financial system. They’re politically motivated and typically noise for investors. For more, see our 12/24/13 article, “China Credit Crunch Redux?”
|By Josh Mitchell and Sarah Portlock, The Wall Street Journal, 12/24/2013|
MarketMinder's View: While it’s only one month of data, the rise in durable goods is another data point alluding to increased business investment and, ultimately, a growing US economy.
|By Editorial Staff, Bloomberg, 12/24/2013|
MarketMinder's View: It is no real surprise there are (and have always been) competitive differences in the 18-nation euro bloc. The suggestion Germany needs to collectively foot the bill via fiscal transfer and the like to pull along the periphery is, in our view, missing the point. Germany’s growth and the country’s investment in other eurozone nations pulls them along—and would do so more effectively over time once competitiveness-enhancing reforms take root in countries in need (e.g., Greece).
|By Quoctrung Bui, NPR, 12/24/2013|
MarketMinder's View: True—GDP is imperfect for a host of reasons (among them, government spending is always considered a plus, imports a drag and inventory change is subject to interpretation). And the calculation is often tweaked. In our view, though, there are plenty of other indicators—and some forward-looking indicators such as Leading Economic Index trends and PMI new orders surveys—to help people better gauge current and future economic growth. Ultimately, that the economy is growing—and is likely to continue growing—is vastly more important than the exact rate.
|By Perry Chiaramonte, Fox News, 12/24/2013|
MarketMinder's View: An interesting story profiling one small town at the epicenter of North Dakota’s oil and gas-led economic boom. The money flowing from Williston’s oil and gas fields, in turn, spills over to its construction, sales and service industries, strengthening its overall economy.
|By Danielle Demetriou, The Telegraph, 12/24/2013|
MarketMinder's View: “Abe vows to seek both growth and fiscal consolidation, but the focus now needs be on stimulus. Hasty fiscal tightening could derail the economy and foil the sales tax plan in 2015.” But … the sales tax plan was part of Japan’s “fiscal tightening.” Taken in concert, it seems the sales tax and stimulus amounts to Abe substituting private sector spending for public—not a great recipe for economic efficiency.
|By Nicole Blackmore, The Telegraph, 12/24/2013|
MarketMinder's View: And all the while, QE’s been over and rates have edged up. Just goes to show slightly higher rates won’t kill borrower demand and they encourage banks to lend, boosting supply.
|By Jared Bernstein, The New York Times, 12/24/2013|
MarketMinder's View: For one, “Potential GDP” has very little real world meaning or impact for investors. Further, slow growth rates seen overall in the current expansion are heavily influenced by a few factors: government spending cuts treated by GDP as an automatic negative; in some quarters, rising imports (a sign of healthy demand) have greatly detracted from headline GDP growth; and the Fed’s bond buying, which depressed the yield spread, making bank lending less profitable and therefore less plentiful.
|By Raymond Zhong, The Wall Street Journal, 12/23/2013|
MarketMinder's View: While the commentary on interest rates and sovereign debt valuations misses the mark—there is no government bond bubble—the broader thesis is quite sensible and one many regulators seem not to grasp. Responding to past events with thousands of pages of complex regulations often reduces transparency, creates big compliance burdens without much improving the financial system, and can create unintended consequences. Simple, straightforward, transparent rules likely better benefits the financial system—and markets—in the long run.
|By John Ficenec, The Telegraph, 12/23/2013|
MarketMinder's View: “Profit-taking” isn’t a wise tactic, in our view—it takes into account how companies have performed, not how they will perform. If a company has swelled to a large share of your portfolio, raising company-specific risk, that’s one thing, but arbitrarily taking profits off the table and holding them in cash isn’t. Especially if the outlook for equities overall remains positive. This piece suggests the end of quantitative easing (QE) makes things iffy, but evidence overwhelmingly shows markets have risen despite QE, not because of it, and its end should be an economic positive (as it was in the UK).
|By Joe Light, The Wall Street Journal, 12/23/2013|
MarketMinder's View: Well, it’s probably because many of them rely on past performance and other backward-looking data, but that’s beyond the point. For investors, what matters isn’t whether a forecast gets the exact return correct—it’s getting the general direction correct so you can position portfolios properly.
|By Leslie Shaffer, CNBC, 12/23/2013|
MarketMinder's View: We think they do! But not because the Fed is still creating massive amounts of new reserves. This bull market isn’t growing on Fed funny money. It’s up because companies are overall more profitable than many expect—despite, not because of, Fed policy. Considering how guarded expectations remain and how backward most view Fed bond buying, we’d expect stocks to keep rising as reality continues outpacing investor expectations.
|By Staff, Associated Press, 12/23/2013|
MarketMinder's View: Defying all those “weak Black Friday” fears, consumer spending rose at its fastest pace in five months in November. Expectations were too dour, and the forward-looking takeaways in this piece seem more of the same.
|By Staff, Reuters, 12/23/2013|
MarketMinder's View: Forecasts like this are almost always backward looking, and this one is no different. We agree the US likely picks up next year, but not because of Congress’ recently approved budget deal or faster Q3 GDP growth. Rather, the yield curve spread is widening, which should boost bank lending—fuel for business investment.
|By Kim Tae-jong, Korea Times, 12/23/2013|
MarketMinder's View: Some form of a ban on cross-shareholding—where chaebol conglomerates’ affiliates own controlling stakes in each other—has been likely ever since it surfaced as a central theme of last year’s presidential campaign. Now, it seems, businesses are finally about to get clarity on what the new rules look like, it appears forced restructuring isn’t in the cards, which could help ease some of the regulatory overhang in Korea.
|By Matt Jarzemsky, The Wall Street Journal, 12/20/2013|
MarketMinder's View: When assessing the IPO market, scale and context are important. While a few high-profile IPOs have done very well, most have had rather lackluster openings—and many planned IPOs were pulled before they debuted. Plus, while IPO activity is up, it’s up off a very low base and still nowhere near 1999 levels.
|By William Kazer, The Wall Street Journal, 12/20/2013|
MarketMinder's View: This is an important step toward modernizing China’s financial system and, particularly, removing government-set interest rate floors and ceilings. As described here, it probably does create some winners, losers and downstream unintended consequences for Chinese banks, but overall, it’s a likely beneficial reform and one markets have long awaited.
|By Neil Irwin, The Washington Post, 12/20/2013|
MarketMinder's View: We agree the future looks bright, but not because of anything contained in today’s Q3 GDP revision—too backward looking. More forward-looking indicators like LEI, new manufacturing and service orders and the wider rate spread, in our view, give a more reliable signal of what’s to come (and all look good). For more, see today’s cover story, “Fruitful Fundamentals.”
|By Szu Ping Chan, The Telegraph, 12/20/2013|
MarketMinder's View: And without a drop of alleged stimulus from the BoE! The UK was largely stagnant while quantitative easing was in force. Since it ended, all areas of the economy have accelerated, and forward-looking indicators suggest the party continues. This is a powerful precedent for the US once the Fed stops buying bonds, in our view. For more, see our 12/19/2013 cover story, “Taper On.”
|By Jeff Kearns and Catarina Saraiva, Bloomberg, 12/20/2013|
MarketMinder's View: This is pure speculation—a rather fruitless endeavor, in our view, considering all the unpredictable inputs into Fed decisions. What matters more is that quantitative easing eventually will end, allowing the rate spread to widen, which should boost bank lending and overall growth—an outcome almost no one expects, which should be good for stocks.
|By Ryan Tracy, The Wall Street Journal, 12/20/2013|
MarketMinder's View: While banks have a 12-day deadline to determine whether they need to write down collateralized debt obligations under the Volcker Rule, the impact of writedowns shouldn’t be too widespread—many banks already have the majority of these assets designated as “for sale” on their balance sheets, so they already are marked to market.
|By Ezra Klein, The Washington Post, 12/20/2013|
MarketMinder's View: Setting aside all of the political debates here, we’d simply point out one thing: Full employment is mostly myth. Employment typically peaks after recessions start—it’s that lagging—and then firms cut headcount again. So the thesis here that an economy running at full employment for a sustained period can carry great benefits for all seems a touch wide of reality.
|By Jeremy Warner, The Telegraph, 12/20/2013|
MarketMinder's View: The alleged albatross of monetary union isn’t what’s holding eurozone nations back—a common currency fostering cross-border trade is a positive. Nor are policy “needs,” like labor reform, a huge drag. The biggest weight, in our view, is bank deleveraging. Banks are shedding assets, and they aren’t lending, which weighs on money supply and overall growth. A clearer, less punitive regulatory environment would likely enable banks to better fill their core role, improving the region’s growth prospects.
|By Staff, Taiwan News, 12/20/2013|
MarketMinder's View: The last few decades have seen countless threats of conflict, whether from North Korea, the Middle East or elsewhere. Sabre-rattling can spook investors for short periods, but history overwhelmingly shows it isn’t bearish.
|By Staff, EUbusiness, 12/20/2013|
MarketMinder's View: Progress is progress, but the US and EU still have plenty of hang-ups to get past. Much as this deal would benefit both sides if eventually consummated, we wouldn’t suggest getting terribly excited about its near-term prospects—other fundamentals and developments are likely to carry the US and EU economies in 2014.
|By Tom Fairless and Peter Nurse, The Wall Street Journal, 12/20/2013|
MarketMinder's View: The EU credit rating matters even less than individual countries’ credit ratings, in our view—the EU’s debt issuances are tiny and confined mostly to bailout facilities. We suspect markets are already aware of the risks associated with bailout loans. Any lengthy discussion of this is simply noise.
|By John O’Donnell and Martin Santa, Reuters , 12/19/2013|
MarketMinder's View: In principle, banking union progress likely helps shore up confidence in the eurozone’s financial system—a positive. However, the deal could also introduce unintended consequences downstream, and many questions remain. Chief among them: How will officials determine when a bank should be closed and/or depositors bailed in? Will a bank be treated as bankrupt simply for failing a stress test, even if it’s nowhere near immediate trouble? Could regulators erroneously wind down a bank that could still stand on its own? As the final legislation takes shape, this will bear close scrutiny.
|By Chris Farrell, BusinessWeek, 12/19/2013|
MarketMinder's View: This wildly misperceives what deflation is and isn’t. Deflation isn’t a fall in certain prices because of technological developments or competition. It is a broad fall in the prices of most goods and services, and it’s always and everywhere a monetary phenomenon. If monetary policy were functioning properly, competition and innovation would enable more and more commerce, a rising money supply would fuel that commerce, and prices would rise in kind as a healthy side effect of growth. But because of the Fed’s bond buying, the yield curve spread has flattened, dampening money supply and velocity, and as a result prices have fallen or stagnated (and the economy has lacked fuel). For more, see our 12/18/2013 cover story, “The Fed’s Deflated Logic.”
|By Scott Hamilton and Jennifer Ryan, Bloomberg, 12/19/2013|
MarketMinder's View: While some bemoan November retail sales’ rising only 0.3% after falling 0.9% in October, look at the longer trend—UK retail is up 2.0% y/y. Further evidence of the UK’s ongoing recovery.
|By Ambrose Evans-Pritchard, The Telegraph, 12/19/2013|
MarketMinder's View: The notion quantitative easing (QE) has lifted the US, UK and Japan, while the lack of it has set back the eurozone seems off base, in our view. One, QE sedated the US, UK and Japan. Two, the eurozone’s primary economic weight is bank deleveraging, not monetary policy—banks are shedding assets and cutting lending to prepare for a much tougher regulatory environment. Add QE to the mix, and you’ll likely get banks doing the same thing US and UK banks did: Using the funds to build bigger buffers instead of lending off them.
|By Staff, BBC News, 12/19/2013|
MarketMinder's View: While Ireland isn’t out of the woods quite yet, its growing GDP—notably driven by domestic demand in Q3—is another sign of its recovery and return from the bailout brink. For more, see our 12/17/2013 cover story, “French Dip, Irish Cream.”
|By Francesca Freeman and Matt Day, The Wall Street Journal, 12/19/2013|
MarketMinder's View: Beyond our regular quibbles with gold—not a financial safe haven, not a reliable inflation hedge—the thesis here claims the shiny metal is presently “on track to end a 12-year bull run.” But that golden bull already ended over two years ago—the precious metal has been in a bear market since 2011. Investors wondering what to do about gold now are best off thinking not about recent price movement, but their long-term goals and objectives. In doing so, chances are they’ll find gold’s long-term risk/return tradeoffs don’t quite match their needs.
|By Victoria McGrane and Jon Hilsenrath, The Wall Street Journal, 12/18/2013|
MarketMinder's View: About seven months after taper-talk began, the Fed has finally announced it will scale back its QE bond purchases, from $85bn to $75bn a month. The change isn’t huge, but it does help clear up some uncertainty. Looking ahead, over time, less (and eventually no) QE should push long-term rates higher—steepening the yield curve—which should encourage more bank lending, and as a result, more economic activity and growth.
|By Lawrence Summers, Reuters, 12/18/2013|
MarketMinder's View: Yes, this recovery has been the slowest since World War II, but this doesn’t mean the US has entered a perma-slump of structural decline only unconventional monetary policy can combat. Fed policy is the reason for slow growth, not the solution. By reducing long-term rates while short rates stay near zero, the Fed shrank the rate spread, which represents banks’ loan margins, discouraging loan growth and squashing the money supply. Once the Fed ends unconventional monetary policy (QE), global growth likely only accelerates, putting to rest many concerns listed here.
|By Staff, The Associated Press, 12/18/2013|
MarketMinder's View: Despite worries over rising rates and prices, US housing continues improving—an incremental positive for the broader economy.
|By Mark J. Perry, AEIdeas, 12/18/2013|
MarketMinder's View: An important lesson for any data-reliant argument: “When people talk about changes in income over time, make sure you know what measure of income they are citing.” As this shows, adjusting pay-per-household for household size, taxes (and tax cuts) and other benefits likely tells a more complete picture of income growth than the common measure of income per tax unit—and how much better off US citizens actually are from 30 years ago.
|By Emily Gosden, The Telegraph, 12/18/2013|
MarketMinder's View: Having seen shale exploration and fracking’s positive economic impact in the US, politicians are seeking to do the same across the pond. If shale development moves forward, the benefits are likely big, both in terms of added industry and reduced energy costs for people and businesses.
|By Robert Frank, CNBC, 12/18/2013|
MarketMinder's View: It really isn’t—it hasn’t much benefited any income bracket or segment of our society. QE hasn’t much increased the amount of money in the real economy, and data don’t support the notion of a massive increase in equity demand since Fed bond buying began. Investors are simply willing to bid stocks higher because the US economy and corporate earnings are growing despite subdued money supply growth—and the tens of millions of Americans owning stocks all benefit.
|By Ryan Tracy, The Wall Street Journal, 12/18/2013|
MarketMinder's View: Earlier this week, it seemed the Volcker Rule could force smaller banks to take writedowns on—and eventually sell—collateralized debt obligations. However, it seems regulators are working to clarify this passage and limit its unintended consequences. That flexibility is a positive, though it also speaks to how much of the rule remains open to interpretation—something regulators (and markets) likely deal with some time.
|By Staff, EUbusiness, 12/18/2013|
MarketMinder's View: Interestingly, Cyprus wasn’t the blueprint for Slovenia’s hybrid bank bailout/bail-ins. Shareholders and junior bondholders will take haircuts, but depositors and senior bondholders are spared. In our view, this speaks to EU officials’ ongoing flexibility with peripheral nations and should ease Slovenia’s recovery.
|By Staff, Financial Times, 12/18/2013|
MarketMinder's View: While we wouldn’t necessarily call these five countries fragile, all would benefit from freer markets—but this is so regardless of QE, and QE’s eventual end doesn’t make reforms any more or less urgent. Though, in the near term, tapering QE could actually help boost growth some! Yield curves in the developed and developing world are highly correlated, so a steeper US curve post-QE should help curves steepen throughout Emerging Markets—a widely accepted economic positive.
|By Robbie Whelan, The Wall Street Journal, 12/18/2013|
MarketMinder's View: In our view, toughening reporting requirements for non-traded REITs would be a welcome development. These securities are notoriously illiquid, costly and opaque, but many buyers aren’t aware of these drawbacks. It can take years for investors to learn of changes in share prices, and fees are typically very high. The proposed rule would help investors uncover these issues sooner than they may under current rules—ideally helping them make more informed (potentially better) investment decisions. For more, see our 11/25/2013, “The Perils of Non-Traded REITs.”
|By Staff, BBC News, 12/17/2013|
MarketMinder's View: More proof the eurozone is faring better than many expect. In addition to Ireland exiting its bailout on Saturday, Portugal passed its latest evaluation with flying colors—with intentions to leave the bailout program on schedule in mid-2014. For more, see our 12/17/13 cover, “French Dip, Irish Cream.”
|By Szu Ping Chan, The Telegraph, 12/17/2013|
MarketMinder's View: Will US inflation skyrocket once quantitative easing ends and the money supply and velocity finally pick up? Not necessarily. Take the UK’s inflation—it has fallen even after the UK stopped its bond purchases and money supply growth accelerated, and low long-term UK sovereign yields suggest runaway inflation isn’t likely to materialize any time soon.
|By Sylvester Eijffinger and Edin Mujagic, Project Syndicate, 12/17/2013|
MarketMinder's View: Credit ratings usually aren’t telling of a country’s economic health—they’re often based on arbitrary assessments or misinterpretations of the recent past. So even if Germany is downgraded, markets likely yawn—markets, unlike raters, are forward-looking. That said, we don’t see much (if any) rational reason to call Germany’s debt into question considering its public finances are in good shape and its outlook is overall better than hypothesized here.
|By Andrew Ackerman and Katy Burne, The Wall Street Journal, 12/17/2013|
MarketMinder's View: This is the latest instance of a trend we’ve noticed lately—regulatory protectionism. With more and more rules threatening to apply across borders, the risk of retaliatory measures increases, which could impede global commerce. Though not a huge risk at present—the Volcker Rule’s exemption for foreign sovereign debt is a notable positive—it bears watching.
|By Andrew Taylor, MSN, 12/17/2013|
MarketMinder's View: The budget bill moves closer to reality. Politicians continue to surprise the masses! But, in our view, this deal is neither negative nor positive for markets—it’s just politics as usual. For more, see our 12/12/2013 cover, “Budgetary Surprises.”
|By Ed Crooks, Financial Times, 12/17/2013|
MarketMinder's View: Though the projection is three years out, it’s still a testament to the shale boom’s progress—advances in horizontal drilling and hydraulic fracturing techniques have enabled more and more oil and gas reserves to be commercially viable.
|By Morgan Housel, Motley Fool, 12/17/2013|
MarketMinder's View: Even many supposed experts fall victim to assuming past performance determines future returns. Extrapolating recent trends into the future doesn’t work—stocks aren’t serially correlated, and there is a 50/50 chance trends continue or reverse. Forward-looking fundamental factors determine future returns. Resisting the temptation to trade based on past price movement is key to long-term investing success.
|By Eric Morath, The Wall Street Journal, 12/17/2013|
MarketMinder's View: If the Fed continues its bond purchases to combat “weak inflation,” policymakers likely end up disappointed. Quantitative easing is the cause of disinflation, not the solution. Bond buying flattens the yield curve spread, discouraging bank lending and reducing the velocity of money. When money isn’t chasing goods and services, prices tend to fall.
|By Staff, Associated Press, 12/16/2013|
MarketMinder's View: This is evidence of still-dour sentiment more than anything else—86% of investors expect markets to be flat or down next year. Stocks love doing something different than the herd expects, and in our view, stocks have many fundamental reasons to defy expectations by rising.
|By Jason Zweig, The Wall Street Journal, 12/16/2013|
MarketMinder's View: No investor is immune to biases or emotional decision making, like letting fear and greed drive buys and sells. But by being aware of tendencies and shortcomings—and forcing yourself to look them in the eye and critically assess whether each transaction you consider is influenced by emotion or bias—you can battle them. Objective checklists are one way to do this.
|By Pedro Nicolaci Da Costa and Jon Hilsenrath, The Wall Street Journal, 12/16/2013|
MarketMinder's View: Will the Fed start slowing bond purchases this week? We’d wager not even the Fed members know. Sure, Ben Bernanke’s forward guidance lists certain conditions, but Fed members seem divided over whether recent data match the given criteria—and that assumes those criteria even carry much weight in the debates on Constitution Ave. That said, we’d welcome the program’s swift end as data show it has weighed on lending and overall growth. For more, see our 12/9/2013 cover story, “Taper in December?”
|By Staff, The Telegraph, 12/16/2013|
MarketMinder's View: While PMIs can be a useful near-term indicator, they don’t move in lockstep with GDP—so many more variables impact the total economy. Hence why Leading Economic Indexes use only one or two data points from PMI surveys. So to say this report indicates a “two-speed eurozone” seems a touch premature—more likely, the eurozone recovery just stays uneven, with occasional temporary weakness in some areas. For more on France, see Emily Dunbar’s 12/9/2013 column, “Great French-Pectations.”
|By Dhara Ranasinghe, CNBC, 12/16/2013|
MarketMinder's View: While it’s noteworthy that businesses see more favorable economic conditions and plan to boost capex over the next few months, this doesn’t mean Japan’s economy and markets shoot straight up—especially while reform plans remain shelved and the weak yen isn’t providing a net benefit. For the latest on Japan, see our 12/13/2013 cover story, “Shinzo’s Stalemate.”
|By Lucia Mutikani, The Globe and Mail, 12/16/2013|
MarketMinder's View: US manufacturing is growing and accelerating—rather the opposite of what many expect for the broader economy. With the US chugging along and expectations still muted, markets should see more positive surprises looking ahead.
|By Editorial Staff, The Wall Street Journal, 12/16/2013|
MarketMinder's View: Here’s an interesting take on what the US would gain from removing the current crude oil export ban. We agree: “Opponents of exporting oil claim that lifting the ban would raise US gasoline prices, but that misunderstands that oil is a global market. US pump prices would continue to rise or fall with world oil prices regardless of exports. But lifting the ban would lead to more domestic production, which means more jobs in oil drilling and services and everything that goes with such growth. See the booming Williston Basin in North Dakota or the Eagle Ford Formation in South Texas.”
|By Jia Lynn Yang, The Washington Post, 12/16/2013|
MarketMinder's View: Stock buybacks don’t “signal low hopes for economic growth.” If companies truly had a dreary outlook, they wouldn’t spend—whether on buybacks or new equipment, technology and employees. They’d hoard cash. Sure, corporate cash balances are up, but only because firms are making money marginally faster than they can spend it. Plus, with business investment a hair away from all-time highs and buybacks only around 2005 levels, it seems a big stretch to say companies are choosing buybacks over growth-oriented investment.
|By Ambrose Evans-Pritchard, The Telegraph, 12/13/2013|
MarketMinder's View: While China’s financial system has its issues, the notion of a global financial meltdown stemming from a country with $3.5 trillion in forex reserves, strict capital controls and a history of repeatedly recapitalizing its banks seems a touch overwrought. Credit trends there bear watching, but China’s financial system is heavily insulated.
|By Harriet Agnew, The Wall Street Journal, 12/13/2013|
MarketMinder's View: Investors’ biggest enemies are their own emotions and biases. Here’s a snapshot of some of the biggest—knowing and recognizing them is key to winning the fight against them.
|By Lucia Mutikani, Reuters, 12/13/2013|
MarketMinder's View: Actually, they point to deflation—they’re down three straight months. Some blame falling energy prices, but inflation is always and everywhere a monetary phenomenon, and monetary policy is the culprit here. Quantitative easing flattened the yield curve, dropping the velocity of money. When money isn’t doing any chasing, prices tend to fall. More bond buying will keep the yield curve flatter, not push inflation up.
|By Adam Williams, Eric Martin and Nacha Chattan, Bloomberg, 12/13/2013|
MarketMinder's View: The final bill went farther than initial expectations—a nice surprise. Under the new rules, foreign and private firms get the green light to develop Mexican energy resources, including vast untapped shale fields. That in turn should bring Mexico significant investment and cheaper energy costs, benefiting all areas of society and the real economy.
|By Eamon Quinn, The Wall Street Journal, 12/13/2013|
MarketMinder's View: Returning to capital markets doesn’t mean Ireland is out of the woods, but it does speak to how far Ireland has come since its 2010 bailout. Austerity programs might continue, but so does growth—a testament to Ireland’s competitive economy.
|By Victoria McGrane, The Wall Street Journal, 12/13/2013|
MarketMinder's View: Whether or not the Fed switches its benchmark rate from the fed funds target to the reverse repo rate, one shouldn’t overestimate the significance of paying interest on excess reserves (IOER). As Milton Friedman taught, IOER’s purpose is to help keep the effective benchmark rate in line with the Fed’s target—correctly applied, it would always be at the same level as the benchmark rate. It isn’t a lever for money supply control, and it isn’t a factor in banks’ lending decisions.
|By Chikako Mogi and Masaaki Iwamoto, Bloomberg, 12/13/2013|
MarketMinder's View: While these measures should improve rice production, they’re more significant for their political implications. Pushing this through will rankle the all-powerful agriculture lobby, one of the Liberal Democratic Party’s biggest power bases. Whether this is emblematic of PM Shinzo Abe’s broader willingness to tackle vested interests in the name of economic reform remains to be seen, but it’s a noteworthy development.
|By Staff, The Telegraph, 12/13/2013|
MarketMinder's View: No shock here. If raters downgraded the UK based on arbitrary, backward-looking criteria, it stands to reason they’ll need lots of time to gather lots of arbitrary data to look back on before they’ll upgrade.
|By Staff, Associated Press, 12/13/2013|
MarketMinder's View: This doesn’t mean a Chinese hard landing is nigh. While Chinese steel and other industries are wrestling with excess capacity, Chinese leaders have a heavy political incentive to make these issues sound much worse than they are—it’s how they goad other party members into carrying out reforms. China has grown at a fine rate all year despite these issues and can keep doing so as reforms slowly play out.
|By Damian Paletta and Siobhan Hughes, The Wall Street Journal, 12/13/2013|
MarketMinder's View: Ordinarily, we’d cheer legislation enabling free trade agreements, but it seems Congress has duct taped some protectionist measures to this bill. Since Congress won’t write and introduce the bill until January, we won’t know for a while whether this is a net benefit.
|By Staff, EUbusiness, 12/13/2013|
MarketMinder's View: While Portugal might seek a precautionary EU credit line to help smooth its return to capital markets next June, that it likely doesn’t need a full second bailout is a much better outcome than many expected. This is another sign eurozone reality, though not perfect, is still better than too-dour investors believe.
|By Victoria Stilwel, Bloomberg, 12/12/2013|
MarketMinder's View: “I wouldn’t put too much stock in the ups and downs of initial jobless claims over the next several weeks because seasonal volatility is pretty high this time of year.” This—and the fact employment numbers are a late-lagging indicator—show the importance of looking to multiple economic indicators.
|By Mitsuru Obe, WSJ, 12/12/2013|
MarketMinder's View: Seeing how PM Shinzo Abe’s Liberal Democratic Party and coalition partner New Komeito are this divided over a sales tax hike that was passed by the previous administration, it’s exceedingly difficult to imagine them finding common ground on much more politically difficult items, like the many structural economic reforms necessary for Japan to regain competitiveness. Investors broadly seem to expect otherwise and likely end up disappointed.
|By Jesse Solomon, CNN Money, 12/12/2013|
MarketMinder's View: Just like “Sell in May” or the “January effect,” the “Santa Claus rally” is a seasonal myth lacking grounding in reality. Markets move on many factors, but seasonal considerations aren’t among them.
|By Staff, EUbusiness, 12/12/2013|
MarketMinder's View: This formalizes the plans laid out in July, which essentially establish Cyprus as a precedent for future EU bank failures. While simply having plans in place might help shore up confidence in EU banking, it also introduces a number of unintended consequences. Like, for example, a repeat of Cyprus. For our views on this topic, see our 06/28/2013 cover story, “The EU-turn on Banks.”
|By Matthew Yglesias, Slate, 12/12/2013|
MarketMinder's View: We largely agree the Volcker Rule doesn’t much address the causes of 2008’s financial panic—but not because it doesn’t address banks’ “excessive optimism about the trajectory of house prices.” Rather, it has nothing to do with the $2 trillion of exaggerated and in many cases unnecessary writedowns. FAS 157 (mark-to-market accounting) was the culprit, and this was addressed in 2009. For more, see our 12/11/2013 cover story, “Introducing the Volcker Rule.”
|By Robert Wood, The Telegraph, 12/12/2013|
MarketMinder's View: We agree with the broader notion that central banks shouldn’t try to preemptively pop asset bubbles—but more because they’re notoriously terrible at spotting them. If central banks went back to basics, simply serving as lender of last resort and monitoring the money supply, while letting market function a bit more freely, the global economy would likely benefit.
|By James Saft, Reuters, 12/12/2013|
MarketMinder's View: To assume the end of quantitative easing (QE) equates to “credit tightening” ignores the supply side of the equation. By reducing long-term interest rates, QE has perhaps boosted demand for credit, but it has also reduced supply—because the spread between short and long rates is smaller, lending is less profitable, so banks are less apt to do it. When rates rise, lending profitability rises, and banks are more eager to lend. And consumers and businesses will still borrow—rates will remain near historic lows, and cost is only one variable borrowers consider.
|By Staff, Associated Press, 12/12/2013|
MarketMinder's View: Along with solid corporate earnings, a rising LEI and improving employment numbers, chalk up rising retail sales as further evidence the US economy is on solid footing moving forward. It’s also further evidence a perhaps lackluster Black Friday doesn’t determine an entire season.
|By Lori Montgomery, The Washington Post, 12/11/2013|
MarketMinder's View: Tuesday’s proposed bipartisan budget deal would kick the next budget debate to 2015. But little has likely changed: It doesn’t address the debt ceiling whatsoever, overall spending isn’t projected to be much different, and there’s plenty of time to amend the legislation—assuming it even clears the House, Senate and Mr. Obama’s desk as is.
|By Martha C. White, Time, 12/11/2013|
MarketMinder's View: Here’s a relatively sensible take on the expiring farm bill—and why $8-per-gallon milk in 2014 is a highly unlikely scenario. Congress is just extraordinarily unlikely to decide it’s a good political move to allow consumers to pay orders of magnitude more for a basic dietary staple in a midterm election year. Or any year for that matter. But even if you assume they’ve collectively lost their minds, a number of factors have to line up for milk prices to materially increase if Congress doesn’t (even retroactively) renew the bill. And the $8 magnitude often quoted is a sketchy guesstimate. Unless you’re buying organic, in which case milk may run you nearly that much, farm bill or no.
|By Gina Chon, Financial Times, 12/11/2013|
MarketMinder's View: Here’s one unintended consequence of this week’s Volcker rule: It’ll be expensive for regulatory bodies to implement. That may mean more tax dollars flowing to the regulators’ building out a technology base and away from other priorities. Or seeking more funding. All for legislation that does little in the end. For more, see our 12/11/2013 commentary, “Introducing the Volcker Rule.”
|By Michael J. Casey, The Wall Street Journal, 12/11/2013|
MarketMinder's View: Stocks’ rising amid general skepticism doesn’t signal markets are broken—it’s normal. As Sir John Templeton once said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Investors are almost always wary for the first parts of bull markets—which usually signals there’s more to come. Further, stocks aren’t rising due to QE, which has mostly created a lot of idle excess reserves, or the Fed’s low rates. Markets are growing on strong fundamentals. Finally, wealth isn’t a fixed pie. If one business fares better than another, it doesn’t mean both can’t grow, and if some investors buy stocks chasing yields, bonds overall don’t have to suffer.
|By Staff, Reuters, 12/11/2013|
MarketMinder's View: This is more a marker to take in concert with the development of the Volcker Rule. It just shows how far ahead the US is in the financial reform process versus Europe. And moreover, the wind-down mechanisms being discussed are far from optimal. This is a factor to consider when reviewing global Financials firms and aspects of this (bail-ins) are worth watching. Progress has been amazingly slow—a plus, as it helps firms digest even the good changes—and all of this is a long way from being done.
|By Joshua Zumbrun and Caroline Salas Gage, Bloomberg, 12/11/2013|
MarketMinder's View: Lowering the interest rate paid on banks’ excess reserves (IOER) as a placebo for investors fearing the taper seems bizarre and misguided. It likely won’t loosen credit: IOER’s already at 0.25%—with QE continuing and liquidity ratios increasing, lowering the already low rate more likely won’t encourage banks to lend over holding excess reserves. Key to that is making long-term lending more profitable for banks, which tapering QE should help accomplish.
|By Juan Montes, The Wall Street Journal, 12/11/2013|
MarketMinder's View: Good news for Mexico’s Energy sector, private sector and overall economy: Competition among different companies likely drives more oil production and business activity and creates more wealth that should eventually spread across the country. Globally, however, impact is likely muted—this is a longer term plus, not necessarily one in the immediate offing. For more see Elisabeth Dellinger’s commentary, “What to Do About Mexico’s Energy Reforms.”
|By Staff, Bloomberg, 12/11/2013|
MarketMinder's View: Chinese lending was up big in November—including non-government-funded shadow bank lending—while money supply grew at a strong 14.2% y/y. Add that to last month’s healthy retail sales, exports, manufacturing and services, and the long-discussed Chinese hard landing seems ever less likely.
|By Steve Liesman, CNBC, 12/10/2013|
MarketMinder's View: Yep, unemployment is down, the economy is healthier and fiscal uncertainty appears to be reduced—hitting three conditions the Fed has offered in its comments on when QE will end. Though, we’d not put too much faith in that guidance—words aren’t set in stone, and various Fed members seem to interpret recent developments differently. For more, see our 12/9/13 cover, “Taper in December?”
|By Emma Charlton, Bloomberg, 12/10/2013|
MarketMinder's View: UK industrial production recorded another strong month, with manufacturing leading the charge—another indication UK economic growth continues, and an interesting counterpoint to those who insist the UK expansion can’t be more broad-based without radical reform to boost factories. As the UK moves further past quantitative easing and the rate spread continues widening, capital should become more abundant, giving businesses much more room to invest in capital equipment and other industrial goods.
|By Scott Patterson, Shayndi Raice and Katy Burne, The Wall Street Journal, 12/10/2013|
MarketMinder's View: After three years, the Volcker Rule is finally here—all 1,000 pages of it. But whether you love or loathe the rule, it likely doesn’t much change matters for better or worse. It’s largely a solution seeking a problem, considering proprietary trading losses weren’t the issue in 2008. But it also shouldn’t be a huge compliance headache, given the exemptions for market making and underwriting as well as the long implementation timeline. Plus, its drawn-out negotiations have given stocks plenty of time to digest the rule—now that it’s here, that last bit of uncertainty is fading.
|By Christopher S. Rugaber, Associated Press, 12/10/2013|
MarketMinder's View: October’s rise in job openings is more confirmation US businesses are chugging along—with corporate earnings on the rise and loan growth improving, businesses have more latitude to invest in equipment and employees.
|By Staff, Jiji Press, 12/10/2013|
MarketMinder's View: While markets would no doubt like a swift TPP trade accord, the slow progress doesn’t surprise—large trade deals with over a dozen nations in the mix take time and don’t always come to fruition. All the competing interests impede a quick agreement. But the world doesn’t need big deals for trade to get freer. Several recent and pending smaller deals have many potential benefits. For more, see our 12/10/13 cover, “We Are the World.”
|By Matt Levine, Bloomberg, 12/10/2013|
MarketMinder's View: “But the biggest conceptual objection to the Volcker rule is that its central premise makes no sense. Proprietary trading had basically nothing to do with the financial crisis, and banking is about taking ‘proprietary’ risk with depositor money. This is mostly called ‘lending,’ but calling it ‘lending’ doesn't make it safer than calling it ‘prop trading.’” On the bright side, regulators addressed 2008 four and a half years ago, when they removed mark-to-market accounting requirements from illiquid assets, drastically reducing the likelihood of another $2 trillion write-down spiral. For more, see our 10/2/13 cover story, “Writing Down the Volcker Rule.”
|By Staff, Associated Press, 12/10/2013|
MarketMinder's View: Another month of double-digit gains—more evidence China is on stronger footing than many believe. Demand wouldn’t be so strong if a hard landing were nigh.
|By Murray Coleman, The Wall Street Journal, 12/09/2013|
MarketMinder's View: So it seems even the originator of the cyclically adjusted price-to-earnings ratio (CAPE) is skeptical of its utility outside of the US. In our view, though, what’s true overseas is true globally. The CAPE—which uses a 10-year average of earnings—is just too backward looking to be of any material use in forecasting stocks’ future direction.
|By Paul Vigna, The Wall Street Journal, 12/09/2013|
MarketMinder's View: First, let’s be clear: There is a substantial difference between a sharp deflationary spiral and slowing inflation (disinflation) or even modest deflation. But what’s more, this article would have you believe deflation is occurring in spite of the Fed’s actions—that there is a persistent drag weighing on prices. Yet, that drag is actually emanating from one place: the white building at 20th and Constitution in Washington, DC. The Fed’s bond buying is actually slowing lending—and hence is the major reason inflation rates are low.
|By Mark J. Perry, AEIdeas, 12/09/2013|
MarketMinder's View: “It’s highly likely that most of today’s high-income, college-educated, married individuals who are now in their peak earning years were in a lower-income quintile in their prior, single years, before they acquired education and job experience. It’s also likely that individuals in today’s top income quintiles will move back down to a lower income quintile in the future during their retirement years.... Because the key income-determining demographic variables change over a person’s lifetime, income mobility and the American dream are still ‘alive and well’ in the US.”
|By John Carney, CNBC, 12/09/2013|
MarketMinder's View: Though we agree Quantitative Easing (QE) isn’t inflationary, we rather disagree with the notion it has no effect. We’d argue that effect, while bond buying is underway, is disinflation or deflation. QE’s bond buying pushes up the prices of long-term securities, reducing yields. This flattens the yield curve, making bank lending less profitable. Banks are therefore discouraged from lending, meaning cash on banks’ bolstered balance sheets doesn’t end up reaching the broader economy. For the latest on QE, see Mary Holdener’s 12/3/2013 column, “Q the End.”
|By Adam Williams, Nacha Cattan and Ben Bain, Bloomberg, 12/09/2013|
Though the proposals still need formal legislative approval, allowing foreign firms to compete with Mexico’s state-run Energy monopoly likely bodes well for the economy—domestically and perhaps even more broadly. For more, see our 11/27/2013 cover story, “Mexico’s Quiet Reform.”
|By Annalyn Kurtz, CNN Money, 12/09/2013|
MarketMinder's View: Fundamentally, this article seems emblematic of widespread skepticism. The economy has long been growing, though many are frustrated by the pace of recovery. For stocks, this is a near perfect backdrop for continued bull market. Even a modestly growing economy is a tailwind for profitability, and folks’ skeptical expectations are a low bar for reality to exceed.
|By Staff, Japan Times, 12/09/2013|
MarketMinder's View: While growth is growth, this is a far from stellar report. The larger-than-estimated downward revision to Japan’s Q3 GDP showed the primary driver behind the rise was government consumption. Business investment was flat and consumer spending rose a meager 0.2%. This is not exactly a ringing endorsement of Abenomics—slow private sector growth has long plagued Japan’s economy. For more, see our 10/22/2013 cover, “Japan’s Quantitative Easy Button.”
|By Mohamed A. El-Erian, Project Syndicate, 12/09/2013|
MarketMinder's View: This gives government too much credit for economic results in the US. Whatever you think of the two parties in Washington, the private sector has driven economic growth for more than four years now. And gridlock is actually bullish, not bearish! Gridlock effectively means big, sweeping legislation that could materially impact markets negatively is unlikely to pass. In a country with a highly competitive economy—like the US—gridlock is the bee’s knees.
|By Klaus Schwab, The Telegraph, 12/06/2013|
MarketMinder's View: “Spurred by economic liberalization, Sub-Saharan Africa is now, according to the IMF, second only to developing Asia as the fastest growing region in the world. This shift would be difficult to envisage without the inspiring leadership of a man who believed in openness over isolation, humour over hubris, and reconciliation over bitterness.”
|By Scott Patterson, The Wall Street Journal, 12/06/2013|
MarketMinder's View: In our view, this rule likely increases banks’ regulatory burdens without ensuring everyone behaves perfectly. In any profession, rules aren’t guaranteed to prevent naughty behavior—values matter more. At the same time, bank execs already have a powerful incentive to keep their troops in line—profits!—and many of the mechanisms for compliance with this new rule likely exist already thanks to Sarbanes-Oxley. (Not that we’d ever call the dastardly SarbOx a positive).
|By Janet Hook, The Wall Street Journal, 12/06/2013|
MarketMinder's View: In a rare change of page, it seems the House and Senate are nearing a budget compromise a few weeks early—on a two-year deal! Sure, differences persist—Harry Reid and John Boehner aren’t holding hands and singing “Kumbaya”—and this doesn’t guarantee a deal gets done. But it does suggest the incentives to compromise are powerful, which is something investors fearing budget battles might not appreciate.
|By Anthony Mirhaydari, MarketWatch, 12/06/2013|
MarketMinder's View: True, human behavior is a key factor in markets and doesn’t change much over time. But the historical comparison between today and Great Depression (that begins in earnest in paragraph 5) is beyond flawed. There was no quantitative easing in the 1920s, the Fed didn’t overstimulate leading up to the crash, the depression’s deflation was not all productivity driven (it was tied to a more than 30% contraction in the money supply), Dow chart patterns aren’t predictive, and the US economy is growing just fine. Finally, bears are not “capitulating left and right” presently, with Exhibit A being this article.
|By Ylan Q. Mui and Zachary A. Goldfarb, The Washington Post, 12/06/2013|
MarketMinder's View: One, we’ve already had a recovery. It started four and a half years ago. We’re well into expansion now. Two, while slower government spending has dragged on headline growth, a bigger reason for the slow recovery is the Fed’s quantitative easing (QE), which discouraged lending and flattened M4 money supply growth. This made capital difficult for businesses to obtain, hindering investment and growth. QE’s end should be a more powerful force for growth than a few budget tweaks, which won’t much impact the private sector.
|By Staff, Associated Press, 12/06/2013|
MarketMinder's View: What’s telling here is auto lending is still rising even as interest rates drift higher. Incrementally higher borrowing costs haven’t hit demand, and consumers should be able to weather further rises moving forward. Many other variables influence borrowing decisions.
|By Staff, Xinhua, 12/06/2013|
MarketMinder's View: While it remains to be seen how much Chinese shale booms, the industry is perhaps a new source of growth for China—more evidence its economy should remain on better footing than many believe.
|By Joseph Stiglitz, The Guardian, 12/06/2013|
MarketMinder's View: If you define “worst” as a high risk of the region splintering within the hour, sending currency values all over the map and perhaps cancelling all the aid promised to Greece and Portugal, we reckon any rational person would agree it’s over. Does the region have long-term political issues to resolve? Do millions of Greeks and Spaniards need to find work? Does Greece need to reclaim the quarter of its economy that vanished over the past six years? Yes, yes and yes—no question. But investors have long been aware of all these issues and more, leaving stocks plenty of room to grow on slow economic improvement.
|By Dessianing Ariyanti, Associated Press, 12/06/2013|
MarketMinder's View: Freer trade is freer trade—markets love it—but we wouldn’t suggest this is the be all, end all for unrestricted global commerce. Many bilateral and regional free trade agreements have taken effect since this round of WTO negotiations began 12 years ago, and many more are pending. These, rather than the WTO’s clunky bureaucracy, likely have a bigger impact on trade growth over time.
|By Jeremy Warner, The Telegraph, 12/06/2013|
MarketMinder's View: Leaving politics aside, the thesis that the UK can’t continue growing over time without radical reform is flawed. If the UK’s recovery can gain traction with certain regulations and taxes in place, it can keep growing against that backdrop. There isn’t a tipping point where things must change—especially not in an economy as free and competitive as Britain’s. In our view, the relatively quiet Autumn Statement is a positive—fewer changes create fewer winners and losers.
|By Chris Dieterich and Kaitlyn Kiernan, The Wall Street Journal, 12/06/2013|
MarketMinder's View: We see no evidence folks are any less fearful of quantitative easing’s end—headlines show jitters aplenty. The simple truth is markets have already dealt with that fear. Long-term Treasury rates have risen amid taper talk, digesting the likelihood of the program’s impending end. That’s how markets work—they always look forward. Though, as ever, volatility could accompany the eventual taper announcement.
|By Jeffrey Sparshott, The Wall Street Journal , 12/05/2013|
MarketMinder's View: The general reaction to today’s GDP revision seems overly dour, in our view. Sure, economies can’t grow forever on inventories, but this is just one quarter. Considering many other recent positive data (higher home sales, total trade and manufacturing), the overall US picture looks better than many give it credit for.
|By Simon Kennedy, Bloomberg, 12/05/2013|
MarketMinder's View: While fewer public sector cuts globally might be a tailwind for headline global GDP, this isn’t necessary for growth to continue or even accelerate. Globally, most LEIs—which generally track private sector activity—are high and rising. Add in near-record highs in US business investment, robust UK activity and expanding eurozone manufacturing, and the private sector appears more than capable of leading global growth.
|By Robert Samuelson, Real Clear Markets, 12/05/2013|
MarketMinder's View: The notion stocks are “disconnected” from the real economy—and can’t stay that way—is flawed. It assumes stocks track the economy—but they don’t! Stocks reflect the earnings and growth of publicly traded companies. Headline GDP growth might be slow, but businesses are growing and investing at a healthy clip, and earnings hit new highs well before stocks did. Headline GDP growth needn’t turn stellar for this to continue. For more, see our 12/04/2013 cover story, “Pricking the Stock Market Bubble Debate.”
|By Phil Wahba, Reuters, 12/05/2013|
MarketMinder's View: That a handful of retailers had disappointing Novembers doesn’t automatically mean the industry overall did badly—none of these companies is inherently a bellwether. Then again, even if retail sales did pull back in November, it doesn’t necessarily imply future weakness or a fall in total consumer spending. Especially with disposable incomes rising. For more, see our 12/2/2013 cover story, “Doorbusters! Discounts! Ka-ching!”
|By Daniel Gros, Project Syndicate, 12/05/2013|
MarketMinder's View: While we agree with the sentiment here—Germany has taken misplaced flack for its trade surplus—the notion all of northern Europe should increase domestic demand seems misplaced. What matters more is for less competitive nations to become more efficient and exploit their comparative advantages so they, too, can enjoy higher exports. “Trade adjustments” aren’t necessary for global growth to continue.
|By Ayesha Bhatty Clough, BBC News, 12/05/2013|
MarketMinder's View: Between shale and the tar sands, Canadian energy production is booming, driving economic growth and creating jobs in all segments of the economy. As a result, the country has been importing workers from the UK and Ireland—growth in one country can create widespread opportunities.
|By Graham Ruddick, The Telegraph, 12/05/2013|
MarketMinder's View: While the UK economy has grown nicely this year, businesses have still battled headwinds. Among them were high taxes on commercial real estate—e.g., rented storefronts. Plans to relax and perhaps eventually streamline this burden is an incremental tailwind for UK businesses heading into 2014.
|By Per Liljas, Time, 12/05/2013|
MarketMinder's View: Fewer restrictions and tariffs mean more profits for South Korean steel companies and Australian ranchers, lower prices for consumers and more world trade—something markets like!
|By Caroline Baum, Bloomberg , 12/05/2013|
MarketMinder's View: It seems awfully difficult to claim we need permanent fiscal stimulus to boost growth in a country where private-sector innovation still creates massive opportunities for growth and development. Exhibit A: the shale boom. What would benefit the US most, at this point in the cycle, would be a freer flow of capital so businesses can invest and grow—basically, more bank lending. With more money moving throughout the real economy, headline growth figures would likely look much different.
|By Staff, Der Spiegel, 12/05/2013|
MarketMinder's View: Negative interest rates, additional bank aid and quantitative easing aren’t cure-alls for slow eurozone lending and could very well increase the risk of monetary policy blunders. Eurozone lending is slow because changing regulatory standards and upcoming stress tests give banks a big incentive to hoard capital and not take additional risk. Until the regulatory horizon clears, it’s difficult to envision banks lending enthusiastically.
|By Lucia Mutikani, Reuters, 12/04/2013|
MarketMinder's View: US private payrolls soundly beat expectations, and overall trade grew. In our view, the discussion of these positive data points’ potential influence over the Fed’s decision to taper is a red herring—more important is they are more evidence of a healthy, ongoing US expansion.
|By Jamie Smyth, Financial Times, 12/04/2013|
MarketMinder's View: The Bank of Ireland’s repaying the state accomplishes two things as the country exits its bailout: It contributes to state funding (supporting the country’s decision to decline more credit from the EU/ECB/IMF troika) and waters down the relationship between the Irish banking sector and government—why Ireland’s financial crisis resulted in a troika-delivered sovereign bailout. Perhaps most importantly, though, improvement in the financial system likely boosts investors’ confidence in Ireland. Headwinds still remain, but the country seems on the right track.
|By David Parkinson, The Globe and Mail, 12/04/2013|
MarketMinder's View: In our view, this gives forward guidance too much credit. In the short term, markets may see higher or lower prices, interest rates, currencies, etc., based on investors’ reactions to politicians’ announcements. But in the long term, it’s what politicians do and how it impacts fundamentals that drives markets. Hence, talking about a rate change without any follow through likely doesn’t have much material impact. For one, inflation is always and everywhere an actual monetary phenomenon.
|By Neil Irwin, The Washington Post, 12/04/2013|
MarketMinder's View: The US dollar’s role in neither trade, finance nor as a reserve currency grant our economy an “exorbitant privilege” lowering interest rates and making our debt affordable. In fact, our deep, liquid capital markets do that—and make the dollar attractive as a medium of exchange. This reverses causes and effect. What’s more, the dollar’s share of global reserves has been declining for some time. Gradual shifts do not threaten markets much. Finally, China’s economy is largely closed and its currency’s use is highly controlled—which present big headwinds to its replacing the dollar as the world’s favorite forex reserve. For more, see Elisabeth Dellinger’s column, “The Tale of the Dollar’s Demise.”
|By Staff, Reuters, 12/04/2013|
MarketMinder's View: Rising mortgage rates may have deterred a few fringe home buyers, but ultimately, rates are historically low and prices are recovering from a low base. The discussion here is much too skeptical of the data—October’s strong home sales suggest the housing recovery has staying power—an incremental tailwind for the broader economy.
|By Al Yoon, The Wall Street Journal, 12/04/2013|
MarketMinder's View: In the wake of Detroit’s bankruptcy and higher borrowing costs for some municipalities, concerns over state governments’ solvency have been circulating, but most seem unfounded. States’ finances are overall improving and are in good order, and those whose aren’t, like Illinois, are working to improve their ledgers. That’s likely much more meaningful for muni markets than a bad egg or two.
|By Scott Paterson, The Wall Street Journal, 12/04/2013|
MarketMinder's View: While we’d argue this largely seems a solution in search of a problem—and potentially makes banks’ achieving profits a bit more difficult, a negative—the rule’s (finally) passing likely won't impact US Financials much. The long debate period (about three years) has given stocks and banks ample time to adapt: “Because the rule was widely anticipated, most banks already have done away with operations focused on proprietary trading.” Further, the rule is expected to be implemented in 2015, granting another full year to consider specifics. All in all, this may not be the safeguard some presume, but it likely doesn’t present a huge risk in the here-and-now either.
|By Staff, BBC, 12/04/2013|
MarketMinder's View: The eurozone may not have grown as much as previous months, but growth is growth, and the majority of the area still did fine—German and Spanish PMIs were especially notable—even as weaker spots remain. Overall, this seems more in line with the eurozone’s uneven recovery than a loss in momentum. This coverage is a good example of highly negative sentiment regarding the eurozone, and for stocks, this creates a fairly low bar for reality to exceed—fuel for more bullish surprises ahead.
|By Staff, Reuters, 12/03/2013|
MarketMinder's View: When small firms can borrow more, they can invest more in growth-oriented endeavors. We’d expect business borrowing to continue increasing as quantitative easing (QE) ends and long-term interest rates normalize—a wider spread between short- and long-term interest rates makes lending more profitable, encouraging banks to lend more.
|By Aaron Smith, CNN Money, 12/03/2013|
MarketMinder's View: While this is nice to see, it’s just one day—just as a lackluster Black Friday was just one day. Seasonal totals matter more, and yearly matters more than seasonal. Over the season and year, the highs and lows should average out, and with disposable incomes rising, overall consumer spending should keep growing. For more, see our 12/2/13 cover story, “Doorbusters! Discounts! Ka-ching!”
|By Jude Webber, Financial Times, 12/03/2013|
MarketMinder's View: Mexico’s energy reform plans are moving closer to reality, and with the leftist Party of the Democratic Revolution abandoning the multiparty Pact for Mexico, the two main parties have more bandwidth to pursue more sweeping change than President Enrique Peña Nieto first outlined, including allowing private firms to enter production-sharing or outright concession agreements. For more, see Elisabeth Dellinger’s column, “What to Do About Mexico’s Energy Reforms.”
|By Alison Sider and Kristin Jones, The Wall Street Journal, 12/03/2013|
MarketMinder's View: The benefits of shale fracking aren’t limited to energy markets—the boom creates opportunities throughout the economy. In this case, it has driven demand for sand, one of the key ingredients in hydraulic fracturing, and firms are lining up to mine, process and transport it.
|By David Biller, Bloomberg, 12/03/2013|
MarketMinder's View: Brazil’s contraction is an example of how misguided policies can hurt growth. The government’s attempts to stimulate certain sectors created headwinds for others, and policies aimed at containing fuel and food prices weighed on investment. However, it’s important to scale: One country’s gross domestic product decline over one quarter likely isn’t enough to derail global reacceleration.
|By Kay Johnson and Dessianing Ariyanti, Associated Press, 12/03/2013|
MarketMinder's View: The “Doha round” of World Trade negotiations has been in the works for 12 years now, and it has been more or less stalled for over five—which is largely to be expected when you have over 100 countries with competing interests trying to agree on trade policies. But regional and bilateral trade agreements have popped up in droves since the Doha round started, helping global trade get significantly freer even as the global deal stalled. Many more deals are in the works.
|By Staff, BBC News, 12/03/2013|
MarketMinder's View: The hot construction PMI comes on the heels of a gangbusters manufacturing PMI and another rise in retail sales—all further evidence the UK’s expansion is gaining speed. Plus, more construction should mean an increase in home supply over time, which should help keep that widely feared housing bubble deflated.
|By Jason Zweig, The Wall Street Journal, 12/02/2013|
MarketMinder's View: Thanks to innovation and technological advancements over the years, overall, investing has become more efficient, less expensive and more transparent. That doesn’t necessarily translate to “easier,” but it does mean the market is much more accessible for individual investors than in past decades.
|By Neil Irwin, The Washington Post, 12/02/2013|
MarketMinder's View: This ignores one very important fact: Stocks are forward looking—not backward. They’ve priced in an eventual slowing to the Fed’s bond buying since Bernanke alluded to it last May. And the fact is markets could be pricing in the reality of QE—that a taper will actually be economic stimulus. For more, see Brad Pyles’ 10/31/2013 article, “Why This Bull Market Has Room to Run.”
|By Staff, Reuters, 12/02/2013|
MarketMinder's View: US manufacturing continues to improve—a nice tailwind for the economy and markets.
|By Nouriel Roubini, The Guardian, 12/02/2013|
MarketMinder's View: We have much to quibble with here. First, the biggest contributor to the 2008 financial crisis was the implementation of FAS 157’s fair value accounting. The housing bubble was part of the backdrop, but losses associated with bad loans amount to about $300 billion—insufficient to drive a financial crisis. However, FAS 157 required the paper destruction of around $2 trillion in banks’ capital. Additionally, housing prices aren’t artificially inflating because of monetary policy—overall, they’re rising due to increased demand and restricted supply. If monetary policy were such a huge inflater of housing bubble 2.0, why is loan growth sluggish in the current expansion?
|By Charles Stein, BusinessWeek, 12/02/2013|
MarketMinder's View: For every seller, there is a buyer—the market is an auction, which means cash flowing into stocks from bonds (to the extent that is even measurable) isn’t necessary for stocks to rise. Fund flows may be illustrative of prevailing sentiment, but they are not predictive of market direction. Late 1999 and early 2000’s big fund inflows were one facet alluding to overoptimistic sentiment, but just that. And they followed years of positive inflows. Assuming 2013’s inflows—one year after massive outflows—means a bear is surely on the horizon not only misunderstands fund flows, it gives one data point much too much credence.
|By John Redwood, The Telegraph, 12/02/2013|
MarketMinder's View: Yes, they can—but not for the reasons mentioned here. The explanation here is the theory the Fed’s operating on—attempting to stimulate the economy by increasing loan demand. However, the supply of loans is much reduced—in our view due to the Fed’s QE bond buying. The lower long-term rates relative to short term, the less profitable a long-term loan. QE is a weight on the economy—markets have risen despite it thanks to healthy fundamentals in the overall robust private sector.
|By Michael McKee, Bloomberg, 12/02/2013|
MarketMinder's View: Here’s a pithy, two-minute video explaining why all the handwringing and celebrating over what a weekend’s retail sales might be is overdone.
|By Archie Norman, The Telegraph, 12/02/2013|
MarketMinder's View: Well-intended as some regulation may be, “regulation has a ratchet effect. It is imposed but rarely repealed, resulting in ‘archaeology of regulation,’ layers upon layers occurring over decades.” These so-called ‘layers’ of regulations are often solutions in search of problems, and can often cause headwinds for markets down the road.
|By Katrina Bishop, CNBC , 12/02/2013|
MarketMinder's View: November eurozone manufacturing PMI beat expectations and expanded for a fifth straight month. Yes, there is still variance from nation to nation, but that’s to be expected in a diverse, 18-nation bloc and doesn’t indicate anything about future fundamentals. In our view, though the rate may be slow, conditions in the eurozone overall seem to be better than many appreciate.