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By , The Wall Street Journal, 12/31/2014

MarketMinder's View: This piece is chock full of fallacies and internal contradictions. If you are merely rebalancing, not making an active strategy change, how can you defend doing so based on valuations (like the fatally flawed CAPE)? That’s an active decision based on the (probably mistaken) belief the market is overvalued. As is the random allocation of 25% to foreign stocks based, also, on valuations. So when this article later pumps passive investing, we were frankly left scratching our heads. Picking one stock versus another, we are told, is problematic active investing. But investors are a-ok if they are picking entire countries, regions, sectors, categories of bonds and asset allocations, then rebalancing them based on valuations, as long as they use index-tracking products? What exactly would you call that? (We have a suggestion, and it starts with “active.”)

By , Bloomberg, 12/31/2014

MarketMinder's View: The beginning of this article is a standard recap of the active versus passive debate. The real value here, in our view, is in the back half when this article makes the very sensible and much less commonplace point that the line between passive and active is a heckuva lot blurrier than many suggest. For more, see Todd Bliman’s 08/12/2014 column, “Passive Investing’s Primary Error: It’s (Mostly) Imaginary.”

By , The Wall Street Journal, 12/31/2014

MarketMinder's View: This perhaps gives too much credence to recent Fed policy as supporting the bull market, which there isn’t really much evidence to support beyond coincidence. We’d suggest that quantitative easing, for example, has more dampened economic growth than anything else, since it flattened the yield curve, reducing banks’ incentive to lend. But overall, this is a very sensible look at the history behind rate hikes. As we have written here many times, there is just no history suggesting an initial Fed hike is so bad for stocks. There is history Fed errors are, but it is a wee bit hard to see how raising interest rates modestly against a backdrop of more than five years of economic growth—with four of the last five quarters above the US economy’s long-term average—would be an error.

By , CNBC, 12/31/2014

MarketMinder's View: The “Dogs of the Dow” is a longstanding, heavily marketed tactic that suggests you invest equal sums in the 10 Dow Jones Industrial Average components with the highest dividend yield at the end of the year. So, with 2014 coming to a close today, the roster will be set. However, please take note: This tactic is a) widely known b) all hinges on past performance and c) mistakenly targets dividend yield. Nothing about this amounts to good strategy. Past performance (which largely generates those lofty relative dividend yields) is just not predictive, no matter how you slice it. This also hinges on mean reversion: The theory being that stocks with higher yields this year will see a price rebound driving the yield back down to the Dow’s average. But averages are only the result of many extremes on both sides. They aren’t predictive, either.

By , The Telegraph, 12/31/2014

MarketMinder's View: Here is an ultra-pessimistic take that labels 3.3% GDP growth a “crisis” and suggests next year may look no better. Its evidence is to focus near exclusively on Russia, Japan and the eurozone, using these relative weak spots to color the depiction of the world economy. It omits the accelerating US, still robust UK, fast-growing China, other Asian Emerging Markets and more. It also relies on headline statistics like low inflation readings, presuming the trend will continue into deflation, and that modest, energy-driven deflation would even be bad (if it came to pass). To this, it adds skewed statistics regarding income distribution that are pre-tax and pre-benefit programs, unadjusted for the changing nature of the US household, and don’t actually account for the fact the bottom 90% and top 10% of US households by income change over time. We could go on. Suffice it to say that if we are “doomed” to another year of 3.3% global GDP growth and overall rising global stock markets, we’d be dandy with it.

By , The Australian, 12/31/2014

MarketMinder's View: Yes, Australia is currently running a budget deficit of roughly A$40 billion. But we don’t really think the country needs to shift its trade strategy to become the world’s nuclear waste repository to cover a deficit that amounts to 2.5% of GDP, particularly in a nation where net debt amounts to only about 14% of GDP. This is a false fear, with a bizarre remedy. But an interesting read!

By , CNBC, 12/31/2014

MarketMinder's View: This is too Pollyanna. That’s not to say you should worry about the economy in 2017 or 2016, just that this forecast is too far into the future to be useful. What’s more, the notion that rising oil prices triggered 2008—or that they’ve triggered many US recessions—is faulty. Yes, oil rose sharply in 2008. No, that didn’t trigger unnecessary mark-to-market losses of about $2 trillion on banks’ balance sheets. It also didn’t necessitate the government haphazardly dealing with the fallout from said unnecessary mark-to-market losses. Those are the things that caused the 2008 Global Financial Crisis—which, as the name implies, was centered in financials. It was not the 2008 Oil Price Crisis.

By , Reuters, 12/31/2014

MarketMinder's View: Aaaaaaaaaaaaaaaaannnnnnd investors should yawn. Look, there is just no history of ratings agency actions being a prelude to problems. They are more often a statement of the abundantly obvious or the misguided. Take, for example, Russia’s woes: These have basically been front-page news since February in some way, shape or form. Compared to falling oil revenues, what S&P, Moody’s or Fitch thinks of his nation is probably not very concerning to Russian “President” Vladimir Putin.

By , Bloomberg, 12/30/2014

MarketMinder's View: The conclusion reached here—that Greece's ongoing political theatrics don't really imperil the euro and have a very limited impact—is sensible enough. And yes, the formalization of the European Stability Mechanism is a plus. However, Greece's impact in 2010 wasn’t fundamental whatsoever, and was more about its ability then to stoke fear and roil sentiment, which can happen for any or no reason. Consider: Where was the titular “Spillover” then? The global bull market continued in 2010, 2011 and 2012 despite widespread fear of a Greece-induced eurozone crisis. The global economy grew. The major difference now is this is the end of the fourth straight year of Greece fears and woes, which have proven false to date. The fear has lost the power to move markets much at all.

By , The Wall Street Journal, 12/30/2014

MarketMinder's View: OK party people: What time is it? Time to set partisanship aside to read a very interesting article that actually does make 10 salient points about abolishing the corporate income tax that are at least worth thinking over. And when you’re done, you can immediately stop thinking about them, because the likelihood abolishing the corporate income tax comes to pass in the US is, rounded to the nearest whole number, zero.

By , Bloomberg, 12/30/2014

MarketMinder's View: So this shouldn’t really be a shock to anyone. The term one American economist coined that mashes together four major Emerging Markets economies—“BRICs” (Brazil, Russia, India and China)—is more marketing than economic analysis, a point driven home by recently diverging fortunes. Which seems obvious because they are, you know, different countries. China and India are fast-growing consumers of raw materials and Energy. Russia and Brazil are primarily producers of raw materials and Energy. That’s an oversimplification, but it should help illustrate why their markets and economies aren’t performing the same in a period when Energy and Materials are suffering with massive oversupply. Categorizing can be helpful, as Emerging Markets typically share some characteristics, like developing protections for property rights.

By , The Wall Street Journal, 12/30/2014

MarketMinder's View: Forget the claptrap herein regarding M3 growth not being on a par to generate “target” 2% inflation. There is no evidence 2% inflation is some magic number that corresponds to fast growth and booming stocks. Heck, look at the US, which is leading the developed world with GDP growth exceeding its postwar average in four of the last five quarters. The last quarter’s GDP growth was the fastest in more than a decade. But at no point in those five quarters has inflation met the target. We’d suggest that this news of a growing money supply and increased lending is a sign that the deflationary doom so many fret isn’t likely to happen. And it is yet another sign prevalent negative sentiment toward the eurozone is overdone.

By , CNBC, 12/30/2014

MarketMinder's View: The theory here is recent inflows in stock mutual funds and exchange-traded funds (ETFs) are high, and this is a contrarian sign of trouble to come because we all know that Mom and Pop investors are just way late to the party. Now, there is some truth to the fact that, unfortunately, many individual investors miss significant chunks of bull market and buy late. But to assume any inflow is a bear market signal is just way oversimplified. You can get inflows in a bull market—that was the story for the majority of the 1990s bull. Others pressing the buy button is not necessarily a signal for you to hit sell. Also, inflows into mutual funds may be higher these days than they’ve been in recent years, but this doesn’t seem so alarming when you consider they’ve only been positive in two of this bull market’s nearly six years. (PS: The ETF data is also not all that useful here, because the data set is really short for an investment vehicle that has grown massively over the years. It also isn’t purely a retail investor tool, unlike mutual funds, which pretty much are.)

By , Yahoo! Finance, 12/30/2014

MarketMinder's View: So the theory here is there won’t be enough stock buyers to support currently “lofty” valuations when, at some undermined point in the far-flung future, a generation of millions of baby boomers spanning 18 years somehow inexplicably decides en masse to press the sell button. Folks, we have all known that the baby boomers were aging because that is what people do: age. Markets are efficient discounters of widely known information, like the fact people age. Markets are also an auction, so you don’t need masses of buyers and new money to bid stocks up. Finally, all this is just rampant pessimism about millennials based on incorrectly couched statistics (student loan debt, if you use the median figure, is less than the size of a modest car loan; median “household” income figures that don’t account for the changing US household are pretty subpar, etc.). Anyways, buying into this theory is a recipe for missing long-term returns because the particulars of it won’t change for generations. (Oh and the cyclically adjusted price-to-earnings ratio is faulty.)

By , The Telegraph, 12/29/2014

MarketMinder's View: Sends Greek markets into a turmoil, that is—most indexes globally barely blinked. Seems to us markets largely realize Greece’s problems are Greece’s, and whether the anti-austerity Syriza party wins the upcoming snap election (not a guaranteed outcome by any stretch) doesn’t really matter for the eurozone or the world. One, Syriza isn’t anti-euro. Two, Greece has largely finished its existing bailout programs and has made its initial return to capital markets. Leaders have discussed establishing a provisionary line of credit to help ease the transition as the bailouts end in February, and a Syriza government might have a harder time negotiating with the troika, but that is worlds away from bailing on the euro. We suspect the eurozone can handle this, just as it handled Greece’s two bailouts and two defaults in 2011 and 2012. As can the world, which has long since realized Greece’s political theater isn’t a swing factor globally. For more, see our 12/10/2014 commentary, “The Greek Gambit, Redux.”

By , The Washington Post, 12/29/2014

MarketMinder's View: The facts here are always worth keeping in mind and speak for themselves: China, despite widespread belief otherwise, owns less than 10% of net US debt (debt owned by the public, not the Treasury). More interesting, though, is the study that prompted this piece in the first place. Over half of the Americans interviewed believe China owns at least half of America’s outstanding debt! And as a corollary, they believe that somehow gives China undue influence and power over America’s fate. Never mind that US Treasurys don’t have a call feature—bond owners can’t just decide to collect—and America has no trouble repaying bond principal and interest. Also interesting? Anecdotally, folks’ viewpoints and fears largely echoed the political rhetoric spouted by bigwigs in both parties. Politicians have a bigger incentive to get us riled up than to portray facts. But that’s just sociology. For investors, the lesson is to find and weigh the facts, not get caught up in mass sentiment.

By , The Telegraph, 12/29/2014

MarketMinder's View: The thesis here? The end of 2014 looks like the end of 1999—just before the dot-com implosion kicked off a nasty bear market—except this time could be worse because the underlying problems never went away (huh?) and growth is slower this time around. Um, last we checked, the trouble in 2000 was a runaway stock supply increase that euphoric investors missed. They also missed some pretty big negatives signaling a recession was likely, including an inverted yield curve and steadily falling US Leading Economic Index. None of those factors is present today, and sentiment is far tamer. As for the this-time-it’s-worse stuff, one, the global economy is actually not drowning in a “toxic brew” of “debt, deflation, and massive speculative inflows from a largely unreformed banking system.” Global debt levels are benign, deflation is nonexistent, and those speculative inflows are a myth. Nor is the global economic system “irreparaply broken.” Two, low interest rates aren’t keeping growth going—actually, we think the evidence suggests they’re a headwind, as higher long-term rates would steepen the yield curve, which over a century of evidence proves is a nice shot in the arm.

By , The Wall Street Journal, 12/29/2014

MarketMinder's View: Here is some more perspective on a mutual fund inefficiency we discussed last week—namely, the fact funds are legally required to distribute all net capital gains realized during the year to investors, creating a taxable event in non-qualified accounts. Regardless of whether the investors themselves sold any shares. In other words, you pay taxes for gains you yourself didn’t necessarily incur. Many funds are reporting high capital gains distributions for 2014, as they’ve largely used up crisis-era losses (which they used to offset gains earlier in this bull market). Mutual funds have their benefits, particularly for small investors who can’t diversify cost-effectively with individual stocks. But larger investors have more flexibility—something to keep in mind if you’re weighing whether your fund strategy is right for you. For more, see our 12/26/2014 commentary, “A Companion to Your 2015 Investment Product Catalogue.”

By , The Wall Street Journal, 12/29/2014

MarketMinder's View: This piece makes some interesting observations about jobless claims—they indeed have sometimes peaked as bear markets ended and bottomed at bull market peaks. Which would make them seem like a dynamite contrarian indicator! But there are a couple problems. One, which the article notes: “A peak or trough on a chart is only evident in hindsight.” You can’t know, real-time, if jobless claims are at a peak or trough—there is no magic number, high or low. Two, which the article ignores: Interesting observations are not synonymous with causal correlations. There is no inherent, causal relationship between jobless claims and the economy or stock market movement. Jobless claims are one of the Leading Economic Index’s 10 variables, but they are also one of the noisiest components. So, suffice it to say we would suggest long-term investors not follow the advice in this article’s last two sentences. Low jobless claims aren’t reason to turn bearish or expect stocks to peak in 2015.

By , The Yomiuri Shimbun, 12/29/2014

MarketMinder's View: More specifics on Japanese Prime Minister Shinzo Abe’s plan to get the country’s 34.62% corporate tax rate down into “the twenties” within the next few years. Bully! Though, we’d point out they’re still in the planning and proposing stage here. Parliament still hasn’t passed anything. Now, perhaps that’s a mere formality considering Abe’s coalition has a supermajority, but this government has a history of talking more than it acts, so some skepticism might be in order. Plus, cutting corporate taxes some isn’t a panacea for Japan’s many structural issues—particularly since, as suggested here, officials aim to replace “lost” revenue with a bunch of new tax provisions, likely making the tax code more complicated overall. That can easily offset the benefits of a lower headline rate.

By , The New York Times, 12/29/2014

MarketMinder's View: This operates on the false presumption that the Fed’s mandate stretches beyond balancing inflation and unemployment and includes preventing asset bubbles. Last we checked, that wasn’t in the charter. Nor do the incrementally watered-down regulations listed here have much to do with “speculation” and potential stock market bubbles. Like, giving banks extra time to get their living wills in order doesn’t give them the green light to load up their balance sheets with highly leveraged filth. It just, you know, gives them an extra year to write a how-to guide for the Fed and Treasury to use if the bank fails. Bizarrely, the reason they need more time is because the Fed is waffling on whether banks should expect it to fulfill its other primary role—the purpose it was created for—serving as lender of last resort. The rest here isn’t any closer to reality. Giving banks two extra years to sell stakes in private equity and hedge funds has pretty much nothing to do with stocks. Oh, and stocks’ continued bull market doesn’t depend on near-zero interest rates. Nor does the US economic expansion. Fundamentals globally are far brighter than this piece indicates.

By , The Washington Post, 12/26/2014

MarketMinder's View: A fine idea, and as this points out, taking stock (pun intended) of your finances and investment strategy can help keep you from repeating past investment mistakes, like having a portfolio that doesn’t match your long-term goals and daily needs. But the approach outlined in this article’s second half likely won’t help much in that regard. Your total net worth is a helpful thing to know, but knowing it doesn’t really help you be a better investor or make wiser decisions. Nor does it help you know how much of a buffer you have if times get tough, because you can’t really spend illiquid assets like your house or car. In our view, a more helpful approach would be to calculate your total liquid net worth and how those funds are allocated—how much do you have in stocks, bonds, cash or other securities? Then assess how those mesh with your long-term goals. For more on what to do next, see our snazzy guide here.

By , CNNMoney, 12/26/2014

MarketMinder's View: So on one hand, this is a handy look at two age-old behavioral errors: myopic loss aversion and regret shunning. Loss aversion is what makes folks hold on to poorly performing stocks long after the thesis to own them was disproved—thinking if they just hold on long enough, that red will turn to green! That bias blinds folks to the fact they’d likely be better off admitting they were wrong, selling, and looking for better opportunities and more forward-looking potential elsewhere. Regret shunning is what makes folks blame everyone else possible for decisions that don’t work out—like fund managers for picking “bad stocks,” CEOs for setting “bad expectations,” analysts for making “bad recommendations” and many more. That bias prevents investors from learning from their mistakes. Which brings us to the second half of this article: Deliberately shunning regret isn’t the way to battle loss aversion. That’s just swapping one error for another! Instead, use bad picks as a learning opportunity. Embrace your mistakes, figure out what went wrong, and then apply those lessons moving forward to reduce your overall error rate. That’s how you get better and become a disciplined investor.

By , The New York Times, 12/26/2014

MarketMinder's View: So here is some news you can maybe use about some new things that might show up on your mountains of IRS paperwork next year. Sure, it’s only Boxing Day, but it is never too early to start reading up and figuring out what you should discuss with your CPA! Especially since those IRS helplines will probably be pretty clogged this year.

By , Reuters, 12/26/2014

MarketMinder's View: That’s an odd way of saying holiday retail sales look poised to grow a decent amount from 2013. A 3-4% rise, if it comes to pass, is nothing to sneeze at—it’s consistent with broader economic growth. Even if they turn out weaker, holiday shopping is a sliver of US economic activity. Nothing here signals bad times ahead for America’s economy.

By , The Telegraph, 12/26/2014

MarketMinder's View: No, this isn’t a Russian retelling of How the Grinch Stole Christmas, though we’d pardon you for assuming that. It is actually your daily dose of Russia’s economic woes. In today’s edition, Russia’s finance minister warned of a 4% GDP contraction for next year and outlined plans to tap government reserve funds to fill the state budget’s expected shortfall. Russia has more than enough reserves to handle this for the time being, and there is no way to know whether oil prices will be this low (and Russia still largely cut off from international capital markets) over the next few years—so you can tune out the many pieces extrapolating years of pain for the Motherland.

By , The Reformed Broker, 12/26/2014

MarketMinder's View: The takeaway here is a fine reminder: Past seasonal trends aren’t predictive. But the entire subject sort of misses the point. If you’re investing for long-term growth, what does it really matter if next month is smashing, ho-hum or down? Trying to invest around short-term swings is a fool’s errand. If you’re in it for the long haul, and you expect more bull market, it probably makes sense to be in stocks regardless of how January might go.

By , The Wall Street Journal, 12/26/2014

MarketMinder's View: We have said it before, and we will say it again: The cyclically adjusted price-to-earnings (CAPE) ratio is bogus. Comparing current prices to 10 years of inflation-adjusted earnings tells you nothing. The last decade’s earnings and market movement don’t predict the future. CAPE doesn’t even tell you about sentiment, since it is so skewed by the last crisis, which depressed earnings bigtime. When you buy a stock today, you aren’t paying a premium for past earnings—you’re buying the future. That makes the normal forward P/E, bizarrely derided as “misleading” here, a much better sentiment indicator. Yes, it’s based on analysts’ expectations, but those expectations are often based on forward-looking items and today’s circumstances, which are much more useful to investors than what happened a decade ago.

By , Calafia Beach Pundit, 12/26/2014

MarketMinder's View: Here are some fun factoids to put all those fears about a high-yield Energy junk bond crisis into perspective. The kicker? “The likely defaults on US high-yield energy debt ($30 billion) are essentially a drop (0.1%) in a very large bond market bucket ($28.3 trillion). $30 billion is a very small number compared to the total value $51.7 trillion of US bonds and equities. Losses of this magnitude happen frequently and often many times each day.” For more, see our 12/12/2014 commentary, “Debunking the Junk Funk.”

By , The Telegraph, 12/26/2014

MarketMinder's View: Actually, here’s how we would sum up this year in currency markets: Some currencies rose and others fell, creating winners and losers. That’s it. Take the UK. Stronger sterling might indeed weigh on exporters’ profits, but few British firms manufacture goods using only domestically sourced raw materials and components. So the stronger pound also helped knock down costs on imported inputs, offsetting at least some of the currency’s impact on export revenues. A stronger (or weaker) currency isn’t inherently good or bad. There are tradeoffs, always.

By , The Wall Street Journal, 12/26/2014

MarketMinder's View: More targeted monetary stimulus in China, where officials continue doing what they believe necessary to keep growth near the target range. This piece highlights the ins and outs and why of this particular move, which involves changes in how the loan-to-deposit ratio is calculated, allowing banks to free up more deposits for lending—a quick liquidity boost without cutting rates across the board.

By , The Wall Street Journal, 12/26/2014

MarketMinder's View: Yes, job opportunities in the Oil & Gas industry are probably on the wane as companies seek to control costs wherever possible as prices fall. But, that hardly means job prospects are dimming across the entire US economy. The employment growth rate in oil-related industries might be higher than the broader economy, but a little math based on the figures cited in this article tells us that segment added about 486,000 jobs since 2010 began (through October). That’s a lot of jobs! But it’s also way lower than the nearly 10.6 million jobs added by the entire US private sector over that same period. Scale matters, folks.

By , The New York Sun , 12/24/2014

MarketMinder's View: So the thesis here is that Dow 18,000 isn’t meaningful because we aren’t at a record high when the index is priced in gold. Now, forget the gold-standard talk—an issue for another day. Trouble here is (and we went to the underlying source and deconstructed the charts) the math underlying this is totally incorrect, because it presumes the Dow at 18,000 is $18,000, divides by the gold price per ounce and then multiplies it by 28.3495, the number of grams in an ounce. You can’t do that for multiple reasons. The Dow level isn’t in dollars, it is points. Points calculated using price-weighting of 30 randomly selected stocks, then adjusted using a mathematical scheme that attempts (but fails) to account for stock splits. Also, gold’s price isn’t fixed like it was when the US was on gold standard, so you have many moving parts. Finally, it’s irrelevant either way. Index levels, especially something so randomly determined as the Dow’s narrow, wonky level, don’t tell you anything about where stocks will go. And that’s priced in points, dollars, gold, silver, pork bellies or fool’s gold.

By , The Wall Street Journal, 12/24/2014

MarketMinder's View: Actually, gold has been falling since 2011, so all this rambling about 2014 being such an odd year is out of context. Here is the context: Since 2011, the following events have occurred: The Fed launched Operation Twist, Quantitative Easing (QE) 3 and QE-infinity. It later “tapered,” eventually ending QE. We’ve had rising and falling long-term interest rates. The BoJ launched a massive QE program and Japan grew like gangbusters and had a recession. The eurozone was in and out of recession. Geopolitical tensions rose in North Africa, the Middle East, Syria, Israel, Ukraine/Russia, Iraq and more. All the while, gold fell. So maybe 2014 was actually just more evidence gold is not a hedge or insurance against monetary policy, inflation, deflation, recession, geopolitical tensions or any other factor? Just maybe? But also, note: Gold’s 2014 performance doesn’t say anything about 2015. Commodities trade on markets and markets are not serially correlated. We believe investing in gold is a dodgy idea, largely because it’s more volatile than stocks with lower longer-term returns. That’s a bad combo, unless a) you can prove it effectively hedges against something, which it doesn’t (see above) or b) you have an uncanny ability to time something that’s down much more often than up. Maybe the right question about investing in gold isn’t where is it headed and why didn’t it react to events. It is, “Do you feel lucky?”  

By , Bloomberg, 12/24/2014

MarketMinder's View: Credit-ratings service Standard and Poor’s (S&P) is warning they may downgrade Russia’s credit rating into junk territory in the next 90 days due to the following: The ruble turning to rubble, the weak Energy-based economy, government pressure on Russian firms to sell foreign currency and super-high borrowing costs. However, we’d suggest everyone in the market was pretty darn aware those four factors already. This is breaking news from a month ago, couched as a drastic rating change—in keeping with standard credit-rating agency practices, which are often poor on the timeliness scale. An S&P downgrade seems like the least of Russia’s concerns. 

By , MarketWatch, 12/24/2014

MarketMinder's View: The five? Raising the bar to qualify to sell indexed annuities; simplifying products; having regulators tighten controls over advertising; higher 10-year Treasury rates (since this governs many aspects of annuity interest and payments); and wishing for customers to seek annuities out, not salespeople peddling them. We don’t agree with all of this—we think those customers not seeking out annuities are just making a rational choice when it comes to a complicated and often misleadingly sold product. But there is a lot of sense in this article, which we wish many potential annuity buyers would read. For more, visit Fisher Investments’ educational website, Annuity Assist.

By , Reuters , 12/24/2014

MarketMinder's View: Ok, so no real market impact from this. But now Russia’s crisis is really hitting home, with Russian “President” Vladimir Putin ordering price caps on the cultural staple at the holidays. However, it seems Vladimir’s economics are failing him once again: Slapping price caps on expensive vodka doesn’t dissuade bootlegging, it encourages it: It sends a signal to producers to slash production, which leaves the shelves bare. This very lesson is being taught in Venezuela already, and was taught previously in Soviet Russia. Capping prices, folks, doesn’t work.

By , Bloomberg, 12/24/2014

MarketMinder's View: Wait. Who is this consumer? Did he or she go somewhere? And they are now back, because November US personal consumption expenditures (PCE) grew 0.56228% m/m? Where were they in the 12 faster months since growth returned in June 2009? Also, lower gasoline prices create winners that get a bigger slice of overall PCE and losers that get less PCE. They do not, contrary to the argument here, bring a massive amount more PCE overall.

By , The Wall Street Journal, 12/24/2014

MarketMinder's View: There is little sign that an economy that has grown above its post-war average in four of the last five quarters can’t handle a rate hike. And a lot of this is forecast and speculation, which concludes with the notion that fast growth and low inflation are problems for the Fed. Ummm. We’d suggest the Fed just tripped over what was once known as “The Goldilocks Economy.” And it isn’t like the Fed was great at forecasting before this latest episode. The Fed usually reacts, and usually pretty late, to rising inflationary pressures.

By , The Telegraph, 12/23/2014

MarketMinder's View: There really isn’t any such thing as an “unsustainable” current account. Economies aren’t fixed pies, and countries with current account deficits have foreign investment surpluses, which help drive growth. This stuff is all largely zero sum. If it weren’t, the US wouldn’t have the world’s most dynamic economy. As for the other part of this article—the UK’s GDP revision—the downward revision to five quarters’ worth of GDP is way too backward-looking to mean anything today. Stocks look forward and don’t really care how the UK did from Q2 2013 through Q2 2014. They care about the future, and nothing in this report tells you what’s in store. Like, that “growing chasm between household spending and business investment” isn’t even a growing chasm. It is a blip after four quarters where business investment growth blew household spending growth away. We aren’t saying the UK is in perfect shape, but perspective is important. Besides, forward-looking indicators like the yield curve and private sector new orders signal more growth ahead.

By , Bloomberg, 12/23/2014

MarketMinder's View: Well that’s nice. We’re pretty sure this isn’t a competition though. Nor does it challenge the US’s global economic dominance, whatever that even means. If China wants to bankroll a bunch of client states with dictatorships and mismanaged economies, bully for them. That doesn’t cut into growth or trade in the US and western world. And if it helps China and these other countries grow and trade more, that only benefits everyone else.

By , MarketWatch, 12/23/2014

MarketMinder's View: Well, we would be the first to argue that hiking interest rates now isn’t the worst idea, considering the US economy has grown at above its post-war average clip in four of the last five quarters, unemployment is at its long-term average, and forward-looking indicators are expansionary. There is also little historical evidence suggesting this would roil markets. However, this isn’t remotely close to the same as the theory here, which holds that the Fed is keeping rates too low and all its crisis-borne measures in place for too long, spurring an asset bubble like it allegedly did in the last cycle. There is a lot wrong with that, in our view. 1) Bubbles are psychological phenomena, not monetary. 2) The last cycle ended prematurely because a regulatory shift (FAS 157) unnecessarily laid waste to bank balance sheets and the Fed outsourced crisis management to a haphazard Treasury. 3) Quantitative easing may have greatly increased the reserve credits banks hold, but they would have to all suddenly lend off them freely for that to matter much. Hasn’t happened. The Fed needn’t take drastic action at this point to wind down its emergency measures, which were largely ineffective in the first place. Finally, this whole notion of the Fed managing the economy is fundamentally wrong. No one manages a capitalist economy, which is for the best as it allows free choice and individual decision making to cause ideas to collide creatively. The Fed is tasked with acting as the lender of last resort and balancing inflation and employment. The Fed’s record of reaching even these more modest goals is spotty, so why should we give them a promotion to Economic Manager?

By , Reuters, 12/23/2014

MarketMinder's View: “In an annual report on market activities, the Securities and Exchange Commission's Office of the Investor Advocate said private placements, variable annuities, non-traded real estate investment trusts (REITS) and binary options all presented problems for investors.” Seems like a good list of products to start with, if you asked us. Here are two major examples why we agree: Variable annuities are high fee, low returning, little protection insurance products with little liquidity. Nontraded REITs are high fee, illiquid and very similar to more liquid, lower fee traded REITs. We struggle to see why these are a thing. In addition, very recently it came to light there were accounting irregularities at a firm that backs about 50% of outstanding Nontraded REITs.

By , The Telegraph, 12/23/2014

MarketMinder's View: By “joins Asia’s currency wars,” this piece means, China talked a lot about how the yuan, which is sort of pegged to the US dollar, has risen way too fast and is like way bad for Chinese exporters—and a 2% fall in the yuan’s value relative to the dollar accompanied all the yammering. So, a lot of speculation here, but Chinese authorities still partially control the exchange rate, so it’s easy to connect the dots. But the “currency war” aspect here is rather overstated. We’re fairly sure exactly no one is surprised China might have intervened after the yen and other neighboring currencies fell—it’s China. That’s what they do. Nor are all those other weaker currencies (save for the yen) deliberate. They’re byproducts of the rising dollar—nothing moves in a vacuum. Also? You can’t really win or lose a currency war, so the term is a misnomer. The exchange rate fluctuations just create winners and losers within each country. That’s it. For more, see Todd Bliman’s book review of the aptly titled Currency Wars.

By , Bloomberg, 12/23/2014

MarketMinder's View: Look, there are a lot of reasons not to pay much attention to this, like it’s the Dow, a fatally flawed, price-weighted index of 30 randomly selected stocks, and the GDP report here is the third revision of Q3 2014 growth, data that’s now nearly three months old. Stocks look forward, not back. But also, here is another fallacy: “It’s been 172 days since the Dow closed above 17,000 on July 3, data compiled by Bloomberg show. That’s the fifth-fastest trip between thousands, with the record being 35 days to 11,000 in May 1999. It took the index almost 5,200 days to go from 1,000 to 2,000 between 1972 and 1987, according to [a guy at a financey place].” Well, duh. The move from 17k to 18k is a 5.9% gain. The move from 1k to 2k is 100%.

By , The Telegraph, 12/23/2014

MarketMinder's View: By “joins Asia’s currency wars,” this piece means, China talked a lot about how the yuan, which is sort of pegged to the US dollar, has risen way too fast and is like way bad for Chinese exporters—and a 2% fall in the yuan’s value relative to the dollar accompanied all the yammering. So, a lot of speculation here, but Chinese authorities still partially control the exchange rate, so it’s easy to connect the dots. But the “currency war” aspect here is rather overstated. We’re fairly sure exactly no one is surprised China might have intervened after the yen and other neighboring currencies fell—it’s China. That’s what they do. Nor are all those other weaker currencies (save for the yen) deliberate. They’re byproducts of the rising dollar—nothing moves in a vacuum. Also? You can’t really win or lose a currency war, so the term is a misnomer. The exchange rate fluctuations just create winners and losers within each country. That’s it. For more, see Todd Bliman’s book review of the aptly titled Currency Wars.

By , Jiji Press, 12/23/2014

MarketMinder's View: JP stands for Japan Post, the state-owned postal/banking/insurance behemoth with a ginormous stranglehold on public finances and financial services. Privatization legislation was one of former Prime Minister Junichiro Koizumi’s key achievements before he gave way to Shinzo Abe in 2006, but successive governments between then and now delayed and chipped away at the plans. Now, with Abe back as PM, it seems plans are moving forward, as the government will list shares of the holding company, bank and insurance units next year. These are just the first of many sales, and it will take time (and determination by this and future governments) to reduce the state’s stake below 50% as planned. But it is an encouraging step, and privatization will ultimately benefit Japan’s economy, improving competition and injecting more market forces into financial services. Though, temper your enthusiasm, as this isn’t exactly a litmus test for Abe’s reform prowess. For more on that, see our latest Abe special, “Now What?

By , Reuters, 12/23/2014

MarketMinder's View: So it seems the super tax on salaries exceeding €1 million is going to die a quiet death after not accomplishing very much except raising the ire of a select few high-earning French people. All in all, it raised a paltry $420 million in two years, which is zippo in an economy the size of France’s. Here is largely why: “’A few [high earners] went abroad -- to Luxembourg, the UK,’ said tax lawyer Jean-Philippe Delsol, author on a book on tax exiles called ‘Why I Am Going To Leave France.’ ‘But in most cases, it was discussed with their company and agreed to limit salaries during the two years and come to an arrangement afterwards,’ he told Reuters by telephone.”

By , The Wall Street Journal, 12/23/2014

MarketMinder's View: This attributes all the bond and stock market movement since last Wednesday to the Fed meeting and the language used in the statement, which said the FOMC will take a “patient” approach toward hiking rates, but that it will also weigh incoming economic data, which some take as conflicting. In our view, though, this is a whole lot of searching for meaning in uppy times and searching for hidden meaning in Fed obfuscation. What’s more, it’s a near-totally worthless exercise, considering there isn’t any history suggesting stocks will be automatically negatively affected by an initial rate hike. For investors, this is noise.

By , China Daily, 12/23/2014

MarketMinder's View: It seems China’s local governments have found a solution to the central government’s new crackdown on their complex funding arrangements: just float some foreign bonds and let investors determine how expensive they should be. Looks like a market is developing. We wouldn’t go rushing into it headlong or anything, but over time this should bring another dose of modernization to China’s capital markets.

By , Vox, 12/23/2014

MarketMinder's View:  If you’re looking for a good way to pass the time with family this week and next, here is MarketMinder’s guide to nerdy family fun:

1. Round up your parents, siblings, aunts, uncles, kids, cousins, neighbors or whoever else is around.

2. Make a giant pot of hot cocoa (or for grown-ups, whip up some wassail, glühwein or hot toddies).

3. Pop open one of these seven games and have at it.

Sure, board games aren’t perfect proxies for real-life economies and markets—they’re fixed pies, with static money supply and no potential for invention or technological solutions to make limited resources go further. But that is a small caveat to what is otherwise a keen observation about all seven of these delightful games. This blurb’s author grew up on the first four (Monopoly, Life, Scrabble and Acquire) and can personally vouch for the lessons they teach about the tradeoffs between risk and return and the power of trade. They are also fun!

By , Bloomberg, 12/23/2014

MarketMinder's View: So the theory here is gold is a hedge against inflation, and since falling oil prices are weighing on headline inflation, gold is down. Trouble with the theory? Well, gold has been down since, we don’t know, 2011. Oil was flat for most of that time and only really started falling in June of this year. Since June, oil prices are down nearly -50%. Gold is down -4%. Inflation, on the other hand, has been fairly stable at low rates throughout. Doesn’t seem to be that much to this theory, is all we’re saying. Besides, when you figure inflation has risen since 2011, you’d think an effective hedge against it should have risen, too. But gold is down significantly, so you know, bad hedge.


By , The Telegraph, 12/22/2014

MarketMinder's View: Well, we disagree with the claim that Russia faces a worse situation today than in 1998—oil prices were far lower then, and Putin does have over $400 billion in currency reserves today, so a Russian default isn’t likely. One similarity is that neither then nor now are ripples being felt much outside Russia. But that minor quibble aside, here is a highly engaging and informative article about the situation in Russia and how it really isn’t new or unique in the annals of the Russian “economy.”

By , The Wall Street Journal, 12/22/2014

MarketMinder's View: Well, this is basically internally contradictory and rather bizarre advice at that. It suggests you shouldn’t act on any market forecast, and then it suggests you act on two: One projecting the 10-year future of inflation and stock and bond returns, the other implicit in the statement that, “If you think you might panic and sell during a market decline, you should sell now, while prices are still at lofty levels.” Something cannot be lofty if you don’t expect it to get lower. But also, it’s amazingly bizarre to tell someone to sell merely because they might sell at a worse time. It’s also bizarre to advise them to hold 5-10 years of cash flow in bonds or cash-like vehicles. How about if you counsel them to focus on their long-term goals and turn off the financial news? Then, again, this does provide the wise comment that hiring a good adviser can help you avoid the biggest possible mistake, which is sage.

By , The Wall Street Journal, 12/22/2014

MarketMinder's View: Well, this is basically internally contradictory and rather bizarre advice at that. It suggests you shouldn’t act on any market forecast, and then it suggests you act on two: One projecting the 10-year future of inflation and stock and bond returns, the other implicit in the statement that, “If you think you might panic and sell during a market decline, you should sell now, while prices are still at lofty levels.” Something cannot be lofty if you don’t expect it to get lower. But also, it’s amazingly bizarre to tell someone to sell merely because they might sell at a worse time. It’s also bizarre to advise them to hold 5-10 years of cash flow in bonds or cash-like vehicles. How about if you counsel them to focus on their long-term goals and turn off the financial news? Then, again, this does provide the wise comment that hiring a good adviser can help you avoid the biggest possible mistake, which is sage.

By , Bloomberg, 12/22/2014

MarketMinder's View: Many feared the US government’s borrowing costs would surge after the Fed stopped increasing its holdings of Treasurys. But despite the Fed “tapering” its bond buying program beginning in January 2014 (and ending it in November), interest rates are lower today than when the year began, as demand for US Treasurys remains high and supply relatively constrained as the shrinking deficit crimped bond issuance. And as mentioned here, that likely doesn’t change heading into the New Year.

By , MarketWatch, 12/22/2014

MarketMinder's View: According to this article, “Gray swans are occurrences that aren’t wholly unpredictable, but are insidiously laying in plain sight.” In markets, if it is in plain sight, it is likely already reflected in stock prices. That is how markets work. Hence, none of these are actually major market risks as outlined here, unless they go some wildly unpredictable way, which would make them not a gray swan. (All these swan analogies are getting a bit tired, don’t you think?)

By , China Daily , 12/22/2014

MarketMinder's View: “The deposit insurance system heralds the removal of the deposit rate floor, the very last step in China's interest rate liberalization. China has long established a deposit rate floor and although the rate has been allowed to rise by a certain range, the floor has never been scrapped, allowing banks to freely decide deposit rates.” This is another step in China’s long march toward a market-oriented economy, and if it turns out to be, “a prelude for [sic] the establishment of private banks,” that would be a big step for China, indeed.

By , The Wall Street Journal, 12/22/2014

MarketMinder's View: Developments continue unfolding in Greece after Prime Minister Antonis Samaras failed to get the 200 Parliamentary votes needed to elect Stavros Dimas as Greece’s next (largely ceremonial) president. Parliament will vote again Tuesday (and again on the 29th if they’re still deadlocked), and Samaras is in full bargaining mode: If lawmakers elect Dimas and avoid an immediate snap election, he’ll reshuffle his cabinet to include more independents and hold elections before 2015 ends, earlier than his term technically expires (but, for good measure, after the latest round of bailout negotiations is over). Will it work? Who knows—the anti-austerity Syriza Party, which is trying to stonewall the presidential vote and force the snap election (not coincidentally, they lead polling), might counter with its own shiny promises to independent lawmakers. Regardless, this is mostly a distraction for global investors. While some fear this saga might end with the current government out and Syriza in charge, a) that’s all speculation and b) Greece’s issues are mostly Greek anyway. For more, see our 12/10/2014 commentary, “The Greek Gambit, Redux.”

By , CNN Money, 12/19/2014

MarketMinder's View: When the government launched the Troubled Assets Relief Program, or $700 billion bailout, at the height of the financial crisis in October 2008, many folks thought this was money being flushed down the drain; free cash for Wall Street, no strings attached. But the reality is very different, as shown now that the books on TARP are closed. The bank bailout part of TARP turned a nice profit. The automaker part was in the red along with the so-called “homeowner bailout” programs. Now, whatever the gain or loss, we’d suggest that this program didn’t successfully achieve its aim: Stabilizing the financial system. It was a key part of the government’s haphazard response that roiled markets after FAS 157 had spent a year wrecking bank balance sheets unnecessarily. Oh and hey, forget all that rhetoric about “profits for taxpayers” or what have you. We’d suggest holding your breath while waiting for your share of the US government’s $15.3 billion profit from TARP isn’t good for your health.

By , The Wall Street Journal, 12/19/2014

MarketMinder's View: A mish-mosh of misperceptions here. It starts with the suggestion stocks are extremely expensive and bound to fall sooner than later because the cyclically adjusted price-to-earnings ratio (CAPE) is high and stocks bounced back off of recent volatility too fast to become “cheap,” which presumes a) P/Es are predictive b) cheap stocks do better and c) the CAPE shows you stocks are cheap. None of these are accurate. But the advice to avoid the temptation to “do something” because of energy-driven volatility is highly sensible: “The sharp and swift recovery shows the importance of not reacting to every blip in the market.” However, the tail end of the article eschews this advice anew. For more, see our 12/18/2014 commentary, “Vexing Volatility.”

By , Reuters, 12/19/2014

MarketMinder's View: This highlights an excellent point often overlooked amid consternation surrounding China’s recent slowdown: Even at lower growth rates, China still contributes tremendously to global economic activity. What’s arguably more important than a high rate of growth is that China continues growing and gradually shifting its economic focus from an infrastructure-driven economy to one that is more consumer- and services-oriented, as most developed-world economies are. Particularly when the growth rates in question are in the 7% range on the low end—an enviable figure relative to much of the rest of the world.

By , The New York Times, 12/19/2014

MarketMinder's View: This piece confuses correlation with causation, in our view—simply because two events seemingly corresponded in time doesn’t necessarily mean one caused the other absent a logical, causal link. Do markets require sensible regulation? Absolutely. Absent well-reasoned rules of the game, no free market can efficiently operate. However, the key word is “sensible”—and to presume politicians of any stripe are capable of effectively regulating every possible risk out of markets is to give them far too much credit. Rather than blame insufficient regulation for every past downturn, we’d suggest market cycles are far more tied to behavioral psychology and the way our brains have been wired for millennia. As humans, we often allow emotion to drive decisions—which sentences us to periodic irrational exuberance and irrational pessimism, regardless of whether Washington has forbidden it. Finally, we’d note there is more evidence a regulatory change—FAS 157—was at the heart of 2008 than deregulation.

By , The Wall Street Journal, 12/19/2014

MarketMinder's View: Given government gridlock following the midterm election, the likelihood significant legislation is passed is meaningfully lower. Particularly legislation likely to be more polarizing—and tax discussions often fall into that camp. Then, too, consider the fact similar changes to IRA and Roth rules and tax benefits were considered as part of the Obama Administration’s 2014 budget, which died on the vine when his party had one chamber (the Senate). The likelihood Congress passes legislation fundamentally altering the tax status of certain retirement accounts is very low.

By , Dow Jones Newswires , 12/19/2014

MarketMinder's View: Are you surprised Venezuela’s feeling the pain of falling oil prices right now? Right, we’re not really either. We—and most investors, we’re betting—are also not very surprised credit-ratings agencies are only now adjusting ratings on a nation that is heavily dependent on oil. All this is really more of an illustration of the feckless state of the raters. It’s unlikely to have a terribly meaningful impact on either Venezuela’s already challenging economic situation or global markets.

By , The Wall Street Journal, 12/19/2014

MarketMinder's View: We’ve long suggested the Volcker rule is mostly a solution in search of a problem. And it’s gone through several iterations, re-writes, edits and delays since its initial discussion in 2010—all while the US financial system’s health has improved dramatically and stocks have overall risen. At this point, the Volcker Rule’s basic outline is well known, with the separation of trading and commercial banking having been discussed for about five years, written in law for four and implemented for about a year. For the most part, banks have adjusted as necessary to exist in a post-Volcker world, making any further political dithering largely fodder for headlines. And a recipe for irritated namesakes.

By , Bloomberg, 12/18/2014

MarketMinder's View: Nice graphics—flashy!—but this holds little value for investors looking towards 2015. The things that would potentially be big and bad—like the US, Russia, Norway and Denmark fighting over mineral rights in the Arctic or Putin invading the Baltics seem highly unlikely. Of the other fifteen “threats” listed here, most are unsurprising and/or too small to hit global stocks and/or unlikely to happen. There are several permutations of regional wars in the Middle East. Saber-rattling in Asia? Grexit? Look, it might be terrible to say, but nothing in Nigeria is likely to cause a global bear market. This would be more appropriately labeled, “An Extreme Pessimist’s Speculative Guide to the World in 2015.”

By , Bloomberg, 12/18/2014

MarketMinder's View: Well folks, it has been a considerable time since we’ve had a new Fed phrase for the financial media punditry to dissect and speculate about, but it seems Janet Yellen has given us a new word to monitor in 2015: Patient! It is a great word and a quality we recommend to all long-term investors. However, its presence in a central banker’s speech shouldn’t cause you to change your market outlook. The Fed will hike rates when it hikes rates—and history has shown that a rate hike isn’t an automatic negative for the economy or markets. For more, see Elisabeth Dellinger’s column, “Considerable Wrangling Over Considerable Time.”     

By , The New York Times, 12/18/2014

MarketMinder's View: Well technically, Mr. Putin isn’t wrong—his country’s energy-dependent economy is completely at the mercy of oil prices, and thanks to rising global supply, prices have been nearly halved since June. As a result, the ruble’s slid the whole year, and despite the Central Bank of Russia’s efforts, plunged this week. But Russia’s tsar, er, president seems to suggest that evil speculators conjured up by “the West” are working against the Motherland. Which is a whole lot of Russian politicking likely designed to make folks overlook the weak economy out of patriotism. We’d suggest Russia’s current struggles needn’t imperil the global economy at large. For more, see our 12/17/2014 commentary, “The Red Scare.”    

By , Bloomberg, 12/18/2014

MarketMinder's View: Well, this is all about future investment in oil production that the “bankers” estimate won’t happen over the next decade. So it’s a long-term forecast (shaky) and one that products production growth in 2015. There really is no such thing as a permanently “stranded asset”—one that is uneconomical to extract. Technology gets better, lowering breakevens. Lower prices probably bring more demand. And if production growth slows, as the article notes, prices likely rise thereafter. All this fancy talk really just illustrates how the market has always worked and why the market works, pure and simple.

By , Associated Press, 12/18/2014

MarketMinder's View: More positive news for the US economy: The Conference Board’s Leading Economic Index (LEI) rose for the ninth time in the past 11 months, up 0.6% in November. Eight of 10 indicators increased, with the two biggest being the interest rate spread and the ISM new orders index—forward-looking signs growth likely continues rolling into the new year.   

By , The Reformed Broker, 12/18/2014

MarketMinder's View: This is a good reminder for investors who may be tempted to chase heat based on the news about Cuba: “But Cuba, when all is said and done, will continue to be a frontier market, with total annual GDP of $72 billion and per capital income of just $10,500. If there is a lasting boom in that country, you will have plenty of time—no need to chase this fund up 30% this afternoon.” To take this concept broader, this is just the latest example of Fad investing you should avoid. Here are some earlier examples: Bitcoin; Marijuana-related firms; some social media firms. Maybe someday those will be big, investible opportunities, but they aren’t now. Searching for The Next Thing to Go Huge and Viral in markets is speculating, not investing.

By , The Telegraph, 12/18/2014

MarketMinder's View: The nine charts here offer a potpourri of backward-looking, late-lagging, wonky and speculative claims for why Greece should leave the eurozone today. Employment. Past GDP comparisons. The trade deficit. Debt levels. Emigration. Surveys and political polls. Where is the sign any of these would actually improve if Greece left the euro? Sure, if they had their own currency, they could monetize the debt. Grrrrrrrrrrrrrrrrrrrrrreat. That’s not exactly a recipe proven to generate jobs, exports or competitiveness. And that last word is key—competitiveness. Because Greece’s issues are not that they are in a currency union. They are that this nation has decades of history of structural economic issues. Now, this also buys much too heavily into the theory a potential election may put an anti-austerity (not anti-euro) party in power who the EU/IMF/ECB troika might not negotiate with, possibly leading to a “Grexit.” For more, see our 12/10/2014 commentary, “The Greek Gambit, Redux.”       

By , The New York Times, 12/17/2014

MarketMinder's View: What’s charted here is actually the Ruble/Dollar exchange rate since September, WTI crude oil prices since mid-November and 10-year US Treasury yields since January. So, you know, not 24 hours. But that’s a minor quibble and one we’ll happily pardon since headlines’ purpose is to get clicks and, well, it worked! The larger issue here is with the thesis, which is more or less that Russia’s predicament is terrible for Russia but good for America, because falling oil prices plus a flight to safety is pulling down interest rates, making mortgages cheaper. Which is sort of the old quantitative easing (QE) argument all over again. Maybe low long rates do stimulate demand for loans! But they also flatten the yield curve, which generally makes banks less eager to lend. Low-rate loans aren’t as profitable. Now, the yield curve is steeper today than it was last May, before all the chatter about QE ending drove long rates higher. That’s good! And the US did overall fine during QE despite the flattish yield curve, historically low loan growth and falling M4 money supply. This shouldn’t upend the expansion or anything. It’s just faulty logic, which we feel compelled to point out in our never-ending quest to make the world a better place.

By , Fox Business, 12/17/2014

MarketMinder's View: OK let’s talk about this one. It claims the clock starts ticking whenever the Fed removes language stating rates won’t rise for “a considerable time” from its policy statement—and “considerable time” means “six months,” so if the Fed redlines that verbiage today, you should mark your calendar for a mid-2015 hike and commence whatever freak-out ritual you prefer. Here are two reasons why that is rather useless advice. One, the first rate hike in a tightening cycle isn’t inherently negative—history shows stocks and the economy fare fine. Two, the “six month” thing is based on a goof by Fed Chair Janet Yellen during one of her first press conferences, where she forgot that Fed people are supposed to be vague. Since then, she has been quite non-specific on timing.

March 19: “So, the language that we use in the statement is “considerable” period. So, I—you know, this is the kind of term—it’s hard to define. But, you know, it probably means something on the order of around six months or that type of thing. But, you know, it depends.”

June 18: “So what I want to say, the guidance that I want to give you, is that there is no mechanical formula whatsoever for what a “considerable time” means. The answer as to what it means is, it depends. It depends on how the economy progresses.”

September 17: “I do not think we have any mechanical interpretation that applies to this. It, of course, gives an impression about what we think will be appropriate, but there is no mechanical interpretation. … And it is important for markets to understand that there is uncertainty, and this statement is not some sort of firm promise about a particular amount of time.”

BREAKING NEWS: “Considerable time” is still in the statement, only a sentence later. The Fed added “we’ll be patient” and basically said these things are synonymous. So yah, more meaningless noncommittal obfuscation. Seems about right.

By , Bloomberg, 12/17/2014

MarketMinder's View: Yes, our friends (?) in the 113th Congress fiiiiinally got around to renewing the dozens of mini tax breaks that expired earlier this year, giving Americans 13 days of clarity on their IRA required minimum distributions, charitable donations and other fiscal nuances. Quick! Call your tax adviser! But don’t plan for next year just yet, because they all expire again on January 1, giving the 114th Congress the pleasure of haggling over an extender for 2015 and maybe beyond. Now, we expect them all to be renewed again eventually, as they always are. It would probably be helpful if they’d just make the things permanent already, but that would rob them of one of their favorite campaign wedge issues, and we can’t have that! Anyway, in short, it’s all theater. But really, quick, call your CPA!

By , Bloomberg, 12/17/2014

MarketMinder's View: So this is interesting but sort of misses the point: This conversation would never happen when oil prices were high, because politicians would be worried about blowback from voters (most assume exports mean higher prices—see here for more on why that isn’t true). Exports are much easier for folks to digest when oil is in the $50s than when it is over $100 and gas prices average somewhere in the $2s, depending where you live. None of this changes the fact that the export ban is a largely political issue that is well past its use-by date. When the US is one of the world’s top oil producers and drowning in a crude surplus, we just don’t need an export ban that originally aimed to shore up supply during the OPEC embargo in the 1970s.

By , The New York Times, 12/17/2014

MarketMinder's View: In all likelihood, no, falling oil prices and issues in Russia likely won’t test whether regulators’ efforts have made the global financial system more panic-resistant. For one, junk bonds have been under pressure, but this is mostly confined to Energy firms and very speculative ones at that. The likelihood this creates a panic akin to 2008 is extremely small, considering the total exposure is about $200 billion (it took trillions of writedowns to create 2008); Energy firms hedge against falling prices; not all the junk bonds are issued by companies reliant on oil—some drill for natural gas, which is up year-over-year; and oil prices at present levels don’t put all these firms in the red—breakevens vary. As to the Russia concerns, banks in the US aren’t very connected to Russia, and even European banks have relatively limited exposure. Additionally, Russia itself has over $400 billion in forex reserves at the Central Bank of Russia, which it could use to forestall default if it chose to—that amount is sufficient to cover the next 12 months’ maturing dollar-denominated sovereign debt about three times over, so a default just isn’t likely. And even if it did default a la 1998, as many fear: 1998’s Russian Ruble crisis and Asian regional recession didn’t go global and didn’t create a financial panic. We may not know if Dodd-Frank, Basel III and the like strengthened the financial system for decades—while recessions are a regular occurrence, widespread bank runs and panics are fairly rare in the modern era.

By , AFP, 12/17/2014

MarketMinder's View: Today in totally unsurprising news, Greece’s government didn’t corral enough votes in Parliament to elect its handpicked Presidential candidate. They needed 200 of 300 votes and got just 160. Round two is next Tuesday. Round three, if necessary, is December 29, and the required votes drops to 180. If that fails, Parliament dissolves, and it’s general election time. Some say that would spell the end for Greece in the euro, as the anti-austerity Syriza party leads polls, but that seems hasty. IF it comes to a snap election, voters could moderate during the campaign, just as they did in 2012. If they don’t and Syriza wins, they could moderate, too—just as they have since 2012, replacing anti-euro rhetoric with anti-bailout rhetoric. And if they don’t and Greece leaves the euro? Considering how long folks have feared and chattered away about this outcome, markets have likely long since discounted that possibility. See our 12/10/2014 commentary, “The Greek Gambit, Redux,” for more.

By , The New York Times, 12/17/2014

MarketMinder's View: Welp, it seems as though the US now plans to make solar energy even more expensive than it was before by increasing the taxes charged on solar panels imported from China. (Odd, given our government’s stated policy aim of seeking to expand the use of renewable energy.) The good news here is these tariffs, now nearly two years old, haven’t evoked a major retaliatory tariff from China—and, China’s comments here don’t allude to that changing. Tariffs on solar panels are a tiny matter unto themselves, given green energy accounts for a tiny slice of the US or Chinese economies. Which means that if this had erupted into a trade war, it would have been arguably the dumbest trade war of all time.

By , The Wall Street Journal, 12/17/2014

MarketMinder's View: In a long-awaited ruling, Germany’s Federal Constitutional Court struck down a 2009 amendment to inheritance laws permitting family-owned businesses to be passed from generation to generation without tax, providing the firms ensured they wouldn’t slash employment. It is estimated that about 92% of German firms are family-owned and would theoretically qualify for this exemption. However, before fretting the impact of this legislation, we feel compelled to note that the Court’s ruling basically cites a technicality, claiming the thrust of the law wasn’t unconstitutional and gives the government until mid-2016 to revise it.

By , Reuters, 12/17/2014

MarketMinder's View: That apparently ginormous decline would be a -0.3% month-over-month drop in headline CPI, slowing the annual inflation rate to 1.3% (from 1.7% in October). Not surprising, considering oil prices’ continued plunge. Core CPI, which strips out energy and fresh food, rose 0.1% month over month—slowing from October’s 0.2%—bringing the year-over-year figure to 1.7%. Will that change the Fed’s plans? Who knows! That question assumes the Fed had actual plans, which we are darned skeptical of. The FOMC is 10 humans who meet behind closed doors to discuss their reactions to the latest economic data. Then they make decisions and write wordy, obtuse press releases based on those interpretations. Folks, they’ll hike when they hike. That’s it.

By , The Yomiuri Shimbun, 12/17/2014

MarketMinder's View: Why the range? The Economy Ministry wants a 2.5-point cut, while the Finance Ministry wants 2%. Apparently they’re “seeking a middle ground,” but no word on whether that means a 2.25-point cut—but they say we’ll know by December 30, after which this likely goes to the full Parliament for approval. More interesting, though, is the behind-the-scenes wrangling over how to fill an estimated ¥1.1 trillion tax revenue shortfall. Proposals include a supertax on company size (unclear whether this means market cap, total assets or total liquid assets), reducing the allowance for loss carry-forwards and raising the dividend tax on corporations’ equity holdings. Which makes us wonder: How does reducing the corporate tax rate make Japan more competitive if firms will just get hit another way? Seems like another watered-down reform attempt, not the sort of deep change key to revitalizing Japan in the long run. Markets have long expected more.

By , Bloomberg, 12/17/2014

MarketMinder's View: So much for EU finance commissioner Jonathan Hill’s private letter saying this thing would die if member-states remain lukewarm on it—now he’s publicly saying he’ll press on with proposed rules to ringfence banks’ investment banking and retail banking operations, banning more proprietary trading in the retail arm. This is sort of a mashup of the US’s Volcker Rule and UK’s Vickers Rule, and it’s a solution in search of a problem if the aim is preventing another 2008. Diversified megabanks with big retail and trading arms held up ok back then, and governments told them to get even bigger by buying up failed investment banks like Bear Stearns and failed savings banks like WaMu. Narrow institutions were the ones that failed. Plus! Trading losses were nowhere near loan losses, which were nowhere near the nearly $2 trillion in largely unnecessary writedowns. All those factoids make these rules largely just (expensive) window-dressing, though, banks can live with them, as they currently are in the US and UK. All that said, though, there is no reason Hill can’t change his mind again, and the EU’s lawmaking process dictates that all member states must approve of stuff like this. So even if he wants it really badly, if national governments don’t, it dies.

By , Reuters, 12/16/2014

MarketMinder's View: Here is an excellent article illustrating how oil producers do not necessarily respond with immediacy to even very large changes in oil prices with altered production. Simply put, this is a long-cycle industry, where huge costs, time and effort are sunk into finding and extracting oil from the ground. You may see new investment get curtailed—that would be natural—but firms sharply ratcheting down current output seems unlikely.

By , MarketWatch, 12/16/2014

MarketMinder's View: “Despite widespread reports to the contrary, the Federal Reserve might retain its policy-statement pledge to the market that it will wait a ‘considerable time’ before hiking interest rates.” Way to go out on a limb! They “may” or “might” choose to keep a couple words! While we’re at it, Janet Yellen may sing her prepared remarks in a high falsetto! She might choose to tweet the entire statement. She might decide not to release a statement after all. All those are possible. But you can’t really even gauge the probability of anything the Fed will do, as the cabal of 12 FOMC members isn’t a gameable market function. Which is ok, because an initial rate hike just isn’t historically a negative for stocks.

By , The Telegraph, 12/16/2014

MarketMinder's View: They are: Falling oil prices (because they create a deflationary spiral), housing bubble, Russian aggression, another eurozone downturn and banks’ vulnerability to a downturn and, um, cyber threats. All are false fears and overstated. Like, it’s a myth that slowly falling prices incent consumers to perpetually put off purchases in hopes of a better deal tomorrow, sinking consumption. After all, it’s not like the US and UK shrank massively during the overall DEflationary Industrial Revolution. The UK doesn’t have a housing bubble, just a supply shortage in London. The eurozone probably stays in its choppy, uneven growth phase, which is way better than people expect. Vladimir Putin’s adventures have proven powerless to affect the global economy for a year now. Two big banks just barely passing arbitrary government stress tests (which were based on balance sheets as of 12/31/2013) doesn’t say anything about actual vulnerability during an actual crisis that probably won’t look anything like the BoE’s stress test parameters. The UK isn’t riskless! But these issues aren’t the sort of big, surprising negative typically necessary to knock stocks off course during a bull market.

By , Financial Times, 12/16/2014

MarketMinder's View: Here is some perspective on Russia’s big 6.5 percentage point rate hike announced last night—and an interesting counterpoint to fears of the current Russian weakness evolving into a 1998-style currency collapse. “Some historical context to place Monday evening’s 650bps move in Russia, big as it was, in some perspective. The central bank lending rate in the 1998 Russian crisis was just a little nuttier. The CBR [the Russian Central Bank] hiked from 30 per cent to 150 per cent between May 19 and May 27 that year. To say nothing of the scale of rate moves, this was a very different crisis back then; when the Yeltsin government faced plummeting tax revenues, oil prices were halving (from $23 to $11 a barrel) and sovereign default was on the way given reserves were distinctly outnumbered by the debt. And ultimately, the CBR failed.”

By , The Korea Times , 12/16/2014

MarketMinder's View: On the one hand: The more the merrier, and yay for free trade! On the other: More participants means more complex negotiations, and the Trans-Pacific Partnership is already stuck in diplomatic purgatory. If it comes together and includes Korea as well, it’s a long-term positive for the US and other participating countries. But it seems awfully optimistic to expect this thing to be done next year, considering the many twists, turns and stalemates thus far.

By , Yomiuri Shimbun, 12/16/2014

MarketMinder's View: A good, concise look at the challenges facing Japan after Prime Minister Shinzo Abe renewed his supermajority over the weekend. “To push his growth strategy forward, it will be necessary to break through the bedrock regulations industrial organizations have tried to defend desperately to maintain their vested interests.” But, Abe has some distractions, like his lifelong ambition to erase the anti-war clause from Japan’s Constitution and restore his nation’s military might: “With his long-term government increasingly becoming a real possibility, Abe set constitutional revision as his ‘target and belief.’” So, we’re rather skeptical about this: “‘We have no time to sit back and relax. We have to get down to business right away.’ Abe said this as he directed Akira Amari, state minister for economic revitalization, to accelerate compilation of economic measures after summoning him to the Prime Minister’s Office on Monday.” Abe has sung that same tune for two years now, and yet: “The Abenomics economic policy package pushed by the Abe administration seems to be losing steam due to the delay in conveying its effects to regional areas.” For more, see today’s commentary, “Now What?

By , MarketWatch, 12/16/2014

MarketMinder's View: The thesis here appears to be that December is usually good but may not be this time, which may indicate where stocks go in 2015 or may not. Now, none of that really means anything, and there are effectively no takeaways from this piece. And in that way, it’s a sensible article after all, because there is no takeaway from December’s market action, and none of it means anything about the future—past performance won’t predict. But also, we would strongly suggest that “cost-basis improvement” or strategies “designed to control risk and reduce cost basis” aren’t really things—they confuse and conflate cost basis with buying on the dips, which is a poor, short-term oriented strategy, anyway.

By , China Daily, 12/16/2014

MarketMinder's View: Euphoooooooooooria! This is what it looks like, folks: “You are totally out of touch if you do not talk about stocks these days in China. The bull run on the mainland equity market and the perceived wealth effect that goes along with it have made it hard for even the least-interested investors to remain aloof. … The spring of China’s equities market has arrived, enthusiastic pros claim, with many pointing to a benchmark high of 4,000 or even 5,000 points in the coming year, up from about 2,900 at present. ‘The only limit is your imagination,’ one famous financial blogger wrote.” Now, this article goes on to highlight many reasons not to get carried away, and we aren’t saying Chinese stocks are in a euphoric peak. But if you want to know what irrational exuberance looks like, it’s professional forecasters predicting a 72.4% gain next year.

By , Financial Times, 12/16/2014

MarketMinder's View: There is a lot of good information here, and anyone wondering about which countries benefit from lower oil prices (and which nations get whacked) should give it a read. However, it has some flaws—namely, it falls prey to the widely held myth that low oil prices are economic stimulus globally and specifically in nations that aren’t oil-dependent. While falling oil prices do have some benefits, like reducing gas prices and some energy costs for businesses, they don’t really give consumption a net boost. Spending usually just shifts from gas stations (not fun) to more discretionary goods and services (fun). It’s not like low oil prices give folks more money to spend overall, ya know? It is also basically impossible to know they’ll actually spend it. They might save it or pay down debt with any cash freed up by lower fuel prices. Now, that isn’t to say those things are economically bad, they are just decidedly not the things most folks think are so juicy about low oil prices.

By , The Wall Street Journal, 12/15/2014

MarketMinder's View: Hey look! Congress passed something! Which actually isn’t that surprising. Nor is it all that surprising the spending bill’s passage came at the 11th hour. The bill now goes to the President’s desk for the final John Hancock, which he says is forthcoming. So you know, no government shutdown, for all you government-shutdown fans. Though, it is interesting to us to note the different media and general reaction to the threat of a shutdown. Last year, leading up to the 16-day government shutdown, many shuddered over the potential impact on darn near everything and everyone. This year, the focus was largely on what Congress was looking to attach to the bill, not what would happen if the government shut down again—a sign of improving sentiment and a much more rational way to perceive a shutdown, because they are largely ineffectual.   

By , The Reformed Broker , 12/15/2014

MarketMinder's View: “They” refers to the intrepid journalists who make a living reporting on daily market movement, and “it all” refers to the rationale often given for wiggles and waggles: “They’re watching market prices fluctuate and assigning meaning where none exists. Stories are being told and headlines are being crafted so that there is something for you to click on from your app when you check the news. There is nothing to be mad about, it is what it is. But the sooner you learn this lesson, the savvier a consumer of financial news you’ll be.” 99.9999% of the time, there is no way to truly know what causes short-term volatility. We suggest tuning out the noise and looking forward.

By , MarketWatch, 12/15/2014

MarketMinder's View: Four decent pieces of advice here: Only buy securities from registered professionals; keep an eye out for complicated investments or strategies (you should understand it well enough to simply explain it easily to someone else); be realistic when it comes to risk and returns—nothing can be low risk and high returning; and vet your advisers well enough to earn your trust before hiring them. These are all good, but we would add one very simple, clear-cut one: Be wary of an adviser who makes your investment decisions and takes custody of your assets. This gives them access to your money, and it isn’t necessary—you should demand your assets are held at a major, third-party brokerage house in an account in your name that you can access anytime. This is a major preventive measure and a crucial one. For more, see our commentary here.

By , The Yomiuri Shimbun, 12/15/2014

MarketMinder's View: Japan went to the polls on Sunday in the snap election Prime Minister Shinzo Abe called after delaying next October’s scheduled sales tax hike, the second in two years. As was expected by basically everyone, Abe’s Liberal Democratic Party/New Komeito coalition government gained, increasing its majority from 325 of the lower house’s 480 seats pre-election to 326 of 475 seats after. Now, many in the press are hailing this “mandate” as key to Abe’s implementing the more contentious reforms so notably absent from his “Abenomics” plan of fiscal stimulus, monetary stimulus and structural reform. But we ask you: Is one more seat really so key? The coalition had a supermajority before and no reforms came. We are skeptical this is really anything other than a classic Japanese political move designed to maintain party power for longer. Should that prove true, we would suggest Japanese stocks will continue sliding down the slope of hope. (The Wall of Worry’s dastardly, negative cousin.)

By , The New York Times , 12/15/2014

MarketMinder's View: OK party people! What time is it? Time to set aside your political bias to assess the potential impact of a Dodd-Frank rule change that was tucked into the fun-sounding Cromnibus act that passed Saturday night. The original rule required FDIC-insured institutions to move 5-10% of their swaps trading to uninsured subsidiaries. The amendment moves only a portion of that 5-10% back. Besides, there is no evidence this would have any beneficial impact in a crisis nor would this have prevented the mark-to-market accounting and bizarre government action-driven 2008 financial crisis. For more, see our commentary here. Also, it isn’t all that likely that major changes (positive or negative) are made to Dodd-Frank. We have a gridlocked government overall. This happens to be one change that had broad agreement, largely because the costs were clear and the benefits generally acknowledged to be lacking.

By , Reuters, 12/15/2014

MarketMinder's View: Our take on this one is pretty simple: Watch what policymakers do, not what they say. There is no point in parsing over Fed verbiage, as words can and do change. But also, even if you could glean some hint about when a rate hike might happen from this sort of stuff, history shows rate hikes don’t tend to automatically produce negativity. There is no if-then equation to Fed policy and stocks. Also, can you really call something a “wild card” for financial markets when it is scheduled and has been the subject of billions of pixels worth of speculation?

By , The Guardian, 12/15/2014

MarketMinder's View: If quantitative easing (QE) is “The Answer,” we wonder what the question is? How to slow lending? How to reduce inflation? How to unstimulate an economy? How to use a fancy-sounding central bank strategy that accomplishes none of its stated goals? That is QE’s actual track record in Japan (both now and in 2001 – 2006), the US and UK. Over a century of economic theory shows flattening the yield curve discourages lending, which means the reserve credits central banks create never amount to increased money supply. If anything, QE would spur the “spectre of deflation” by weighing on money supply growth even more, rather than be the panacea suggested here. Finally, we must point out part of the low inflation read seen presently is the result of vast increases in commodity (energy, raw materials) supply. Very little that the ECB can do is going to boost oil prices. Now then, EU nations could tax oil more—which would certainly raise the price—but if you tax something (spending on gas/energy) you also get less of it. So you know, that probably isn’t so stimulative, either.

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

MarketMinder's View: If you are considering hiring a professional to manage your assets or give you investment advice, read this. If you are wondering whether your current adviser is on the up and up, read this. If you want to see a great piece of writing about the financial services industry, read this. It starts with a timeless reminder to do thorough due diligence, then shows exactly what that looks like. Ending with this gem: Create a hypothetical portfolio of global stocks and bonds, with ETFs just to make it easy. Then show it to the adviser and see what they’d recommend changing. “If his answer is hesitant, long, complex, or includes the words ‘tactical’ or ‘insurance products,’ he probably makes investment management more difficult than it needs to be.” We’d only add that overly complex strategies described in jargon you can’t understand is a classic sign of fraud.

By , Pittsburgh Post-Gazette, 12/12/2014

MarketMinder's View: Some manufacturing has moved to China since the Middle Kingdom joined the WTO. That is a fact. But you can’t quantify the exact impact on US jobs, since technology also played a large role there—you can’t isolate any one variable. Plus, not having seen the actual study, we have to ask: Did they account for the jobs created by higher imports from China? Longshoremen at our seaports? Retail employees? Local workers to service whatever we imported? Anyway, more to the point, this is all backward-looking, and it clearly hasn’t prevented the US economy—or total jobs—from growing over time. This study merely highlights a sociological issue, outside of markets’ sphere. (Unless politicians try to “do something” about it. Then, let’s talk.)

By , Time, 12/12/2014

MarketMinder's View: “Need” is in the eye of the beholder. There are plenty of alternatives if you’re trying to figure out whether your savings can last your lifetime. But calculators are widely used and can help you set expectations if you understand their limitations—and know the good ones from the bad ones. That’s where this article comes in, showing all that’s wrong (and occasionally right) with these online tools, along with how and how not to use them. If you’re saving for, near or in retirement and trying to plan, this is a must-read.

By , Bloomberg, 12/12/2014

MarketMinder's View: Why fear? Because, we are told, the Fed dictates “everything from how much your car loan costs to whether the stock market rises or declines.” Car loans, yes, to an extent. Stocks, no. Monetary policy is one variable markets weigh, and there is no set relationship between rate movements and stocks. The rest of this veers into fearing rate hikes will trigger a panic because debt is way up since 2000. Thing is, it isn’t like all existing debt gets way more expensive when rates rise. With the exception of a few variable-rate loans, rates get locked in at issuance. US Treasurys will keep paying what they always paid. Rate hikes affect NEW bonds and loans. That’s it. (Oh and history shows the first rate in a tightening cycle isn’t bad for stocks.)

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

MarketMinder's View: We were going to preview Sunday’s Japanese election, but there isn’t any point—the Liberal Democratic Party and coalition partners look poised to run away with the thing, resulting in the status quo. So instead we give you this fascinating piece, which is not overtly market-related but shows why those expecting the election to boost the chances of economic reform are probably too optimistic. Prime Minister Shinzo Abe’s lifelong ambition is to restore Japan’s military might, and he has spent significant political capital on that goal. More than he has on the economy. Military matters, like removing the anti-war clause from Japan’s constitution, remain on the agenda, likely distracting focus from the economy after the election. Just as they have since he took office two years ago.

By , Bloomberg, 12/12/2014

MarketMinder's View: Would Italy benefit from the current government sticking around and passing economic reforms? Probably. (Depending how they’re written, of course.) Is it necessary for the eurozone overall to stay on its shaky positive course? Nah. They’ve all come this far even with Italy and Greece tottering, and markets have long since become used to political brinksmanship and shakeup in the eurozone periphery. This government going and another one coming would just continue Italy’s status quo of the last four years. Great? No. Ok for Europe and the world? Probably.

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

MarketMinder's View: Alright folks, please look past all the politics and party association of who’s saying what here, because what’s important here has nothing to do with any of that. Bias blinds, and markets don’t care about ideology. We are merely highlighting this to inform you the US debt ceiling returns on March 15, and politicians are already bickering and threatening a stalemate! It’s baaaaaaaaaaack! As that date approaches, there will likely be lots of grandstanding, warnings about the consequences of delay, rumors of default and maybe some market volatility to go along with it. If that happens, remember this: The debt ceiling has been lifted well over 100 times, brinksmanship is normal, and hitting the debt ceiling doesn’t mean we default. See this, this, this and this for why.

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

MarketMinder's View: Oh well. This would have been nice, dropping tariffs on about $1 trillion in gadget sales annually. Markets love that sort of thing! But the absence of a positive isn’t a negative—it’s just the status quo, which serves the world fine. This also isn’t surprising. WTO members have tried and failed for years to hash out a trade deal. When you have dozens of countries with competing self-interests and trade negotiators motivated by domestic politics, you generally don’t get a deal. On the bright side, maybe a few bilateral deals shake out! That’s usually what happens.

By , MarketWatch, 12/11/2014

MarketMinder's View: My oh my. Oh my. For a war to exist, don’t the two sides have to, you know, oppose one another? Consider recent history:

  • Rising oil prices coincided with rising stocks for most of 2002-2007’s bull market.
  • Rising oil then coincided with falling stocks in early to mid-2008.
  • Both fell in late 2008.
  • Both rose from 2009 to early 2011.
  • Oil was more or less flat from 2011 – 2014. Stocks rose.
  • Recently, oil is down and stocks are up.

Long term, there is no statistically significant relationship—positive or negative—between stocks and oil. What’s more, using the Shiller PE to illustrate anything about the cycles of stocks versus commodity prices 1) is a misapplication of the Shiller PE and 2) uses a faulty valuation indicator that isn’t cyclically tied—uses 10 years of inflation-adjusted earnings—to explain a cycle. Finally, it is bizarre to label 1966 – 1982 and 2000 – 2012 secular bears when the chart plainly shows stocks rose. Besides, there is no such thing as a secular market move anyway, stocks move in cycles.

By , MarketWatch, 12/11/2014

MarketMinder's View: This article correctly dismisses many of the current, widely known, widely discussed fears like ISIS, Ukraine/Russia and Ebola as improbable. However, it grossly misinterprets what does cause a bear market and instead offers up its own list of widely known, widely discussed fears. Yes, it’s more likely the Fed hikes rates than Ebola turns into a global scourge. No, that doesn’t mean it is any more risky, because there is little history suggesting an initial rate hike is so bad. What’s more, this also takes a positive—gridlock—and slaps the “BIG THREAT” label on it. In our view, there are two things that cause bear markets: The bull runs out of steam amid euphoria (2000, tech bubble) or a sudden, sizable shock few expected (2008, FAS 157 and haphazard government actions that followed).

By , Bloomberg, 12/11/2014

MarketMinder's View: OK, party people. What time is it? Time to set your partisan politics aside, of course! There is a big dose of politics in claiming there is a retirement crisis because the follow up question (to some) is, “How’s the government gonna fix it?!?!?!” We caution against getting sucked into that debate. Dispensing with the partisan aspect, this article shows some major statistical flaws with the assertion there is even a retirement crisis to begin with. “…The survey's measure of retirement income excludes the unscheduled, as-needed withdrawals from IRAs and 401(k)s that are the primary way Americans draw down their accounts. Thus the census figures omit most of the income from such saving methods, an error that becomes ever more important as an ever-larger percentage of Americans uses them. So while the survey seems to show a growing problem, all it really shows is an increasingly large methodological flaw.” Now, we also disagree with the notion Social Security is teetering on the brink, but that’s for another day.

By , Fortune, 12/11/2014

MarketMinder's View: So the theory here is China is shifting toward emphasizing “quality” growth (meaning: domestic, service industry-led) over the quantity of growth (booming GDP figures). True! But the article misses a few crucial points—like the fact the world’s second-largest economy growing at a 7%+ clip adds hugely to global GDP, and the slowdown has been engineered for years. This isn’t new news. The three factors to watch cited here—Manufacturing Purchasing Managers’ Indexes (PMIs), GDP targets and the stock market—are a wee bit wide of the mark. PMIs register the breadth of growth, not the magnitude. And! All the references here are to manufacturing PMIs (the broader official and narrower HSBC), despite the fact the very same article informs us throughout that China’s intentionally moving away from being a heavy industry-led economy. Which is…curious? Also, growth targets have been lowered for years.  And………the very same article argues lower growth is intentional. Also curious. Third, stocks are a good gauge for future economic activity in open markets like the US—contrary to the odd claim here—but Chinese stocks don’t often do so because of capital controls and strict rules governing investment. It’s a very thin market and results show it. Like 2005’s bear market that occurred while GDP growth was 10%+. What grabbed eyeballs this week was a government policy shift targeting the use of local and corporate debt as collateral for Chinese margin loans. Stocks sold off briefly, grabbing headlines (like this one!). However, this seems mostly like short-term noise you shouldn’t read much into.

By , Fortune, 12/11/2014

MarketMinder's View: While interesting, this article commits what we believe is a cardinal sin in investment analysis: The lion’s share of the evidence is anecdotal. What we really wanted was a tally of total outstanding securities-based lending and some historical context—but both are absent. We can’t base beliefs on one person who went to work at one securities dealer in the wake of a big industry shakeup, largely because we can’t evaluate her bias. But let’s also consider the thesis: The implication here is subprime blew up stocks in 2008, which is wrong. It was FAS 157, which you can see in a comparison of loan losses (couple hundred billion) and write downs (trillions). The very securities written down turned a profit for the Fed when removed from FAS 157’s dastardly mark-to-market requirements. But also! If liquid assets secure loans, it’s hard to see how that would be akin to illiquid assets creating a systemic panic when they were required to be valued as if they were liquid. The analogy is weak. Look, if securities lending or margin were surging, that could imply a euphoric market, one ripe for being hit by a big, negative surprise. But there isn’t any real evidence of that at this time.

By , The Wall Street Journal, 12/11/2014

MarketMinder's View: You can safely chalk all the employment/gas-price talk here up as noise. We mean, sales have been up for years now and unemployment was higher earlier on. Also, as the bar chart plainly shows, gas station sales—which are probably influenced by, you know, oil and gas prices—are a component of retail sales. This report also illustrates the fact you shouldn’t take Black Friday gloom at face value.

By , The Wall Street Journal, 12/11/2014

MarketMinder's View: So now it seems certain large mutual funds and asset managers will be subject to both stress tests and bans on using certain derivatives as part of their investment offerings, in an effort to head off the likelihood of a run on a fund causing a panic of some sort. The trouble with this notion is a mutual fund doesn’t pose balance sheet risk to the sponsoring firm, so the likelihood a contagion starts is nearly nil. If a big mutual fund that uses derivatives, let’s make one up—Whimco Total Return—gets hit, the securities it owns will fall in value. But that doesn’t threaten Whimco’s (also imaginary) parent firm, Dallianz. The investors take the hit, which isn’t great but is investment risk, which the SEC is stating it isn’t trying to eliminate. In our view, the US regulatory regime under the SEC has long been disclosure-heavy, and that seems right here—require the funds and managers to disclose that they are more subject to liquidity risk and employ leverage, then let investors decide if they want to risk a fund run. (Which is decidedly not a fun run.)

By , Bloomberg, 12/11/2014

MarketMinder's View: Here is a new disclaimer we just cooked up for the Fed: Past wealth movement doesn’t indicate future wealth direction. This, of course, is due to the fact that all these shifts reflect the past performance of various things like stocks, bonds, real estate, cash, other securities and oh so much more. But the past performance of investments—including oh so much more, if it is in a market—isn’t indicative of the future performance of oh so much more. Now, we have never seen a market that actually listed an investible asset and called it, “oh so much more,” but you get our drift anyway: Not predictive. Past. Not useful.

By , MarketWatch, 12/11/2014

MarketMinder's View: Yes! It means the market moved in such a way as to meet certain arbitrarily selected markers, like 2.8% of stocks must have set new 52-week highs and new lows on the NYSE, have been met. Oh wait—does it mean anything about future moves? No.

By , The New York Times, 12/11/2014

MarketMinder's View: Meeeeeeeeeeeh. We are darn ambivalent about this news, that is for sure. So now, instead of waiting two weeks, you’ll get the Bank of England’s meeting minutes, inflation report and monetary policy decision all on the same day. Which is good in the sense the incessant droning from central bankers may be confined to one day. But bad in the sense that now the media will stress these meetings that much more. That they will release transcripts of meetings is a plus, but since they’ll come at an eight year lag that plus is mostly for historians and scholars, not investors. Anyway, we remind you that whatever the timing, investors are better served watching what central bankers do, not what they say.

By , CNN Money, 12/10/2014

MarketMinder's View: Those three reasons depend on the following scenario playing out: Three upcoming parliamentary votes fail to elect a president, national elections get called and opposition party Syriza wins—Syriza then decides its political talking points aren’t lies, the EU, IMF and ECB don’t fold and reject Greece’s bailout program, Greece loses access to the market again and then decides, “Heck, the euro isn’t worth it” and bombs out of the Maastricht Treaty, which there is no process in place for. Got all that? Suffice to say, while that’s possible, we find it very unlikely Greek political tumult has larger implications beyond its shores. For one, Syriza isn’t anti-euro—they’re anti-austerity, and more importantly, they’re a political party whose rhetoric can change on a whim. And two, despite the widespread fears of the common currency bloc falling apart during the eurocrisis, the most severe issues were unique to Greece. We’ve seen this Greek tragedy play out before, and it needn’t end badly for the eurozone or the global economy at large. Besides, if the author of this piece is right and step #2 brings a “Greek economic apocalypse,” wouldn’t that entirely eliminate #3—the ability of other nations to use a euro exit as a bargaining chip? Their leverage, when confronted with economic apocalypse, would seem to be nil. For more, see today’s commentary, “The Greek Gambit, Redux.”        

By , The New York Times, 12/10/2014

MarketMinder's View: The key to reading this article and finding value is stripping out the politicization: Forget the quotes about who should be disgusted over what and why, and who thinks Dodd-Frank is the worst versus the bee’s knees. Frankly, the biggest change considered here—allowing big banks to trade derivatives without moving the units to a non-deposit taking subsidiary—wasn’t the cause of 2008, so the debate over this is really not that relevant. This is basically the solution to the problem of a solution seeking a problem.

By , CNNMoney, 12/10/2014

MarketMinder's View: We agree with the main thrust of this piece: Your retirement planning shouldn’t revolve around a single number. Too unrealistic, too hard to pinpoint, too many things can change! Ultimately, if you need your portfolio to provide for your later years, you must start by knowing where you are today and where you to get to—your goals and objectives. The former can be used to project expenses and backdoor your way into needed cash flow. Once you have this, your goals (do you want to pass money on or not?) can help you determine how much depletion risk you are comfortable taking, which should point you to a proper cash flow rate across various asset allocations. After drilling into these details, you’ll find no cookie-cutter number can adequately account for your situation, so the sooner you ditch that type of thinking, the better prepared you’ll be to reach your personal objectives. For more, see Chris Wong’s column, “Four Tips for Retirement Investing.”     

By , The Washington Post, 12/10/2014

MarketMinder's View: We’ve long highlighted the limitations of sentiment surveys: They aren’t predictive, they tell you only how respondents feel at a particular moment of time, etc. And this one is no different. However, we did find this piece to be a refreshingly optimistic take on, well, optimism. None of the “highest since 2008 eek look out below!!!” handwringing that accompanied many other indicators in recent months. In our view, warming sentiment is plenty justified and indicative of a maturing bull market—which can run on for a while. For more, see our 12/8/2014 commentary, “Now Hiring: Reasons to Be Optimistic.”

By , The New York Times, 12/10/2014

MarketMinder's View: So the Fed’s proposed rule to make the biggest US banks “safer”—through higher capital requirements—isn’t exactly breaking news. Even though the Fed seeks to enforce stricter standards than the international Basel III norm, the largest US banks already meet the higher mark, and the (literally) one that doesn’t has until 2019 to become compliant. So, this doesn’t seem like much of a headwind. However, we question how effective the Fed’s proposal will be in countering the next financial crisis. Regulators seem to think they’ve crafted a solution (or solutions, as the case actually is) to the issues underlying the 2008 Financial Crisis, yet higher capital requirements wouldn’t have prevented the unintended damage wreaked by accounting rule FAS 157 or the government’s haphazard crisis management.

By , The Economist, 12/10/2014

MarketMinder's View: The alleged mistake? Hiking rates even though inflation is below the Fed’s 2% target. The danger: Everyone expects inflation to be lower than expectations, and if everyone thinks that way, it becomes a self-fulfilling prophecy. And if the Fed rushes to raise rates during this low inflation environment, it may create deflation. But this seems pretty misperceived to us. Inflation is always and everywhere a monetary phenomenon—it isn’t a psychological issue, dependent on folks’ expectations. Sure, it would be a mistake if the Fed raised rates while money supply was falling, as was the case in the late 1930s. But with money supply rising alongside a nicely growing economy, the risk of a rate hike choking off the current expansion is low. But also, there is no way to predict whether the Fed will actually hike rates any time soon, so this is really just silly speculation about something that’s likely benign in the first place. Other than that, the thesis here is spot on.

By , The Wall Street Journal, 12/10/2014

MarketMinder's View: Will the so-called “Macron bill”—named after pro-market economy minister Emmanuel Macron—reinvigorate a stagnant French economy? Even though some of the measures (e.g. loosening restrictions on Sunday business hours) sound positive to most, we’d suggest tempering your glee—the law still must make its way through parliament, and it could get watered or shot down completely. Many of the measures were shot down just last year. Consider the backdrop, too: Socialists aren’t likely to support these measures, and there is little chance the opposition does either, despite the fact they are in line with their platform. That said, while pro-market initiatives would be a boon to France’s economy in the long run, they aren’t necessary for markets to move higher today.

By , The Wall Street Journal, 12/09/2014

MarketMinder's View: It’s simple: “The theory says that tough legislation typically is forced through in the first two years of a presidency, when the incumbent is still riding the victory wave.” And stocks tend to dislike that sort of stuff—radical legislation that impacts property rights or the distribution of resources and capital. It creates winners and losers, and prospect theory tells us the losers hate this way more than the winners love it—the net negativity drags on stocks. But the logic for happy returns in years three and four is a wee bit off. It isn’t that Presidents start actually boosting the economy. It’s more that they don’t do much at all. They often moderate, and in their lame-duck years, they are usually hamstrung by gridlock, which stocks love. That’s where we are today! President Obama frontloaded major legislation into years one and two and hasn’t passed much of anything since then. He has also moderated significantly from campaign rhetoric. And there appears to be plenty of gridlock—little chance of Congress passing big, sweeping legislation—which stocks love.

By , The Telegraph, 12/09/2014

MarketMinder's View: Not just risks—“tail risks”! In our never-ending quest to rid the financial world of jargon, here is a definition of “tail risk.” Tail Risk [teyl risk] Noun: A huge, unseen (surprising) negative that could trigger deeply negative stock returns. (There is also some mumbo-jumbo about bell curves, which you can read here.) These 10 items aren’t tail risks. They are either long-running, widely discussed negatives folks have fretted fruitlessly for years (Chinese hard landing, eurozone), false fears (ECB won’t do full-blown quantitative easing), hugely unlikely (Japanese hyperinflation) or—bizarrely—potential big positives myopic investors miss. Tail-opportunity cost?

By , Reuters, 12/09/2014

MarketMinder's View: Ironically, regulations seem to be the culprit for banks’ reducing their market-making activities. It seems regulators are learning first-hand the law of unintended consequences! Whether or not the rules bend to make market-making less costly for banks, we suspect the impact on market operations will be minimal. Liquidity abhors a vacuum, and market-makers’ services are in high demand. Just as high-frequency traders entered the market-making arena in recent years, so could new, non-bank institutions devoted to dealing and matching orders. Where there are potential profits, there are creative entrepreneurs. Again, regulators could probably fix this! But so could free markets.

By , CNBC, 12/09/2014

MarketMinder's View: Can can can they kick the can can can they kick the can can can they kick the can can? Yes they can! They’ll probably take it down to the wire—minutes to midnight Thursday—since that is the 113th Congress’s MO. Both parties appear set on duct-taping some riders to the continuing resolution to fund the government, and some departments might get funded for a couple months only, but this is all normal. Maybe they do shut down over it! Stranger things have happened! But history shows brinksmanship and shutdowns have little to no long-term market impact.

By , CNBC, 12/09/2014

MarketMinder's View: So the cyclically adjusted price-to-earnings ratio (CAPE) is higher than its historical average and at 2007 levels. But CAPE’s structure is flawed— it ignores business cycles and assumes the last 10 years forecast the next 10. It is terrible at predicting cyclical turning points. Normal P/Es at least show sentiment, and current levels are darned near average, implying sentiment isn’t running away. As for all the confidence indexes mentioned here—which you can track for yourself at the Professor’s website—we’d simply point out “valuations confidence” is about where it was in 1996, when we were told CAPE implied “irrational exuberance.” “Crash confidence,” which measures how confident people are that the market won’t crash, is at 1990s levels—and judging from its history seems more influenced by people’s memories of the most recent crash than actual forward-looking conditions. For more, see our 8/21/2014 cover, “Oddly Calculated, Bizarrely Inflation-Adjusted Thing Says Stocks Are Overvalued.”

By , Bloomberg, 12/09/2014

MarketMinder's View: So this is all factually true. The BoJ and ECB plan to expand their balance sheets next year, while the Fed and BoE will continue buying a few bonds in order to keep their balance sheets at current levels. Buuuuuuuut. None of this is stimulus! Central bank bond buying reduces long-term rates, shrinking the spread between short and long rates, which shrinks banks’ potential profits on lending, which shrinks lending. Hence why broad declines in the quantity of money (measured by M4) accompanied quantitative easing (QE) in the US and UK. That’s the bad news. Here’s the good news: Even if the ECB decides to do full-blown QE (and this is far from given), the volume of new asset purchases globally will likely remain less than the volume of purchases in QE’s heyday, so yield curves should still have relatively less pressure on them.

By , Yahoo Finance, 12/09/2014

MarketMinder's View: And it might! But using technical analysis to predict when the Dow will hit that round number isn’t very telling. Why? Well, past performance isn’t predictive of future returns—you can’t just extrapolate returns out! Further, round numbers don’t mean all that much—they are just another notch stocks hit as markets continue to climb higher. Also, it’s a broken index, and where it and better broader indexes go next year will depend on the likely economic and political landscapes, and the degree to which broad sentiment appreciates the likely reality. It will have nothing to do with whether stocks need to “blow out steam.” We also don’t know what that means.

By , The Wall Street Journal, 12/09/2014

MarketMinder's View: “Federal Reserve officials are seriously considering an important shift in tone at their policy meeting next week: dropping an assurance that short-term interest rates will stay near zero for a ‘considerable time’ as they look more confidently toward rate increases around the middle of next year.” Ooooooooookkkkkkkk. We’ve heard that one before! Trying to game what sort of marketing spin the Fed will add to its press release—never mind when the Fed will hike rates—is a fruitless exercise. Members of the Fed can voice their opinions—and seriously consider things—but all that is subject to change. As it should be. Central bankers generally do best when they don’t back themselves into a corner. As for the rate hike, whenever it comes? It seems odd to think an economy growing above its postwar-average can’t handle rates somewhere north of zero.

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

MarketMinder's View: The titular statement here is something we totally agree with. But the article actually seems to spend more time on a misguided search for the magical “safe asset” that will hold up come hell or high water. Specifically, the hell cited is 2008’s financial panic, when most non-Treasury bonds got whacked along with stocks, to varying degrees, and you’re told to use this to determine how safe the investment is. Let’s get this straight: There is no “safe” investment. There are only tradeoffs. You can be assured of little to no volatility if you are 100% in cash. But you risk not earning a sufficient return to reach your goals and you’re exposed to inflation eating away your purchasing power. So, you know, not so safe.

By , Bloomberg, 12/08/2014

MarketMinder's View: Here are some questions we pondered while reading this piece: How can you square the notion that there is only “one positive data point” with a record 50 straight months of jobs growth? Why would one presume the Fed cannot hike rates without causing disruptions to an economy that has grown at above the postwar-average clip in four of the last five quarters? Where is the evidence job growth is a fundamental for stocks, on that might “validate high equity prices?” Are equity prices even high, considering forward price-to-earnings ratios on the S&P 500 are barely above average? In our view, the trouble here starts from the stubborn thesis that news during this bull market has been mostly bad. It hasn’t. That’s sentiment, which is completely, entirely normal. 

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

MarketMinder's View: The most interesting part of the second revision to Japan’s Q3 GDP is that the consensus among analysts was the -1.6% annualized drop would be upwardly revised to -0.5%, based on an expected upward revision to business investment. Reality? Not so much, as GDP fell -1.9% on worse-than-expected business investment and still-weak private consumption. It’s a microcosm of the higher-than-justified expectations we believe are a headwind for Japanese stocks.

By , Reuters, 12/08/2014

MarketMinder's View: This is kind of the ugly mirror image of Peak Oil fears—the fear we’d run out of oil. This is the fear we’ll run out of demand for oil. Yes, if we all stop using oil tomorrow and the Saudis keep churning it out, then oil firms will have proven very unwise to invest billions in discovering new oil. The only trouble with this thesis is there is no real sign that’s happening. Demand is up. Supply is up more, as the chronic underinvestment of the 1980s and 1990s reversed itself. We are fairly confident the free market can handle all of this efficiently, OPEC price controls or no.

By , CNBC, 12/08/2014

MarketMinder's View: We are darn ambivalent about this piece. The notion of having others implement behavioral techniques to modify decision making to be more “healthy” (auto-enrollment, encouraging certain choices, yada) is just a wee bit on the big brotherish side for our Free-to-Choose selves. But the flipside is behavioral finance is super useful in analyzing your investment and planning mistakes. The default setting of our caveman brains isn’t to think decades down the road—it’s to think in the here and now, problematic for investors who frequently must think long-term over short. In addition, expecting immediate gratification, being reluctant to change and hating any and all losses, no matter how temporary, can all keep you from reaching your retirement goals 10, 20, 30 (or more) years from now. Train yourself early to think about later.

By , The Telegraph, 12/08/2014

MarketMinder's View: It seems the 11-nation eurozone Financial Transactions Tax has stalled yet again. The tax, designed to make banks “pay their fair share” for 2008 and the eurozone crisis, would charge banks a small percentage on every trade. This was originally intended to be EU-wide, then eurozone wide, now just 11 of the 18. But now there is squabbling even among those 11, which may again forestall implementation. Ulitmately, we believe that’s just fine, as this is really a solution in search of a problem, and one that (as the Italian experience referenced herein shows) wouldn’t solve very much.

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

MarketMinder's View: As this piece points out, new banking regulations may put a crimp in the traditional banking model for some financial institutions. Banks typically use deposits to lend, paying a low interest rate to depositors, earning a higher rate on loans and pocketing the difference. And those deposits have historically been seen as a much more stable means of funding than overnight borrowing. But, in the wake of 2008, regulators fret large deposit flight in a bank run. So, ironically, they aim to decrease deposits from certain institutions, like hedge funds, through risk-weighting them. This basically means banks can’t use deposits from such institutions to underpin lending, so the cost outweighs the benefits of getting these big depositors. Hence, banks charge them now. Which likely decreases this traditionally stable source of funding, and discourages banks from doing their traditional job. Ah, can you smell the unintended consequences?

By , The Telegraph, 12/08/2014

MarketMinder's View: A few minor quibbles aside, this is a solid counterpoint to those who fear the economy has reached a permanent plateau of innovation: “Moreover, there are two good reasons why, far from slowing down, the pace of technological change should increase. First, there is the power of computers and the internet. This makes the research, development and the dissemination of ideas, as well as their effective deployment in the productive process, much easier and quicker.” Innovation often comes from ideas colliding—today, they collide so fast and so often, keeping up is tough. “The pessimists about productivity growth are betting against human ingenuity. That’s not where I’d put my money. I reckon that, for the advanced economies of the world, including the UK, the potential growth of GDP per capital is now higher than ever before.”

By , The Wall Street Journal, 12/05/2014

MarketMinder's View: Just smashing! Read. This. Now. It isn’t quite perfect, as we had to deduct half a point for number seven (stock valuations actually aren’t all that important, as they don’t predict future returns), but we awarded two points for number nine, which is brilliant and funny: “A couple of times per decade, investors forget that recessions happen a couple of times per decade.” The other 14 are timeless nuggets of wisdom and advice, too. We won’t share any more here, because really, go read it. Like now!

By , Vox, 12/05/2014

MarketMinder's View: No, it’s the sign of a US economy adding jobs at a healthy clip several months after GDP growth sped above its post-war average years into an expansion. Recovery is something you get when the economy starts growing right after a recession. Recoveries don’t happen when you’re already in expansion—above the prior high and growing—because there is nothing to recover from, because things are cooking. That renders all analysis of whether we get some fiscal and monetary stimulus now rather moot. Stimulus makes sense at the depths of recession, when demand and liquidity need a jumpstart. Stimulus doesn’t make sense during an accelerating expansion, and we will let you take the “jumpstart” metaphor to whatever conclusion you want here, because we are no good at metaphors and would mess it up. Look, all kidding aside, this highlights some fine things about the US economy. Growth! Jobs growth! Wage growth! Wheee! But it’s all largely backward-looking. We’d suggest looking to more forward-looking indicators, like The Conference Board’s Leading Economic Index, to gauge whether growth continues (and that gauge is still high and rising). That, not stimulus and whatever else, is what ultimately matters for stocks (along with the degree to which sentiment appreciates this likely reality).

By , Bloomberg, 12/05/2014

MarketMinder's View: Verrrrrrrry iiiiiiiiinteresting! We can’t handicap what Congress and the White House do over the next two years, so it is impossible to know whether they actually saddle up and lift the rather crude ban on crude oil exports. But if it were to happen, it would be a plus. The ban is an antiquated legacy of the 1970s oil shock, aimed at shoring up domestic supply amid the OPEC embargo. That embargo is over, and US supply is abundant, as evidenced by the consistent gap between the domestic (West Texas Intermediate) and global (Brent Crude) oil price benchmarks. Dropping the export ban would allow global markets to function more efficiently and give US oil firms more customers, and a significant body of research shows it shouldn’t hurt gas prices over the mid to longer term. Heck, some analysis suggests dropping the ban would reduce gas prices here a bit.

By , The Washington Post, 12/05/2014

MarketMinder's View: There is exactly one sensible sentence in this article: “The one thing you shouldn’t do is try to time the market or obsess over day-to-day movements.” (And even that we quibble with, because it’s two things. And there are lots of other things investors shouldn’t do either. Like put all their money in three penny stocks today if they need the whole lot to buy a house tomorrow. But we digress.) As for the rest! None of this captures how bond markets work. A bond’s soundness has nothing to do whether the issuer can print money or coin iPods or whatever to redeem it, because if a country has to monetize the debt, chances are inflation jumps and bonds lose real (inflation-adjusted) value. Also, bond prices move on supply and demand. Right now, there is a heck of a lot of demand for eurozone sovereign debt because the ECB is making banks pay to deposit reserves there. So they’re mostly parking it in sovereign bonds instead. Certain corporate bonds are in short supply. US Treasurys are the biggest, deepest market out there, so the competition to buy them isn’t as tough. Those key little factoids render the argument here null and void, in our view. But yeah, don’t “try time the market or obsess over day-to-day movements.”

By , The Wall Street Journal, 12/05/2014

MarketMinder's View: We rather struggle to see why this jobs report would look especially rate-hikey, since last we checked, the Fed theoretically hikes rates to rein in inflation—which happens to be well-below the target now (1.6% y/y for their preferred gauge, the PCE Price Index). Then again, we struggle to see why a rate-hikey Fed would be bad in an economy with a nicely positively sloped yield curve, growth consistently above the post-war average and accelerating loan growth. Like, we can take it, and history pretty strongly supports our thesis. As for that spooky-sounding “two directions” stuff, so what? Why should monetary policy go one way globally? Aren’t we all better off if policymakers do what’s best for their own country’s economy? We get that they might mess up, because central bankers do that sometimes, and Japan is largely messing up now with all that QQQQQE claptrap. (We added three Qs to “quantitative and qualitative easing for dramatic effect. We increased the Q supply to stimulate E output. Sorry, that’s a bad central banker joke.) But really, potential occasional missteps aside, a world where central banks concentrate on their own country and don’t try to get too cute is a good thing. Not a bad one.

By , The Telegraph, 12/05/2014

MarketMinder's View: There are two ways to think about this quite entertaining, well-written piece. On the one hand, it’s a fascinating look at the ECB’s internal politics, which shows one reason the ECB may not launch full-fledged, sovereign bond-buying quantitative easing (QE). We mean, some of it might be a bit overwrought, like what we assume is a metaphorical reference to ECB chief Mario Draghi retreating to a “narrow kitchen cabinet” when he can’t take the fighting anymore. And it’s also missing a key point, which is that Draghi has long been the master of saying really big power things and then not doing anything. Like saying he’d do “whatever it takes” to save the euro in 2012, then announcing a bond-buying program he never used. But! An insightful discussion all the same. But on the other hand, the notion of the eurozone getting sucked into a deflationary depression sans QE is sheer fallacy. The quantity of money is rising, and so are prices, even as the ECB idles or whatever you want to call it. QE would probably cause deflation, because it would further flatten the yield curve and discourage bank lending. The broadest money supply measures (M4) in the US and UK fell for long stretches during QE there. We fail to see why it would actually work in euroland, where the yield curve is already darned flat and lending anemic.

By , The Wall Street Journal, 12/05/2014

MarketMinder's View: So there are some political things here we’d take with a grain of salt, both domestically and internationally. Unless you’re drinking buddies with the Saudi Oil Minister, you probably can’t know exactly what their motivations are for maintaining output as prices fall. But, all that aside, the central argument here—Peak Oil and its many ideological ancestors and descendants were, are and always will be w-r-o-n-g—is a home run and a winning illustration of what happens when free markets, technology and human creativity collide. Like in the 1970s, when exploration in Alaska and the North Sea helped the West thumb its nose at OPEC’s embargo. And the 1980s and 1990s, when deepwater drilling drastically expanded supply potential. And last decade, when fracking went boom. It’ll happen again, maybe with oil and almost surely with other resources. Why? “The happy ending is that the notion that the world is running out of resources always fails because the ingenuity of entrepreneurs, spurred by necessity and incentive, always exceeds the imagination of doomsayers. So we are learning again, and let’s hope memories will be longer this time.”

By , Bloomberg, 12/05/2014

MarketMinder's View: Here is some good (and funny) perspective on why it doesn’t much matter whether or not banks start heeding regulators’ suggested limits on leveraged loans (where banks set up and help fund loans from hedge funds and other shadow banking institutions to companies): “If [banks] stop ignoring the rules, the result may just be to accelerate the movement of leveraged loans from banks to shadow banks, a movement that is already pretty far advanced. That doesn’t seem like all that exciting a development. In theory at least, banks are informed relationship lenders that are better at monitoring their borrowers than CLOs and mutual funds are. And, in theory at least, banks are transparent to and supervised by regulators, in a way that shadow banks are not. Though I guess you can’t put too much stock in that, since in this case the actual banks have been almost as enthusiastic as the shadow banks in ignoring the regulators.” In other words, loans keep happening, (probably) no one blows up. (Metaphorically.)

By , The Telegraph, 12/05/2014

MarketMinder's View: Hear, hear for the Chancellor’s astounding scientific achievement! We had no idea he was a genius astrophysicist! All this time we thought he was holed up at Number 11 Downing Street, not CERN! … err … wait, that was a metaphor. Sorry. It actually refers to one think tank’s warning that the tax gimmicks in this year’s Autumn Statement (think pre-Budget announcement of fiscal policy tweaks that may or may not be in the actual Budget next year) won’t offset each other over the long term, requiring the government to lop £55 billion off annual spending by 2020 in order to reach its targets. Eeeeeeeeeeeh. Maaaaaaaaaaaaaaybe? But also, does it matter? The current government’s long-term fiscal targets have always been arbitrary, shifting lines in the sand. There is also an election next May, which could change the main cast and result in radically different long-term goals and priorities. It’s all very far in the future and based on long-term forecasts, which are always and everywhere unreliable figments of imagination and mean-reverting straight-line math. Either way, though, we don’t see much to fear or cheer here. Maybe they just keep on with the “austerity” we’ve seen since 2010: slower-than-planned spending increases that didn’t whack growth. Maybe they make actual cuts, and activity shifts to the private sector. Maybe they continue saving on interest payments by refinancing bonds at lower rates. Maybe they do nothing. After all, the UK isn’t Greece. Debt and debt service costs there are well within historical norms and very far from Greek-like levels.

By , The New York Times, 12/05/2014

MarketMinder's View: Could it? Maybe. Will it? Probably not—neither party has an incentive to reach across the aisle, hold hands, sing Kumbaya and pass some bipartisan boondoggles. And for that, rejoice! The wish list here would largely just create winners and losers, which stocks tend not to like. Gridlock might be annoying (like, we theoretically pay these greasy politicians to go to Congress and make laws, not just sit around and bicker), but markets vastly prefer it.

By , EUbusiness, 12/05/2014

MarketMinder's View: So this is just talk but all sorts of interesting. Evidently no one really likes former EU Financial Services Commissioner Michel Barnier’s proposal for an EU-wide rule separating banks’ trading operations from their core units (their version of the Volcker Rule and the UK’s Vickers Rule). So his successor, the UK’s Jonathan Hill, wrote a letter indicating they might decide to call the whole thing off next year. That would be a nice win for banks, which would have one less regulatory axe hanging over them—perhaps giving them more freedom to lend. Again, it’s all very speculative (and apparently there is some opposition to Hill’s opposition). But still, potential win!

By , The Economist, 12/04/2014

MarketMinder's View: This is a pretty darn sensible take on the fact your sector decisions matter more than individual securities, but “avoiding the worst” and picking winning sectors is a) not easy and b) should usually not be all or nothing. The exceptions to that are smaller sectors, like utilities. But overall, you probably don’t want to entirely shun sectors, even those you expect to underperform. Diversification also means hedging against your being wrong. But also, before you even pick sector weightings, you should probably focus on broader factors affecting the market’s likeliest direction over the medium to longer term. As important as sector, country, size and style decisions are, many studies have shown the mix of stocks, bonds, cash and other securities you use matters much more.

By , The Wall Street Journal, 12/04/2014

MarketMinder's View: So it seems—based on the polls—Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP) will win the majority of seats in the snap election he recently called. Which is not a surprise at all, so this is far from BREAKING NEWS and more of a thunderous duh. After all, you don’t call elections you aren’t reasonably assured of winning. Heck, the major opposition party—the Democratic Party of Japan—is only fielding 198 candidates, and the Diet has 475 seats. Hence, it’s no surprise the LDP is expected to increase its take from 295 to more than 305 seats. The spoils, barring a radical shift in these numbers, aren’t actually so much a mandate for Abenomics as they are a two-year extension to the LDP’s term (and perhaps Mr. Abe’s).

By , Associated Press, 12/04/2014

MarketMinder's View: Hey look! Mario Draghi said some more stuff! Annnnnnnnnnnnnnnnnnd none of it sheds any more light on what the ECB may actually do, if they expand quantitative easing (QE). This article homes in on Draghi’s comment that there would be more details and discussion “early next year.” Sure, that gives us a rough timeline for when ECB President Mario Draghi could hit the green light on more stimulus measures (which, in our view, aren't the solution). But also, his timeline hint isn’t that great of a clue—central bankers frequently talk and then talk again later, differently. These statements just aren’t set in stone.

By , Associated Press, 12/04/2014

MarketMinder's View: Here’s yet another Ponzi scheme making headlines. And it’s certainly unfortunate for the victims. However, like many schemes, there were some glaring red flags (the Court outlined them here)—like the fraudster taking custody of his clients’ assets and promising steady 10% returns. These are two major signs the investment pro you’re talking to may not be real. For more on this topic, see our 8/15/2014 cover, “Crooks’ Common Threads: Three Red Flags to Watch Out For.”

By , The Wall Street Journal, 12/04/2014

MarketMinder's View: While we’d leave the tax planning to you and your CPA, we offer this up as a helpful overview for those who have questions regarding capital-loss deductions.

By , CFA Institute Blog, 12/04/2014

MarketMinder's View: While we have some minor data quibbles with this—such as using a 75/25 US vs. Foreign split in one table and not disclosing which “World Ex. US” index is used—we find the good outweighs the bad by so much that it’s worth reading no matter what. “You know your client’s portfolio is properly diversified when there is always a portion of it you hate. Right now, that hateful piece of the equity allocation is global stocks.” This is just spot on.

By , The Economist, 12/04/2014

MarketMinder's View: The price of oil is sliding—in turn, spurring much speculation about how that will impact US shale. This article, while not totally off target, doesn’t broach the issue of hedging, which oil companies do expressly to limit exposure to short-term oil price declines. This more greatly mitigates the threat of widespread default among unprofitable energy firms. But also, the breakeven point for many of these producers is still well below current oil prices. Plus, hydraulic fracturing technology and techniques are improving! That means more efficiency and cost saving ahead. But all in all, we agree that if oil prices remain low long enough, production could fall some. It’s just that it isn’t likely to happen tomorrow. For more, see our 12/1/2014 cover, “OPEC Stays Put—Will US Shale Take a Hit?

By , The Wall street Journal, 12/04/2014

MarketMinder's View: So this article is great fun, but it probably has fairly limited market impact. Fairly limited. The Beige Book, the Fed’s big fat roundup of surveys from all across the US, occasionally notes odd factoids (well documented in this article), but this year’s may take the cake. Or pie. “Today, the Beige Book included the claim that ‘Pennsylvania analysts are anticipating that this may be the first year in which a majority of households eat their turkey and pumpkin pie at restaurants rather than at home.’” Call us crazy, but we are darned skeptical of that. The author of this blurb has family and friends in Pennsylvania, and in fact grew up there. If more than half of Pennsylvanians—six million people, give or take—ate out, that would be a sea change. We guess this is one more reason you shouldn’t always take Fed words as gospel.

By , CNBC, 12/04/2014

MarketMinder's View: The alleged “signal”: High-yield bond prices are decreasing. While high-yield bonds do tend to move similarly to stocks, the correlation isn’t perfect. And no past performance holds the secret sauce for what stocks will do—it’s a market, subject to leadership changes, rotations and irrationality. Which seems to explain part of this. Most high-yield bond issuers are probably smaller firms, and the market has recently favored mega caps, a typical maturing bull market feature that can last years. But also, HYG—the high-yield bond fund used as a proxy here—is nearly 14% Oil and Gas firms and in case you hadn’t heard, oil supply is putting huge pressure on them. The S&P 500 is 7% Oil & Gas. But finally, here is the kicker: Why does it make sense to look only at high-yield bond price movements? We’d suggest that’s a wee bit faulty, considering you probably were attracted by the, you know, high yield? Using total return shows HYG is up. Now this is a flawed indicator, but at a broader level, relying on any one indicator to predict what’s in store for stocks distracts investors from the bigger picture—a picture that points to more bull ahead. Maybe, just maybe, we get some short-term volatility ahead. Always possible! For any or no reason. But trying to predict it in general is a fool’s errand; trying with this “perfect sell signal” is worse.

By , The New York Times, 12/03/2014

MarketMinder's View: OK party people: What time is it? Time to set your partisanship aside, as we delve into the fun, fun world of partisan politics and markets! The thesis here is that the lame-duck Congress’s squabbling over passing the tax-cut extenders implies more debt ceiling and other budgetary fighting come 2015, particularly since the Republicans took both chambers of Congress. And it then surmises that this has a big economic impact, because it’s all so crazily uncertain. Folks, let’s be clear: Government uncertainty is when the Fed and Treasury haphazardly and schizophrenically decide which near-identical firms they’ll save and which they won’t, with no clarity or transparency—like in 2008. Politicians fighting over the budget and debt ceiling is an American tradition. Besides, remember the Fiscal Cliff: We went off it (partially) and growth accelerated, which is precisely the opposite of what many of these squabbling-is-economically-bad theories claimed would happen.

By , MarketWatch, 12/03/2014

MarketMinder's View: So the thesis here is recently declining oil prices and a weak Black Friday threaten dividends from less-financially stout Energy and Consumer Discretionary firms, coming to the awesomely obvious and always true conclusion: “Is it possible that dividends will be cut as certain sectors face declining revenue and earnings? Yes.” Anything and everything is possible. North Korean dictator Kim Jong Un could get his hands on a copy of Milton Friedman’s Free to Choose and morph into a laissez-faire libertarian, but we don’t think it’s likely. As to dividends, it seems likely both these factors would have to persist for quite some time to actually have this impact. Energy firms hedge. They are aware prices can fall, and usually use forwards and such to lock in higher prices for on the order of 12 - 24 months. That would mitigate the impact of a short-term drop, which is what we’ve seen lately. For Consumer Discretionary firms, this is just massively overstated. Holiday shopping started far earlier than Black Friday this year, and Black Friday has never been proven to predict the holiday season’s direction. Heck, one might presume falling gas prices would bolster Consumer Discretionary firms, as folks rotate spending from must-have gas to nice-to-have other stuff.

By , Bloomberg, 12/03/2014

MarketMinder's View: We’re going to cut right to the chase here and give you the salient data points from this article: ISM’s November US Services gauge rose to 59.3 from October’s 57.1, exceeding all estimates. Forward-looking new orders also rose to 61.4 from October’s 59.1. Earlier this week, US ISM Manufacturing registered 58.7, only slightly lower than October’s 59.0. Eurozone Services PMI did dip some in November, but to 51.1, matching the eurozone Composite reading. All these gauges are above 50, the dividing line between growth and contraction. All the rest of the factoids here—oil’s impact, consumer confidence, unemployment, Cyber Monday, whatever is going on at Cracker Barrel—are noise.

By , MarketWatch, 12/03/2014

MarketMinder's View: The Hindenburg Omen has far many more false reads than accurate ones, as we discussed here. And the article indicates that, but then confused us with this suggestion: “But before investors pooh-pooh (sic?) the latest appearance out of hand, they should keep in mind that the indicator with the ominous-sounding name wasn’t designed to predict a crash, only warn that it’s possible.” Sigh. Investing is about probabilities, not possibilities. In the same vein, this analogy is wide of the mark: “[Hindenburg Omen creator Jim Miekka] once likened his indicator to a funnel cloud -- they don’t always become devastating tornadoes, but that doesn’t mean investors shouldn’t take cover.” Fight or flight instincts are useful when the issue is a storm that may mean your death or severe injury. They are not helpful in analyzing markets, and if you ran for shelter every time this omen appeared, you would be poorer for it. Look, it’s possible the Earth is hit by a meteor tomorrow, but we wouldn’t suggest you go out and blow your whole portfolio on a wild night in Vegas tonight as a result.

By , Vox, 12/03/2014

MarketMinder's View: We are optimistic about the US economy’s prospects, too! But not because oil is falling. Let’s review point by point.

  1. “Consumer spending will increase.” Except consumer spending on gasoline and other oil products, which will fall in a nearly equal amount. Falling gas prices are about winners and losers.
  2. “The job market will improve.” Not if you work in America’s booming Energy industry. Also, the alleged link between inflation and employment was debunked nearly forty years ago by Milton Friedman. Oh! And the job market has already been improving, with the unemployment rate matching its postwar average now.
  3. “Fuel-efficient car sales will decline.” Winners. Losers. But also! This is basically a protectionist argument that presumes our buying American cars is economically superior to our buying foreign cars. But does America benefit if we weaken Japan’s economy?
  4. “Business profits will increase.” For some. Again, winners. Losers.
  5. “Oil boom areas will slow.” Well, except that most of those places have breakeven prices below current oil prices, so even that may not happen. And, the fact is most oil firms are hedged, so this drop needs to have staying power to affect output at anything other than the margin.
  6. “Most state budgets will improve.” Except for the fact gasoline sales are taxed at both the state and Federal level? Also, most state budgets are in perfectly fine shape.
By , The Telegraph , 12/03/2014

MarketMinder's View: This is well wide of the mark, in our view, and hinges on five widely known, longstanding fears that haven’t stopped the bull thus far. The five are: Equity markets rising while bond yields and commodities fall, which show faltering demand; Europe’s alleged need for ECB quantitative easing (QE) it won’t get; populist extremism in European politics threaten to splinter the euro, which needs more unity; falling oil threatens “some of the world’s major flashpoints”; lastly, not enough private-sector deleveraging since 2007.

That’s a mouthful, but frankly, it reads like a roundup of frequent headlines. Consider: Commodities have been weak since 2011; QE has been proven to work nowhere, so we don’t think the eurozone needs it; extremist parties have mostly won seats (and relatively few of them) at the European Parliament, an election most voters don’t much mind—and the rise began in 2012-ish; we guess “flashpoints” refers to the Middle East and Russia, which are definitively not new and most likely confined to regional conflicts—wars have historically troubled stocks only when global and large scale. Finally, debt levels didn’t beget 2008—an accounting rule change (FAS 157) combined with haphazard government actions in the US and UK did. Our formal forecast for 2015 isn’t out yet, but these factors are likely too old to count.    


By , The Wall Street Journal , 12/03/2014

MarketMinder's View: Really next to no market impact from this news—the UK will save roughly $15 million annually in interest at current rates, a tiny sum—but, hey, it’s interesting. Next on Osborne’s list: “Mr. Osborne plans to repay the rest of the U.K.’s perpetual bonds—which total £2.59 billion including the War Loan—some of which date back to as far as the Crimean War and the collapse of the South Sea Company in the early 18th century.” That likely won’t have much market impact either, but it will also be interesting.

By , Reuters, 12/03/2014

MarketMinder's View: "The survey therefore implies that global GDP (gross domestic product) will expand at a solid pace over the final quarter as a whole, albeit cooler than during the summer months." While we wouldn’t take a global slowdown or continued growth to the bank just yet—PMIs register breadth of growth, but not the magnitude—in our view, this is another piece of evidence suggesting the global economy isn’t exactly teetering on the brink of disaster.

By , The Wall Street Journal, 12/03/2014

MarketMinder's View: We entirely agree that the Saudis-want-to-kill-US-shale argument is a media invention, and one that is well wide of the mark. So for the first half of this article, we were nodding along. But then, the thesis bends into discussing the allegedly weak world economy and how that’s to blame for low oil prices, not surging supply. There is no real sign demand for oil is down. Virtually all economic data from major economies outside Japan show growth. There is some other rather speculative stuff in here, particularly about Saudi Arabia’s real motivations—unknowable, in our view—but that isn’t pertinent to investors and is largely irrelevant.

By , The Wall Street Journal, 12/02/2014

MarketMinder's View: File this one under things that shouldn’t be breaking news: The first rate hike in interest rates will depend on a strengthening labor market and rising inflation. And once these are happening to the Fed’s satisfaction, “There is a process that is being set off when the first step starts.” Unless you thought the Fed set monetary policy by spinning a blindfolded Janet Yellen around three times and having her throw darts at the Fed’s magic interest rate dart-board (and we really would not blame you for this, because sometimes that seems like the only logical explanation for Fed decisions), this is not earth-shattering insight. Anyway, facetiousness aside, we wouldn’t read much into this or any other Fed jawboning. Pardon the tautology, but they’ll hike rates when they hike rates. Fedspeak pocket dictionaries, crystal balls, star charts nor anything else won’t help you predict the timing. It’ll depend on human beings’ interpretations of fluctuating data points. You can’t handicap that. Nor do you really need to: Fed rate hikes aren’t inherently bad for stocks.

By , The Telegraph, 12/02/2014

MarketMinder's View: The mistakes laid out here aren’t just made by new investors—even seasoned veterans can find themselves chasing heat or focusing on short-term performance. The key, in our view, is to keep your long-term goals and objectives at the forefront of your decision-making, not get blinded by flashy products, remember investing isn’t a get-rich-quick scheme, and to remove as much emotion as possible. Granted, that is much easier said than done—investing, particularly when markets get bumpy, is no easy task. We’ll all make mistakes, and that’s ok! Mistakes are learning opportunities. They make us better: “The key is not to make the same mistake twice and keep an open mind. Mistakes are part of the learning process and will make you a more successful investor.”

By , The Washington Post, 12/02/2014

MarketMinder's View: While this draws some interesting global takeaways from oil prices’ recent fall, many of the conclusions here are a bit overstated, in our view. Sure, some American consumers may have more discretionary cash due to their savings at the pump, but this isn’t going to propel the US economy to a new level—where consumers spend may change but the amount likely won’t fluctuate much. And the possible risks listed out here—like OPEC fallout or the potential hit to the US’ shale oil boom—aren’t likely to be hugely impactful, at least in the short run. Commodity prices can be volatile, and many US shale oil extractors can remain profitable at even lower oil prices thanks to innovative technological gains (and futures contracts that locked in higher prices over the near term). For some oil-reliant nations like Venezuela and Russia, it is no surprise their one-trick economies are getting slammed because of increased supply, but their struggles aren’t likely to put the global economy’s expansion at risk. Falling oil prices just create winners and losers, and in the world economy, the near-term effect is probably more or less zero sum. Long-term? No doubt firms saving on energy costs get more resources to deploy in innovative endeavors, and this could be a nice structural positive. But it isn’t a cyclical factor over the foreseeable future. For more, see our 12/1/2014 commentary, “OPEC Stays Put—Will US Shale Take a Hit?”        

By , The Economist, 12/02/2014

MarketMinder's View: Oooooooooooooooh boy. Why so glum indeed! The world is actually a heck of a lot brighter than this commentary suggests. Eurozone breakup? Even less likely today than it was in 2011, when it held together despite widespread fears a crackup loomed. (And even after, when the bloc was in an 18-month recession.) US economy? Accelerating, thank you very much. Global growth? Still happening. Median household income? An arbitrary statistic and heavily skewed by demographics—a terrible indicator of whether people are overall better or worse off. (And if you slice incomes by age range and account for changes in household formation, it becomes clear people are better off.) So we wouldn’t begrudge anyone who felt compelled to pop a certain Bobby McFerrin tune on the old iPod. Now, as for the Fed-related commentary here, it is not the Fed’s job to “coordinate our expectations so that we all anticipate, and therefore cause to occur, maximum employment and an average inflation rate of 2%.” Economic growth and inflation are not psychological phenomena! They are driven by real, fundamental factors! Chief among them? The quantity of money. THIS is what the Fed is tasked with influencing. Let them stick to their knitting, please.

By , Calafia Beach Pundit, 12/02/2014

MarketMinder's View: While the single data point highlighted here is another piece of evidence confirming the US economy’s sound economic footing—ISM’s November manufacturing survey hit 58.7, well above 50, which demarks growth and contraction—we found this takeaway about oil-inspired deflation fears most illuminating: “Deflation is not a dangerous condition: just ask any consumer how good it feels to have his or her hard-earned dollars buy more. If lower energy prices do create some modest deflation, it will not be the fault of the Fed, it will be the happy result of an abundance of cheap oil.”

By , The Washington Post, 12/01/2014

MarketMinder's View: No surprise here, considering some deals started in early November, negating the need to drag yourself out of bed at 3 AM the day after Thanksgiving and subject yourself to potential bodily harm. Call it a victory for humanity. This is just a good reminder Black Friday weekend isn’t the entire holiday season, which isn’t the entire year. (And retail sales aren’t consumer spending!) Don’t over-focus on any one short period.

By , Truth on the Market, 12/01/2014

MarketMinder's View: When is free trade not groovy? When it’s cover for tighter regulations and more red tape that make businesses less competitive, likely negating the benefits of more open borders. It appears the US/EU free trade agreement presently under negotiation is heading in this direction. Since most transatlantic trade is largely tariff-free, this trade agreement focuses on administrative and regulatory barriers. An easy, unintrusive fix would be bilateral regulatory recognition—the US accepting goods and services governed under EU standards and vice versa. However, both sides say this is out of the question and are seeking to “harmonize” rules instead. When the EU says “harmonize,” they always mean “synchronize,” which isn’t so great, because they aren’t shooting for the lowest common denominator here: “To make things worse, TTIP raises the possibility that the highly successful U.S. tradition of reliance on private sector-led voluntary consensus standards, as opposed to the EU’s preference for heavy government involvement in standard-setting policies, may be undermined. Any move toward greater direct government influence on U.S. standard setting as part of a TTIP bargain would further undermine the vibrancy, competition, and innovation that have led to the great international success of U.S.-developed technical standards.” Now, none of this is a done deal yet, and the agreement may never see the light of day. But this is a good reminder that even seemingly great policies like free trade are nuanced and can create winners and losers.

By , Bloomberg, 12/01/2014

MarketMinder's View: China’s official manufacturing purchasing managers’ index (PMI) fell to 50.3 in November—below expectations for 50.5 and October’s 50.8—but remained above 50, considered the dividing line between expansion and contraction. But as mentioned here, there is a mitigating factor—factories in five provinces were ordered to shut down for two weeks to clear pollution during the Asia-Pacific Economic Cooperation forum. Now, that doesn’t explain the slowdown away—new orders slowed more than production—but it does reiterate how no single month is terribly telling. Beyond that little lesson, we’d merely note China’s PMI has hovered between 50.2 and 51.7 for the past 12 months, and this ostensibly anemic reading hasn’t translated to anemic growth.

By , CNBC, 12/01/2014

MarketMinder's View: The bearish indicator here is weekly exchange-traded fund (ETF) inflows, which apparently surged to late-2007 levels. We say apparently, because this is one firm’s proprietary report, and reliable publicly available ETF data begin in 2010. That aside, we find it quite hasty to say rising ETF inflows are a sign of euphoria and a bull market peak. One, sentiment wasn’t euphoric when the last bull market ended—it was truncated prematurely as markets were forced to price in the deleterious impact of FAS 157 (mark-to-market accounting) on bank balance sheets after it was misapplied to thinly traded illiquid assets. Two, there are rational, administrative reasons for investors to load up on ETFs now—like avoiding the wash sale rule after harvesting tax losses. Many firms and individuals use ETFs for this, and ‘tis the season. Three, other indicators of sentiment like valuations and headlines are quite tame.

By , USA Today, 12/01/2014

MarketMinder's View: Translated, the Fed is determined to keep rates low until wages rise, giving stocks plenty more “easy money” mojo—which we’re simultaneously told is good (bull market) and bad (it’s a bubble). Errrr…no. To the first, history shows rate hikes aren’t bearish. To the second, when earnings and revenues are at all-time highs and rising, it seems rather odd to say stocks have no fundamental support. They have plenty! Most folks just don’t see it. The world is way stronger than this piece gives it credit for.

By , The Telegraph, 12/01/2014

MarketMinder's View: A sensible decision, in our view. The proposed rules, which would have required Switzerland’s central bank to repatriate all gold held abroad, buy more than 1,700 tons of gold by 2019 and never sell another gold bar again ever, would have severely crippled Swiss monetary policy. We’ve said it before and will say it again: Central banks generally operate best when free of political intervention, whether in the form of populist mandates like this referendum or direct government influence. 

By , Xinhua, 12/01/2014

MarketMinder's View: Hooray, China is about to get its own People’s FDIC. We will set aside the debate over whether deposit insurance is good (helps shore up confidence and limit bank runs) or bad (moral hazard). This is a key step forward for Chinese reform, and not just because it might level the playing field a wee bit between big and small banks. Rather, regulators have long said they can’t liberalize bank deposit interest rates until deposit insurance is in place. Now they’re getting close, which means China should be that much closer to market-driven interest rates. Good news for the many savers who have been forced to accept artificially low yields on savings.