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By , The Telegraph, 12/31/2015

MarketMinder's View: While there isn’t an explicit market takeaway from this piece (and some of the historical discussion is perhaps overwrought), we found it an apt reminder that despite how turbulent times may feel—amplified by terrorist attacks, bombastic political rhetoric and stagnant economic growth, amongst others—the world overall is advancing, not retreating. As noted here, “Yes, the world is a mess, but it has always been a mess, forever climbing the proverbial wall of political worry even in its halcyon days.” The same can be said about stocks during bull markets. Despite all the false fears we’ve seen throughout this bull market, stocks have headed higher overall—and we expect that rise to continue for the foreseeable future.    

By , CNNMoney, 12/31/2015

MarketMinder's View: With 2015 just about in the books, we have seen the financial media start harping on this theme, and we expect the volume to increase: Everything performed poorly this year, and you only did well if you held cash or “took a lot of risk.” We find this take pretty misleading. If you’re a long-term, growth-oriented investor and held stocks (and stayed diversified) throughout this year, you executed your strategy correctly—and you should also be commended for staying disciplined throughout the summer’s correction. Stocks’ annualized average return is 10%, but that’s over the long term (and includes bear markets). Year-to-year returns can vary greatly, and flattish years during bull markets aren’t unheard of. So while the 2015 figure looks disappointing, long-term investors needn’t fret—what matters more is capturing the totality of a bull market’s returns, rather than viewing performance through by year (an arbitrary period of time as far as markets are concerned).

By , The Washington Post, 12/31/2015

MarketMinder's View: It’s the last day of 2015, and many investors may be making financial New Year’s resolutions. Whether you make resolutions or not, there are several good tidbits here for investors to remember heading into 2016. In particular, with many bemoaning stocks’ overall flattish year, we found the following advice especially sage: “Don’t lose faith in stocks. 2015 was a flat-to-mostly-down year for nearly all stock categories (U.S. and international). Just because you are retired doesn’t mean you have a short investing time horizon. A 65-year-old retiree could have two or three decades to invest.” If you require long-term growth, stocks are the best asset class to get you there over time, and capturing equity-like returns during bull markets is paramount.   

By , The New York Times, 12/31/2015

MarketMinder's View: We have been articulating the main point made here for a while now: Presidential polls don’t tell you a whole lot at this juncture. We are still in what journalists call the political “silly season,” where name recognition and personality matters more than proposed policies. Heck, we are still more than a month away from the first primary, and a lot can happen over the next four weeks: Folks might drop out, mud will be slung and new scandals may emerge. A candidate’s prospects can rise (and fall) over night, so his or her poll numbers right now don’t mean much. Now, unless you happen to find the polling takeaways fascinating from a statistical and/or sociological point of view—like we do—we suggest heeding the last line here: “So there’s no reason to fret over any polls until March 1, Super Tuesday, when 12 states, plus American Samoa, hold their contests. Most voters don’t start paying attention until then.”  

By , CNNMoney, 12/31/2015

MarketMinder's View: Here is the biggest surprise of 2015: Countries whose economies heavily depend on oil prices were hit hard this year. Ok, that isn’t a surprise, we were just seeing if you were paying attention. While Venezuela, Saudi Arabia, Nigeria, Russia and Iraq all face unique domestic headwinds (mostly of the political variety), their economic issues have been amplified by the collapse in oil prices. Given the current global supply glut, those struggles look likely to continue for the foreseeable future. Comparatively, countries with better diversified economies haven’t gotten whacked nearly as hard (though the political class in those respective countries still paid the price).    

By , The Wall Street Journal, 12/30/2015

MarketMinder's View: We highlight this to show a couple things. One, it’s incredibly difficult to forecast economic data—get one variable wrong (in this case, oil prices) and it can throw off the whole set. Economic forecasting is a world of “all else equal,” and all else is never equal. You can’t model the future. That brings up the second key point: Forecasts are only as good as their inputs, and those inputs often include flawed assumptions. Take the GDP growth forecasts, which predicted 3% growth in the US this year. As the article notes: “Many had thought low oil prices would give consumers a significant lift, but whatever lift people got from low oil doesn’t appear sufficient to power the economy to 3% growth.” That it wouldn’t help much makes sense when you consider that low oil and gasoline prices cause spending at gas stations to fall, which reduces consumer spending unless folks spend all those savings elsewhere. Many save them or use them to repay debt. Anyway, the most important lesson is this: You needn’t nail an economic forecast on the head to invest wisely. For investors, what ultimately matters is capturing bull market returns. If you believed the bull would continue in 2015 and invested accordingly, you probably did fine even though GDP growth disappointed pre-year forecasts.

By , Yahoo Finance, 12/30/2015

MarketMinder's View: So here is a bunch of technical mumbo-jumbo with basically no predictive value, packed into a conveniently short space. First up, the so-called “fear index” is the CBOE Volatility Index, and it doesn’t actually measure investor fear. Instead, it tries to measure the S&P 500’s expected volatility over the next 30 days by aggregating options prices. It isn’t great at forecasting volatility or stock returns. And besides, even if volatility does pick up next year, it might be to the upside—the good kind of volatility! Second, about the S&P 500’s “coil” pattern, we read the two relevant sentence 10 times and can’t make heads or tails of them, and that’s after looking up “realized volatility” to discover it is “the daily standard deviation of log returns of an underlying asset, index, instrument, security, or ETF, over a defined period, with an assumed mean of zero, no degrees of freedom, and a constant 252-day annualization factor (regardless of the actual number of trading days within the year).” (In layman’s terms, the evidently translates as the absolute value of daily price movements over a specific period.) Folks, past price movement is in no way predictive of future prices. Stocks may dip next year, they may go up a lot or they may go sideways, but how they performed during the last few months of this year (or any other period) will not tell you which is the most likely scenario. Oh, and regarding this piece’s title, the market is never, ever, ever in a safe space. There are always potential risks, and the best investors can do is accurately determine the likelihood they happen, and position portfolios accordingly.

By , The New York Times, 12/30/2015

MarketMinder's View: We think this piece is somewhat confused. We mostly agree that a bit of a pause during a bull market is fine and not at all abnormal. Returns tend to come in clumps. But it errs in presuming that flat markets this year is a good thing because it kept bubbles from forming after several years where stocks were fueled by the Fed’s quantitative easing (QE). But rising prices alone do not equal bubbles. Financial bubbles (a very overused term in our view) exist when there is an actual mania—irrationally high demand, and astounding supply growth to match, with no fundamental support. Think Dutch tulips and money-losing dot-com stocks in 2000. Average or above-average returns this year would not have signified a bubble. Not with stocks’ fundamental backdrop overall strong. The discussion of stock valuations is equally off the mark. Valuations aren’t predictive, and it’s normal and natural for valuations to expand as bull markets mature. P/Es and other valuations can rise plenty more without implying investors are baselessly bullish. Finally, regarding QE, it actually limits growth, as Fed bond buying drives down long-term rates, reducing banks’ profit margins (the difference between short rates and long rates), discouraging lending. The new money could pump up stocks only if it was lent. It wasn’t. Stocks rose as much as they did since 2009 despite QE, not because of it.

By , The New York Times, 12/30/2015

MarketMinder's View: Unless Puerto Rico can find a few hundred million dollars in the couch cushions by January 4, they may end up defaulting on at least some of their debt payments due on January 1 (they get a three-day grace period due to the holiday). But if this happens, it likely won’t be a cataclysmic financial event for muni bond investors unless they over-concentrated in the territory. Puerto Rico’s financial woes have been widely discussed for months, and municipal debt markets have long since discerned between Puerto Rico and the healthy state/local bodies that make up the vast majority of the market. This also doesn’t pose a contagion risk for the rest of the world as Puerto Rico’s economy is tiny, about half the size of Detroit. If that city’s 2013 bankruptcy didn’t roil markets, we fail to see how an economy half its size will be able to.

By , CNBC, 12/30/2015

MarketMinder's View: That supposed troubling signal is the fact short rates are rising while long rates are not, flattening the yield curve. The reason flat yield curves tend to signal bad times ahead is because it discourages lending and capital markets activity, which eventually crimps money supply growth and thus economic activity. And although short rates have indeed risen over the last few months (The Fed hiked only a few weeks ago, but short-term bonds began pricing this in back in October), they are still quite a bit lower than long rates. Besides, though the US Treasury borrows money at one and two year maturities, banks largely borrow money at overnight rates.  With the fed funds rate effectively at 0.375% (midpoint of the range) and 10-year US Treasury rates (the reference rate for many long-term loans) at 2.31%, banks still have plenty of incentive to lend. Note, also, the yield curve remains steeper today than at many points earlier in this bull market, when the Fed flattened the curve through its quantitative easing bond purchases. Of course, should the Fed continue to hike short-term rates while long rates remain steady, it’s possible the yield curve flattens going forward, and this is something certainly worth watching. But the yield curve isn’t currently flashing the warning sign some claim.

By , The Fiscal Times, 12/29/2015

MarketMinder's View: Because Congress is hesitant to pass major legislation in an election year, lest voters who oppose the new laws take out their frustration on Election Day. This is a big reason why stocks have above-average returns and a high frequency of positivity in election years going back to 1926. Although there are issues that voters on either side of the political aisle would like the government to address, an inactive legislature is good for stocks because it means the government isn’t redrawing property rights and regulations or reallocating resources or capital, which would create uncertainty and may cause investors to become skittish. If you were hoping the pols in Washington will finally tackle issues such as overhauling corporate taxes, reforming the criminal justice system or implementing stricter gun control measures, you may end up disappointed next year, but your portfolio might just like it all the same. Political gridlock may frustrate folks, but it is typically bullish.

By , The Wall Street Journal, 12/29/2015

MarketMinder's View: For years, the state of Nevada purchased excess solar-powered electricity from individuals at retail rates, an incentive aimed at boosting the alternative energy source. But there is no such thing as a free lunch, and non-solar utility customers—who tend to be lower income than those with solar powered homes—ended up footing the bill. The state’s Public Utilities Commission recently decided to solve this by paying solar-powered customers the wholesale rate instead (about half of the retail rate), and like any such tweak, it creates winners and losers. The losers go beyond solar-powered customers, as solar panel producers relied on these subsidies to grow their business. This story highlights a good lesson for investors: Beware companies that benefit from—and in some cases depends on—government handouts. These policies are subject to change at any time, and this could radically change your investment’s prospects.

By , The Wall Street Journal, 12/29/2015

MarketMinder's View: Technological advancements such as cars, home appliances and smart phones have raised our standard of living over time. As this piece shows, ever smaller and faster sensors, processors and nanotechnology are colliding to create near-limitless possibilities. Not only could these advancements make many aspects of daily life—from transportation to energy extraction to health care—safer, cheaper and better, but they also create amazing long-term potential for new and existing businesses to profit and grow. And that creates amazing long-term potential for stocks!

By , The Washington Post, 12/29/2015

MarketMinder's View: Good news for the economy!  According to preliminary analysis of credit card transactions by Mastercard, US consumers opened up their wallets this holiday season, spending 7.9% more between Black Friday and Christmas Eve than last year (excluding vehicles and gas). People bought electronic devices, furniture and clothing, in droves, and online sales jumped. Though this isn’t a sign of where the economy is headed going forward, it shows pre-holiday retail pessimism was unwarranted. That disconnect between sentiment and reality is healthy for stocks.

By , Barron’s, 12/29/2015

MarketMinder's View: Stocks are up slightly this year on a total return basis while bonds are down a tad, prompting some to suggest nothing worked this year because no major asset class delivered meaningful returns. This piece gets points for showing that flat returns for a year (or longer) are actually common throughout history. When they happen, it doesn’t mean an all-equity or blended stock and bond strategy didn’t “work.” Instead, it simply means . . . well, it doesn’t mean much of anything other than market returns are inherently highly variable. A year is an arbitrary, short period. What matters in the long run is not whether you notch nice returns every year, but whether you capture equity-like returns over time—which generally requires discipline, particularly when bull markets hit speed bumps. For those investors who stayed disciplined this year, especially when markets were rocked by a sharp correction, we suggest the year worked just fine.

By , Financial Times, 12/29/2015

MarketMinder's View: While this piece isn’t perfect, it contains a fairly good discussion of why oil and other commodity production remains firm even though prices have cratered: Firms who borrowed against future revenues to finance new projects need all the new revenue they can get. Even with oil prices low, some revenue is better than no revenue. Other forms of “financialisation” contributed too, as US fracking producers hedged prices via derivatives, allowing them to continue selling at high prices after markets tumbled. Resource firms also secured financing via non-traditional means, for example, from institutional investors such as hedge funds. And while this largely explains why low prices haven’t yet caused production to wane, we’re not so sure this means “the current downturn [will be] longer and more severe than normal.” Commodity supercycles usually move glacially as production lead times are long, and if it took a couple years for this one to turn, it wouldn’t be abnormal at all.

By , The Wall Street Journal, 12/28/2015

MarketMinder's View: This article is a decent look at how globalization complicates overly simplified theses “like weak currencies are good for exports, and strong currencies are bad”: Virtually no product is exclusively produced in the country that exports it today. Labor, components, raw materials and intellectual property are sourced from around the world to produce products, making “Made on Earth” arguably the only accurate origin label possible these days. But we do feel compelled to note one error in the piece, a common one in the financial media: “It is still the case that when a currency such as the euro weakens, it reduces the price of goods sold by German manufacturers in the U.S.” No. That is only the case if the German firm passes the currency translation benefit on to consumers. If it doesn’t pass them on, electing to book the conversion as a boost to local currency profits, then a weak currency has no effect on the prices of goods. Japanese firms have proved this in droves in the present cycle.

By , Bloomberg, 12/28/2015

MarketMinder's View: Here is your standard disclaimer: Our take on this article is non-partisan, as neither party is “good” or “bad” for stocks or the economy, and believing otherwise is likely falling prey to partisan bias, potentially deadly in investing. Now then, this article does a fair job detailing the numbers behind the 2016 Senate races, and it explains that the Democrats—who must defend only 10 seats versus the Republicans’ 24—possess a similar structural advantage as the Republicans did in 2014, when they took control of the Senate. And it notes that there are enough Republican-held seats up for grabs in states that voted for Obama in 2012 (six) to swing the Senate to the Democrats. However, this isn’t as clear an edge as it may seem. Those six theoretically at-risk seats include those occupied by Rob Portman (OH), Chuck Grassley (IA) and Marco Rubio (FL). It is going to take stellar campaigning for the Democrats to seize the Senate. It will be interesting to watch these races develop, but at this early juncture, the Republicans have an underappreciated shot at holding both the House and Senate. That raises the risk of a very active legislature—a potential negative for stocks—should a Republican take the White House.

By , Financial Times, 12/28/2015

MarketMinder's View: We have our doubts about the veracity of the titular thesis, which hinges on the notion that in a period of market stress, an exchange-traded fund (ETF)—that has intraday liquidity—may increase volatility and negativity because that intraday liquidity may not match the ETF’s underlying holdings, and with the world increasingly employing index ETFs, everyone is on one side of a trade. But…most of the stocks in a major index are tremendously liquid, so we frankly fail to see where the problem exactly is? Moreover, comparing this to the recent seizure in the distressed debt market is comparing apples to molybdenum. And yes, on August 24, for about an hour after the open, volatility was extremely high and equity ETFs’ market prices were disconnected from the underlying asset values. Here we will quote Bloomberg’s Matt Levine, who has a salient point of view on this: “The exchange-traded fund is a very clever device for using market mechanisms (hedging market makers, creation/redemption) to build a single security that tracks a broader portfolio in real time. It works, you know, ninety-nine-point-whatever percent of the time. It would be awesome if it worked 100 percent of the time. But those market makers are not wrong to widen their spreads when they can't trade the underlying, are they? Sometimes stocks are kooky, and it's plausible that ETFs would concentrate and magnify that kookiness. A big problem in financial markets is that if you build a thing that works ninety-nine-point-whatever percent of the time, you will attract people who rely on its 100 percent reliability.” That reliability returned later the very same day.

By , CNBC, 12/28/2015

MarketMinder's View: If you were worried that the seven trading-session long “Santa Claus Rally” is off to a bad start following Monday’s -0.2% dip in the S&P 500, this article is here with some sage advice: It seems the first day(!) of the seven-day Santa period (last five days of the calendar year and the first two of the next) has been negative four times since 1969 and the overall period was up on all four occasions. So you can maybe breathe easy. Though, we honestly wonder why anyone would fret a seven-day period—a ridiculously small timeframe—and then analyze one day to put that seven-day period into context. The former was already a myopic bunch of statistics with correlation but not causation. The latter is an even more myopic bunch of trivial correlation that lacks causation. Not to be dismissive, but your financial goals are incredibly unlikely to be made or dashed in a seven-day period. Thinking about things like this is not a good use of investors’ time.

By , Reuters, 12/28/2015

MarketMinder's View: Wrong question. The correct question is what is the probability any of these things happen and are big and surprising enough to end the bull market? Alas, that question isn’t analyzed herein. Instead, we get more analysis of longstanding false fears like Fed hikes, a stronger dollar, weaker commodities, a Chinese hard landing, faltering profits, politics and terrorism. Ultimately, we’d counsel against giving this much of your precious reading time.

By , The Wall Street Journal, 12/28/2015

MarketMinder's View: We are of two minds about this piece. One mind thinks it sensibly explores the public’s tendency to latch onto a convenient, easy-to-understand narrative of a major financial/economic event, and contrasts this well (in the case of the Great Depression) with the economic understanding that emerged decades later, when cooler-headed research won the day. However, the other mind thinks this article’s attempt to dispense with the blame game of politics and analyze causes of 2008’s crisis is well wide of the mark, because it isn’t nearly skeptical enough of the dominant popular narrative: That the housing bubble bursting took down the banks. Actual loan losses incurred during the financial crisis were about $250 billion. That’s big, but banks were sufficiently capitalized to deal with it. However, banks wrote down trillions worth of mortgage-backed securities, collateralized debt obligations and other securitized home loans, which have since snapped back and proven far from toxic or bad. That is the perspective the “Wall Street greed caused the Financial Crisis” narrative is lacking, probably because the esoteric accounting rule (FAS 157) that amplified loan losses is difficult to politicize.

By , The Telegraph, 12/28/2015

MarketMinder's View: It seems another Swiss banking referendum has reached critical mass, allowing it to go to a vote. This time it isn’t about gold or hard money, but rather, the abolition of fractional reserve banking, the system by which banks are able to create money by lending a multiple of their reserves. It remains to be seen how this would actually function on a practical level, but it seems to us it would greatly hamper the functioning of a modern economy. All in all, though, Switzerland has voted on radical monetary plans like this before, and voters typically aren’t keen on big changes like this.

By , Bloomberg, 12/24/2015

MarketMinder's View: Just a fun read for Christmas Eve regarding one unique bank's history in 19th century New York. Enjoy, and Happy Holidays!

By , The Wall Street Journal, 12/24/2015

MarketMinder's View: For those of you looking for an intellectual justification for a Grinch-y attitude this holiday season, here you go: These economists argue the idea of gifts is economically inefficient. We ourselves aren’t looking for that justification, but we offer this article as a service to others.

By , Bloomberg, 12/24/2015

MarketMinder's View: This article makes a super salient point that we’ve long argued: For China’s yuan to ascend the ranks of global reserve currencies, it will need to have a much more modern, liberal and deep sovereign bond market. The IMF including it in its special-drawing rights (SDR) basket is a nice symbolic gesture, but it is practically devoid of much meaning. And the bond market, folks, is a big reason why. (We will note that when we read this article, the fourth paragraph under “Reform List” included a typographical error that may be a little jarring. It states, “China’s outstanding government bonds, stood at 14.6 trillion yuan ($2.25 billion) as of November….” That billion should be trillion, as the exchange rate is presently about 6.5 yuan per dollar and 14.6 trillion divided by 6.5 is roughly $2.25 trillion, not billion. Hopefully this is fixed by the time you read it, but if not, please mentally correct the sentence when you reach it.)

By , MarketWatch, 12/24/2015

MarketMinder's View: This article, in the course of discussing the routine alteration of the Dow Jones Industrial Average’s divisor due to Nike’s stock split, highlights well why price-weighted indexes are flawed. A stock split has zero effect on the size of a corporation; the shareholders; or any other meaningful metric. But if they didn’t adjust this divisor, stock splits would wreak havoc on price-weighted indexes. Anyway, for more, read this or this or this or this.

By , The Washington Post, 12/24/2015

MarketMinder's View: While we don’t totally see eye-to-eye with the opening of this piece, the list of ideas included beyond it are very, very sensible indeed. In our view, numbers 2, 4, 5 and 8 are very important and frequently overlooked by investors. And that is true whether you manage your own money or just want to better understand what your adviser is doing.

By , The Telegraph, 12/24/2015

MarketMinder's View: This article has some very salient, well-thought-out analysis combined with a good dose of confusion. What do we mean? The analysis of Britain’s economy is mostly ok—it highlights British economic health; that services and a budding Technology sector are driving growth, which it correctly notes is mostly domestically driven. Now, its citation of the trade deficit as a negative is wrong; trade deficits aren’t deficits at all, and rising imports suggest healthy domestic demand, which the UK presently has in droves. It is also true the FTSE 100 is arguably not reflective of these economic dynamics, given heavy weights in natural resources firms. But it is a stretch to say a stock market (anywhere, constructed anyhow) should perfectly reflect economic conditions, as they can sway on politics, economics and sentiment in the short run, supply and demand for stocks in the long run. And stocks tend to look forward, not backward. Ultimately, we agree that the FTSE 100’s 2015 performance doesn’t really reflect the nation’s underlying fundamental strength. We just disagree with the notion that’s so very unusual. (P.S., the comments made here about the Dow, CAC 40 and DAX better reflecting the US, French and German economies are wildly off. The Dow is 30 companies, price-weighted and bears little resemblance to the US economy. The CAC 40 and DAX are 40 and 30 firms respectively, and both consider not only the firms’ size as a criterion for inclusion, but the volume of trading. No gauge of 30 firms represents a major developed economy very well, particularly when you include oddities like volume and price weighting.)

By , The Wall Street Journal, 12/24/2015

MarketMinder's View: While we agree with the spirit of this article—that employing simple forecasting tactics is often superior to hugely complex approaches—we don’t agree with the application. For one, it is fallacious to presume anyone can forecast returns a decade out. The two fundamental drivers of stock prices are supply and demand for stocks. The latter is influenced by the factors discussed herein, but the former isn’t broached at all. Moreover, cycles shift and the market is hugely adaptive—over a 10-year period, change could be dramatic. We figure that this article confuses the fact stocks have risen in about 94% of rolling 10-year periods and only 73% of one-year periods as “more forecastable,” and returns tend to smooth out over longer timeframes. But all this really means is a permanent forecast of “up” is likely to be right far more often than wrong over long timeframes. Over a one-year period—referred to herein as incredibly hard to forecast—supply changes are more forecastable, meaning you are assessing mostly the impact of demand—driven by economic fundamentals, sentiment and politics. Those factors are much easier to foresee over a one-year span than a 10-year one.

By , Reuters, 12/24/2015

MarketMinder's View: A fairly good summation of the headwinds confronting reform-minded new Argentinian President Mauricio Macri as he embarks on the path of undoing many of the preceding Kirchner administration’s anti-competitive and unsustainable policies including capital controls, heavy protectionism and government intervention. Macri is off to a decent start, but expectations are lofty and the legislature is still majority-controlled by Kirchner followers, suggesting the road may get tougher ahead. As this article notes, some of the requisite reforms for Argentina may well create cyclical economic weakness in the immediate future due to their disruptive nature. So the reforms are likely long run positives, but the positive effect in the short run could be complicated by cyclical conditions.

By , The Telegraph, 12/23/2015

MarketMinder's View: Sorry, but no. While GDP did slow to 1.8% annualized (0.4% q/q), a massive detraction from rising imports was the primary culprit, subtracting 3.6 percentage points from headline growth. Rising imports signify healthy domestic demand, not a flagging economy, which is also echoed by household consumption rising 3.6% annualized, accelerating from Q2. Don’t let GDP’s twisted treatment of trade cloud your view of Britain’s economic health.

By , Bloomberg, 12/23/2015

MarketMinder's View: The theory here just made us tired, to put it bluntly. Yes, some companies and countries suffer when oil prices are low, and it dissuades investment in increasing oil production, likely eventually bringing higher prices down the line. But, in this expansion alone, we’ve seen $120 per barrel oil and $35 per barrel oil. Growth has continued throughout. Let’s get this straight once and for all: Prices are signals, incenting activity. Those signals encourage different types of behaviors down the line, creating winners and losers simultaneously. This, friends, is markets at work. It is not a risk.

By , The Washington Post, 12/23/2015

MarketMinder's View: The thinking here is that the Fed erred by hiking rates last week because inflation is very low and growth is sub-par. Therefore, tightening monetary policy now may lead to secular stagnation—a sustained period of little to no growth in a market-based economy, marked by a lack of innovation. There are a few problems with this. First, this piece presumes a 25 basis point rate hike in the fed-funds rate impacts the economy way more than it actually does. What matters more is the difference between short and long rates, as this impacts banks’ willingness to lend. Though short rates are slightly higher than a week ago, the yield spread remains nicely positive, suggesting lending will continue, bringing more growth with it. Second, though many have suggested since the Great Depression that secular stagnation is a thing, history has shown over and over that it isn’t. Today, one need look no further than mobile computing, the “Internet of Things,” genomic research, medical devices and 3-D printing to see we have no lack of innovation. Finally, show us one example where low inflation led to slow growth. We’ll wait. In the end, there is one statement made here that shows the problem with this theory in a nutshell, “Moreover, if account is taken of quality change inflation measures would have to be further reduced.” Yes, but if we take account of quality change in the products produced, we’d realize there was no lack of innovation and our econometrics simply aren’t capturing growth properly—thoroughly gutting “secular stagnation.”

By , MarketWatch, 12/23/2015

MarketMinder's View: The so-called smart money indicator here is the S&P 100 put/call ratio—the number of open put options (contracts benefiting from a falling market) compared to call options (contracts benefiting from rising stocks). It seems that this ratio reached 3.3:1 on Monday, the highest in 16 years, and since mostly professionals dabble in options, this means the smart money expects blood. As further support, this notes that since 1999, when OEX put options outnumbered call options by at least 2:1, this always preceded either a big drop or sideways markets, so the present levels, according to this, suggest a new big downtrend likely lies ahead. Yet a cursory glance at the charts included calls this into question. Look at 2003. Look at 2011 and 2012. Look at 2014. Ignoring false alarms in 2003, 2012 and a bunch in 2014 by calling them “flattish periods” is playing loose and fast with figures and chart formatting. The S&P 100 rose 26% in 2003. 16% in 2012. 12.7% in 2014. These are all above-average returns. The alleged “flatness” in these time periods has to be some selected subset of a short window, undefined herein. For long-term investors, longer-term results matter most, and exiting the market is a big risk potentially jeopardizing those results. Doing so based on an arbitrary metric reaching an arbitrary level with questionable accuracy risks taking defensive action at the wrong time. If you remain out of the market for a sustained period while it rises, you increase the risk you fail to reach your long-term financial goals. In our view, it’s best to sell stocks en masse only when you are aware of big fundamental negatives others don’t see. This doesn’t qualify.

By , Bloomberg, 12/23/2015

MarketMinder's View: Select steel products are about to get significantly more expensive for American buyers after the US Commerce Department found that China, India, South Korea and Italy are unfairly subsidizing corrosion-proof steel production, hurting US manufacturers, the much-maligned practice known as “dumping.” In response, the Commerce Department is enacting steep new tariffs in addition to 236% tariffs on Chinese steel announced a month earlier—a total of a nearly 500% tax on select imports. Though new US tariffs on select steel imports are a negative, in our view, it’s a tiny one and will become a big problem only if it escalates into a full-blown trade war. This seems unlikely anytime in the foreseeable future, as free trade is escalating overall, but it’s worth keeping an eye on as a potential risk to the global economy. History has shown that when countries slap tariffs on foreign imports, this doesn’t actually benefit anyone, leading the opposing country to retaliate by imposing their own tariffs. This leads to declining overall trade, a negative for all. What’s more, even if you presume these nations are unfairly subsidizing exported steel, artificially lowering the price of their goods may help industries consuming these products, mitigating the macroeconomic impact. This is especially true for steel, an input used to manufacture many finished goods and structures. We’d humbly suggest the better alternative is to hash this out at the World Trade Organization. That is what it is here for, after all.

By , A Wealth of Common Sense, 12/23/2015

MarketMinder's View: Throughout the bull market, investors have bought a net $1 trillion worth of index funds while selling a net $600 billion of actively managed stock funds. But this doesn’t mean investors are becoming “passive” en masse because, despite the many claims to the contrary, passive investing is mostly imaginary—which these data actually support. You see, “Out of the 1,800 total stock ETFs out there, only about 12 track the broad stock market, with a total of $337 billion in AUM. That’s just one-fifth of the total in equity ETFs. The remaining funds are much more focused — by sector, market cap, risk factors, leverage, country, region, etc.” This shows investors are buying narrow-based index funds much more than broad-based ones, implying they aren’t just mirroring an index they plan to hold forever, come hell or high water. That is active investing, just without stock picking. And, even if they selected a broad index fund, the investor still had to pick an allocation, which is an active choice. Ultimately, it isn’t the type of fund you buy or sell that makes you a passive investor. It’s how you chose and how disciplined you are. Many investors sell in fear during turbulent times or load up on hot sectors, showing investor behavior is the key to successful investing, and not which type of investment vehicles you own: “Fund structure or costs won’t matter all that much to an undisciplined investor.”

By , The Wall Street Journal, 12/23/2015

MarketMinder's View: Yesterday we highlighted a story suggesting investors have reached peak pessimism regarding oil and other commodities, and a big upturn looms. Well, this piece provides evidence to the contrary. Instead of making a direct bet on black gold, the traders highlighted here are making proxy bets, by buying the currencies of energy-reliant countries or Energy-sector bonds. There is ample evidence—from fund flows to media sentiment—suggesting investors are still sliding down the slope of hope when it comes to oil, a sign Energy stocks are not yet ripe for a sustained rally.

By , Reuters, 12/22/2015

MarketMinder's View: According to the Commerce Department’s latest revision, US Q3 GDP growth clocked in at 2.0% instead of the 2.1% previously reported. We won’t run through all the changes, but one is particularly noteworthy in our view. Exports rose 0.7%, less than previously thought, while imports rose 2.3%, more than originally estimated. Because exports add to GDP while imports detract—a vestige of mercantilist thinking that countries gain wealth only by exporting goods—this difference shaved 0.26 percentage point from Q3 growth. But in our view, considering imports a detraction is fundamentally incorrect, and a reason GDP doesn’t perfectly tally economic health. Imports are a sign of domestic demand, often used to produce final goods, and they create economic activity. In this sense, Q3 growth was even better than the headline number suggests. It’s old news now, given this is the third revision to Q3 data, but still a sign the US economy remains on firm footing.

By , Fortune, 12/22/2015

MarketMinder's View: The supposed opportunity is “saturating hopelessness”—the idea all the bad news for oil and other commodities is now well-known and thus already reflected in prices. Therefore, the piece argues prices will likely rise from here because everyone who can potentially sell to drive prices even lower has already done so. Although we would agree in theory the time to buy is when the blood is in the streets, we aren’t so sure investors are as pessimistic on oil, energy and other depressed natural resources as this piece suggests. Fund flows point to investors continuing to bottom fish in Energy stocks, and many pundits remain optimistic Energy stocks will rebound. When sentiment finally bottoms you will likely see the opposite. Besides, it will likely take years for the global oversupply of oil and other resources to dissipate, especially given global production remains firm in the face of cratered prices.

By , Vox, 12/22/2015

MarketMinder's View: It’s looking increasingly likely the Department of Labor will move forward with new rules for investment professionals advising on retirement accounts. Sales brokers are currently held to the suitability standard, which requires that they recommend investments that aren’t unsuitable for clients. But if the DoL advances, they will instead be held to the fiduciary standard, the same standard registered investment advisers (RIAs) are held to. This rule states the adviser must disclose any known conflicts of interest and reasonably believe recommendations made put the clients’ interests before their own. But we disagree with the conclusions this piece draws from this rule change. For one, it doesn’t mean they will necessarily provide better advice. According to the rules, they will still be able to recommend higher cost funds, share revenues with funds they recommend and sell high-fee proprietary products as long as they agree in writing to act in clients’ best interests, disclose all potential conflicts of interest to clients and put in place policies and procedures to mitigate these conflicts. Second, cost isn’t the only differentiating factor among investment alternatives, so an RIA can reasonably believe he or she is putting the client’s interests first while recommending a higher-fee option. Look, we don’t have a rooting interest here at all, but we’d suggest the study underpinning the DoL’s recommendation is hopelessly flawed. Consider this quote: “The greatest losses occur when workers roll their 401(k) balance into a higher-fee individual retirement account when leaving a job, rather than keeping it with their former employers.” Individual retirement accounts themselves usually don’t have fees. The investments within them—which could be virtually anything—do. This is a rather glaring oversight for a study that bases its claim on fees. But again, Fisher Investments (our firm) is already held to the fiduciary standard, so we have no rooting interest here.

By , The Wall Street Journal, 12/22/2015

MarketMinder's View: This article is very company-specific, which isn’t really our interest whatsoever. But we do think it highlights a predicament for investors who bought high-dividend stocks in search of yield: Energy firms, some sporting lofty dividend yields, now face the question of whether to cut their dividend and preserve cash reserves but risk losing investors or maintain their dividend but risk running low on cash. Each firm will assess which makes the most sense for their particular situation, but the pressure from low commodity prices is going to force a decision, in many cases. However, the lesson for investors from this dilemma is you shouldn’t load up on high-dividend stocks just for the yield, and instead consider the expected total return—yield plus price movement--of any security you own or  consider buying. Dividends are not free money, they aren’t guaranteed and they aren’t a great reason to buy a stock, absent other drivers.

By , Yahoo Finance, 12/22/2015

MarketMinder's View: The three supposed bearish signs are: an increasingly smaller percentage of stocks going up; fewer stocks making new 52-week highs; and more stocks trading below their 200-day moving average. Folks, repeat after us: Stock returns, no matter how you slice and dice them, are in no way predictive of future returns. And we aren’t even really sure that this particular attempt to slice and dice returns presents accurate information. Why, for example, does the Y-axis in the first chart show 200,000 as the maximum figure on the NYSE advance/decline line—there are only 2800 stocks on the NYSE, so it would be quite impossible for 200,000 NYSE stocks to rise. Second, why compare the 2800 NYSE stocks to the S&P 500? Why not compare to the NYSE Composite? Moreover, even a cursory glance at these charts reveals a slew of false reads. But either way, as bull markets mature, it’s normal for large-cap stocks to lead the way while small caps lag. Because there are a lot less of the former and more of the latter, fewer stocks typically outperform broad indexes in late stage bull markets—that is declining market breadth. You don’t measure this using some tortured version of an advance/decline line and long moving averages. And the trend, correctly defined, can last for several years, so it really isn’t a sign of impending doom.

By , Barron’s, 12/22/2015

MarketMinder's View: Stocks beat investment-grade corporate bonds by only 1.47 percentage points annualized over the last 10 years, suggesting investors were barely rewarded at all for owning much more volatile stocks during this period. But you could look at this somewhat differently: In a 10-year period that includes one of the biggest bear markets on record, stocks still outperformed bonds. That is a testament to their ability to rebound and sort of proves the point that a properly diversified portfolio won’t be crushed by a single bear market—even a massive one. Now then, we’d suggest this interesting factoid isn’t very helpful to investors now, because it’s all backward-looking and tells you nothing about what the future will bring. If your time horizon, goals and needs are commensurate with investing in stocks, then veering without good, forward-looking information that justifies the move is likely an error. Stocks don’t always crush bonds over 10-year periods, but they typically do—and the longer the horizon, the larger stocks’ typical margin of outperformance. That over the last 10 years stocks eked out a small edge is just part of investing, and it doesn’t mean investors should own less stocks going forward.

By , CNNMoney, 12/22/2015

MarketMinder's View: This article seems pretty darn confused, to us. While we agree the bull market likely has further to run, as the underlying fundamentals remain positive, we deduct points for citing factors like low gas prices and strong job growth boosting consumer spending as causal. The former creates winners and losers (see the Energy sector presently) and the latter just isn’t a thing, or else we’d never go into recession (unemployment is typically lowest right before a cycle shifts). What’s more, the risks cited herein read more like a list of things wrongly feared in 2015 that didn’t sink the bull: China’s economy potentially stumbling; stocks aren’t cheap; Fed rate hikes; a terrorist attack and more. Let’s address all these in turn: China’s slowdown is now five years old and largely government orchestrated—it isn’t sneaking up on anyone. Stock valuations might be above average, but only slightly, suggesting investors are nowhere near as euphoric as they tend to be near bull market peaks. US monetary policy throughout the bull market has not been an “easy-money punchbowl,” as quantitative easing reduced long-term rates and thus banks’ profit margins, discouraging lending. Terror attacks—even big ones like 9/11—don’t have the power to derail an economic expansion or bull market. This isn’t to say there are no risks, but if we just feared something during much of the prior year, stocks have likely dealt with it already and moved on.

By , Bloomberg, 12/21/2015

MarketMinder's View: The data here are fascinating: Over the past 18 months, investors of all stripes and skill levels have spent $24 billion trying to play a rebound in the Energy sector. Generally speaking, they’ve all failed—since Brent Crude’s June 19, 2014 high to December 14, 2015, oil prices have fallen an astounding -68.3% (per the St. Louis Federal Reserve). While there were certainly short periods when prices rose, profiting from them would have required spot-on market timing skills. We have spilled many pixels discussing the oil supply glut, but this piece shows in spades that investor sentiment does not appreciate this reality. For those trying to bottom-fish the Energy sector right now, take note of the tough lesson the investors here have learned: opportunities that look “cheap” can always get cheaper.    

By , Associated Press, 12/21/2015

MarketMinder's View: Yes, all else equal, the $1.1 trillion budget deal should add to economic output. That is simple math, as GDP counts government spending as a positive input. But the takeaways in this article seem rather overstated. Sure, making some tax breaks permanent will reduce uncertainty for the benefitting businesses and individuals, though the macroeconomic impact would be incremental. As for the spending, in an economy in which the private sector comprises almost 90% of GDP, small fluctuations in fiscal spending contributions aren’t terribly meaningful. And while many folks believe this fiscal support will clarify issues for Janet Yellen and co. as they prepare for future rate hikes, that is just another case of reading too much into prospective Fed actions—a futile activity, in our view—and overestimating the impact of near-zero interest rates. For more, see today’s commentary, “The US Government Did Something … and It Isn’t Awful!”   

By , CNNMoney, 12/21/2015

MarketMinder's View: Spain hit the polls yesterday, and though the incumbent center-right Popular Party won the most seats (123), they are far short of the 176 needed for a continued parliamentary majority. Headlines have made much about the rise of the mainstream and fringe left-leaning parties (the Socialists and the upstart Podemos), fearing Spain is about to go the way of a Syriza-like Greece. However, this seems like a leap too far, in our view. Yes, the left-wing parties have a better shot at forming a parliamentary majority, but the Socialists and Podemos diverge on many issues, so there is no guarantee they reach a consensus with enough political capital to tear up Spain’s commitments. However, whether a leftist coalition takes over, the Popular Party runs a minority government or some alternative scenario arises, the resulting government probably won’t have the sway to pass huge, game-changing legislation. While Spanish markets are a bit bumpy today in the election’s immediate aftermath, the result isn’t a big negative political driver, and it is unlikely to derail the ascent of the one of eurozone’s best-performing economies.   

By , The New York Times, 12/21/2015

MarketMinder's View: After the Fed finally hiked last week, worries have shifted from the initial rate hike’s fallout to the subsequent rate hikes’ impact. Now, if the Fed overshoots with its hiking and causes short-term rates to climb above long-term rates—inverting the yield curve—this would be cause for concern, since an inverted yield curve has preceded the past seven recessions. However, this isn’t an immediate danger given the current yield curve has been positively sloped and steep—a single rate hike of 0.25 percentage point isn’t going to invert it. And while we don’t know how exactly the Fed will act for future hikes (nobody knows, no matter what pundits claim), evidence suggests Fed chair Janet Yellen prefers moving gradually and by consensus, supportive of a more gradual tightening cycle than a sharp one. With many already gaming when the Fed will hike next, we suggest investors tune out the noise and avoid the hypotheticals of “what could go wrong” and instead appreciate the many things going right.     

By , Bloomberg, 12/21/2015

MarketMinder's View: The current bull market is on the verge of becoming the second-longest in history, trailing only the 1990s bull. With that interesting tidbit in mind, this piece reinforces an important lesson: Bulls don’t die of old age. They can run out of steam when investor expectations greatly exceed reality (e.g., euphoria blinds investors from negatives like an inverted yield curve). They can get walloped by an unseen negative that has the power to knock trillions of dollars off global GDP. But a bear market won’t arise because the bull turns seven (or eight, or nine, or ...) years old. We agree with the quoted analyst here: ”Just because the market is some number of months old doesn’t mean it can’t become twice as old. It just doesn’t work like that.”

By , The Wall Street Journal, 12/21/2015

MarketMinder's View: Err, sorry, but there is nothing unusual about what stocks are doing this month—stocks can be bouncy any day of any month of any year. Stocks are just being stocks. Saying “capital markets shouldn’t be this volatile in December” assumes stocks should mimic their performance from prior Decembers, even though past performance isn’t indicative of future returns. Folks, we recommend not being so myopic, especially since markets are notoriously volatile in the short term. More importantly, the fundamentals driving the current bull market remain intact.  

By , Financial Times, 12/21/2015

MarketMinder's View: After 14(!) years, the mandate for the World Trade Organization’s Doha Development Round—which sought to lower trade barriers and promote global trade—was not “reaffirmed,” finally putting an end to the frequently stalled negotiations. The Doha trade talks are Exhibit A for why big, multi-country agreements are so difficult to conclude: the more folks participating, the harder it is to reach a deal that will please everyone (Exhibit B: the Trans-Pacific Partnership). However, the “death of Doha” is no big negative to global trade, especially given how feckless the actual agreed-to deal was. Over the past 14 years—and four WTO directors-generalindividual trade agreements have done more to promote freer trade than the wide-ranging Doha round.          

By , The Wall Street Journal, 12/18/2015

MarketMinder's View: We guess the headline is perhaps one relevant lesson from Third Avenue’s decision to halt redemptions from its Focused Credit Fund, as ETFs are, well, exchange-traded and thus spare investors from the risk of redemption gates. But ETFs have their own risk, like the risk the ETF’s price diverges wildly from the underlying holdings. Those who sell in a panic could easily face a steep discount, as many folks learned the hard way on August 24. To us, the best lesson is this: Know what you’re buying. Don’t get seduced by flashy language or snazzy recent returns. Find out what the holdings are and how liquid they are, then carefully weigh the risks and whether owning the fund is wise—whether it’s exchange-traded or not. If the fund is full of securities you’d never touch in individual form—like claims on Lehman Brothers’ assets—maybe it isn’t such a good idea to touch them in fund form, either.

By , The Guardian, 12/18/2015

MarketMinder's View: This is all fairly standard worrying about low inflation and a long-in-the-tooth economic expansion. We award a point for acknowledging low Energy prices bear the blame for low (and occasionally negative) CPI growth, but we deduct several for the argument weak inflation expectations are inherently a self-fulfilling prophecy, triggering a vicious cycle of weak expectations and weaker inflation. Inflation is always and everywhere a monetary phenomenon, not a psychological one. As for the expansion’s age, recession isn’t “overdue.” Take it from Fed head Janet Yellen: “I think it’s a myth that expansions die of old age. I do not think that they die of old age. So, the fact that this has been quite a long expansion doesn't lead me to believe that it's one that has – its days are numbered.” With the yield curve still fairly steep, broad money supply growing nicely and bank lending strong, the economy has plenty of fuel.

By , The Telegraph, 12/18/2015

MarketMinder's View: Growing pains. Or, as John Maynard Keynes put it, “the growing pains of over rapid change.”  The “old age” argument is largely based on flagging productivity, but that is a statistical mirage. Technology has boosted productivity amazingly over the last two-plus decades. We live it every day. But much of it doesn’t show up in antiquated econometrics. “From entertainment to communications, many of the things that we used to pay quite a lot for have to all intents and purposes become ‘free’, which in turn means we consume an awful lot more of them. These and other examples of the so-called ‘shared economy’ are surely evidence of very substantial productivity and consumption growth, which, because they have little or no value attributed to them, don’t show up in official data. None of this is to belittle the problems of those struggling with low wages; it is only to point out that some of life’s one-time luxuries are now available to all at marginal cost. We may not be better off in monetary terms, but we are consuming at an ever more furious rate.”

By , The New York Times, 12/18/2015

MarketMinder's View: Politicians are already calling the latest slide “currency manipulation,” and we reckon many more will—on both sides of the aisle—as 2016’s election approaches. This is a false narrative, aimed at currying favor with voters (bashing China and promoting protectionism are reliable ways to score points). In reality, as this piece shows, China’s currency is sliding because more investors are moving their money out, taking advantage of reduced capital controls. Official intervention is aimed at propping up the currency in the face of these outflows, lest imports become too expensive and quash local consumption. Also, the fact the currency is sliding underscores how the IMF’s decision to add the renminbi to its reserve currency basket, the Special Drawing Right (SDR), was merely symbolic. It didn’t drive demand for the currency sky-high. As we’ve long said, the SDR is a little-used accounting unit, with little relation to actual foreign exchange reserves and little to no bearing on international currency use.

By , The New York Times, 12/18/2015

MarketMinder's View: This is an excellent post-mortem of Third Avenue’s Focused Credit Fund, whose closure last Thursday sparked a wicked two-day selloff in high-yield (junk) bonds. Many feared it was the canary in the coal mine for junk bonds and anticipated a deeper, longer slowdown. But markets were resilient, and many now agree it was an isolated case, as we wrote earlier this week. Here’s a good snippet: “‘The Third Avenue situation is unique,’ said Gary Cohn, president of Goldman Sachs, who has been in frequent contact with clients throughout the week. ‘They owned really low-credit-rated products compared to the typical high-yield fund. The long-term impact of rising rates remains a big question mark. But no one thinks that the collapse of Third Avenue is going to contaminate the world.’”

By , The Wall Street Journal, 12/18/2015

MarketMinder's View: Yippee, Congress avoided a government shutdown, with five days to spare. Government shutdowns don’t much impact stocks, but it sure is nice to get a break from bickering. This—a compromise on a few measures that sound nice to supporters but don’t really move the needle—is the sort of thing you tend to see as elections approach and Congress doesn’t want to rock the boat, and the calm is usually pretty good for stocks.

By , The New York Times, 12/18/2015

MarketMinder's View: In recent years, a few publicly traded companies have spun their sizable real estate holdings into REITs, a tax-free way to unlock value from these assets and become more nimble. Shareholders dug it. But now the trick is going the way of the dodo. That does take some flexibility away from Corporate America, which isn’t great. But it also seems to be a compromise—something Congress did instead of clamping down on corporate inversions (US firms buying small foreign firms and taking over the address to avoid double taxation on overseas earnings)—which gives it a silver lining. Inversion deals, contrary to myth, enable business investment, as they allow companies to bring foreign income to the US without penalty. End them, and that money probably stays overseas, and other countries reap the benefits.

By , The Wall Street Journal, 12/18/2015

MarketMinder's View: That gift is the permanent extension of several popular temporary tax breaks, which should make many investors’ and businesses’ lives easier. None of the provisions is hugely stimulative, but the added certainty is a positive. All too often, Congress has let the extension of these tax breaks go down to the wire, in some cases letting them expire, then re-upping them retroactively a year later. That makes tax planning exceptionally difficult. We reckon folks didn’t like waiting until the year’s final days to see whether they could make tax-free charitable contributions from their IRA, for example. So thank you, dear Congresspeople, for graciously surrendering one of your favorite bargaining chips so all Americans can have a bit more sanity. This is not formally a done deal as of yet, but it is expected to be final next week.

By , The Wall Street Journal, 12/18/2015

MarketMinder's View: The surprise move was tweaking the ongoing quantitative easing (QE) program—extending the average maturity of bond purchases from 7-10 years to 7-12 years, adding ¥300 billion in ETF purchases and expanding the bank’s ownership limit in REITs from 5% of issued units to 10%. BoJ Chief Haruhiko Kuroda characterized these as technical tweaks, not new stimulus. Meanwhile, markets seem to be reading into the fact that each tweak carried only a 6-3 vote, perhaps implying the BoJ may have trouble expanding QE if needed in the future. The fuss seems overdone to us. QE hasn’t helped Japan’s economy so far, and a few tweaks won’t change that. Nor would massively expanding the program. Also, it isn’t hugely surprising that the bank would need to expand the pool of eligible assets after nearly two years of the world’s largest QE program (relative to the economy’s size).

By , Barron’s, 12/18/2015

MarketMinder's View: This isn’t a riddle. Markets move in front of widely expected events, not after them.

By , Financial Times, 12/18/2015

MarketMinder's View: A potentially big step forward for the UK’s Energy industry, but it won’t change much in the here and now. Actual exploration and drilling will require approval from local councils, and the UK’s grass roots oppose developing shale resources far, far more than the central government does. It also doesn’t help that landowners lack mineral rights. Having skin in the game would up the chances of approval.

By , The Wall Street Journal, 12/17/2015

MarketMinder's View: This whole article operates on the notion the Fed’s zero-percent interest rate policy drove investors to chase yield, inflated a bubble in allegedly “risky” assets and triggered a “gusher of credit … to companies in the U.S. and emerging markets.” Yet the troubles with this thesis are many and varied. Lending and money supply growth have been historically slow throughout this expansion—there was no “gusher.” The Fed’s cheap money wasn’t easy money, because the profitability of bank lending was so low due to a narrow yield spread. Second, borrowing costs for high-yield debt and Emerging Markets (EM) have been up for a couple of years, largely tied to the same factor: collapsing commodity prices.  High yield is skewed towards commodity producers, and many big EMs are, too (Brazil and Russia, for example). So the notion this would be “revealed” only after a Fed hike misses the fact it already was revealed. It also operated on the theory investors weren’t broadly aware the Fed might hike, which seems a little silly and operates on a theory that, to paraphrase Financial Planning’s Allan Roth, you might call, “Markets are Stupid Theory.” Folks, markets aren’t perfectly rational, but they are rational and efficient far more often than they are not. Presuming they were sleepwalking their way higher until a rate hike came doesn’t reflect reality.

By , Forbes, 12/17/2015

MarketMinder's View: This is an excellent run-down of the major tax provisions included in the omnibus spending bill currently circulating (with bipartisan support) on Capitol Hill. The House is expected to vote on it Friday, and it is broadly anticipated President Obama will sign it. As we noted yesterday, the bill includes removal of the 40-year old US oil export ban. But importantly, it also would make permanent many of the tax extenders—tax breaks Congress has retroactively extended at the last minute in three of the last four years. These include certain depreciation measures for businesses, the enhanced child tax credit, some higher education credits and the provision allowing IRA owners older than 70 ½ to reduce their tax liability by donating their required minimum distribution directly. This last one—which we covered on our sister blog, Market Insights—has been widely watched every year since enacted and is usually a source of annual angst for seniors. This isn’t a done deal yet, but boy, ending this annual exercise would be a very nice positive indeed.

By , Financial Times, 12/17/2015

MarketMinder's View: The latest from our boss highlights the feckless history of initial rate hikes, and delves into what might motivate Janet Yellen and the Federal Open Market Committee’s pace of hikes going forward. Here’s a snippet: “Fed transcripts from 2009 and earlier show Yellen prefers moving gradually, awaiting confirmation from multiple data points before recommending action. She craves consensus, and consensus is by definition slow-moving. This supports gradual tightening. Politics also give her reason to go slowly. America elects a new president next year, and the president appoints the Fed head. Ms Yellen’s term expires in February 2018, so whoever wins will decide her fate in his (or her) first year. Like any political appointee, Ms Yellen’s primary goal is reappointment. Staying on the next president’s good side is the best way to get it.”

By , Bloomberg, 12/17/2015

MarketMinder's View: But they also don’t have pegged currencies, and they have huge forex reserves, so the strong dollar likely won’t create a crisis on par with the 1997-1998 Asian contagion. And it should be noted that the 1997-1998 period wasn’t great for Asia, but for global markets it was a-ok.

By , RTT News, 12/17/2015

MarketMinder's View: “The Conference Board said its leading economic index climbed by 0.4 percent in November following a 0.6 percent increase in October. Economists had expected the index to edge up by 0.2 percent.” In the series’ 56-year history, a US recession has never begun when the US Leading Economic Index is high and rising. 

By , InvestmentNews, 12/17/2015

MarketMinder's View: Congress elected not to include a provision defunding or otherwise blocking the Department of Labor’s efforts to install a fiduciary standard for all US financial professionals touching retirement accounts in the omnibus spending bill expected to pass Friday, so the effort will probably go forward. Now, this doesn’t preclude separate legislation or other delays, but it does seem the path toward the DoL finalizing a rule is a wee bit clearer now. However, as we have written here many times, the fiduciary standard expanding wouldn’t be some client-first revolution sweeping across the industry.

By , Financial Times, 12/17/2015

MarketMinder's View: As was fairly predictable, after the US Federal Reserve hiked interest rates yesterday, speculation is ramping up in Britain as to when the Bank of England will follow suit. This article does a fairly good job of noting the fact BoE head Mark Carney’s words may have sowed as much confusion as clarity. As a result, “Despite Mr Carney’s genuine efforts to improve transparency at the BoE, fear of the unknown still dominates thinking. While it continues to refuse to publish internal interest rate forecasts, the governor cannot stop excessive focus on the first rate rise. Paradoxically, the BoE might have to increase rates just to allow people to move on and concentrate on the longer-term message.”

By , Bloomberg, 12/17/2015

MarketMinder's View: One of the dominating narratives of the financial crisis is it was caused by banks loading up on securitized debt rife with bad loans that ratings agencies overrated, and when the housing market went south they proved toxic, killing banks that loaded up on them. However, time has shown this narrative to lack supporting evidence on this side of the Atlantic, and now, it seems failed British bank Northern Rock’s allegedly toxic assets weren’t poisonous either. We don’t expect this narrative to die any time soon, but discerning MarketMinder readers know the reality is very different.

By , Bloomberg, 12/16/2015

MarketMinder's View: We’ve read literally hundreds of articles about Fed rate hikes in recent weeks. This one just might be our favorite. It is a thoroughly enjoyable look at the media hype machine and how markets deal with widely anticipated events, and it is chock full of sense.

By , Bloomberg, 12/16/2015

MarketMinder's View: We’ve read literally hundreds of articles about Fed rate hikes in recent weeks. This one just might be our favorite. It is a thoroughly enjoyable look at the media hype machine and how markets deal with widely anticipated events, and it is chock full of sense.

By , The Wall Street Journal, 12/16/2015

MarketMinder's View: While not perfect, this is a darned good look at a point most miss about 2008: The financial crisis stemmed from an accounting rule—FAS 157 or “mark-to-market” accounting—that was misapplied to illiquid assets banks planned to hold to maturity. The housing bubble, widely blamed for the crisis, is merely part of the backstory, and vilifying those who profited from shorting mortgage-backed securities wildly overestimates their prescience and impact on broader markets. The accounting rule made these assets look toxic, but they weren’t really hazardous waste: “… defaulted mortgages don’t become worthless—they default to the value of the repossessed house. So how ‘toxic’ were these securities? Well after the worst of the meltdown, Washington’s own Financial Crisis Inquiry Commission noted that ‘most of the triple-A tranches … have avoided actual losses in cash flow through 2010 and may avoid significant realized losses going forward.’” Without FAS 157, they never would have caused $2 trillion in exaggerated and necessary writedowns.

By , EUbusiness, 12/16/2015

MarketMinder's View: The “economy slows” part of the title refers to the eurozone’s Composite Purchasing Managers’ Index (PMI)—a rough gauge of the percentage of firms reporting growth—slipping to 54.0 in December from 54.2 in November. But this doesn’t mean growth necessarily slowed, as PMIs measure the breadth of growth, not the magnitude. Moreover, according to Markit’s chief economist, "Although the PMI edged lower in December, the fourth quarter as a whole saw the largest increase in business activity for four-and-a-half years.” That many continue to fret a “weak” eurozone economy means sentiment for the bloc remains detached from reality, a tailwind for eurozone stocks.

By , Bloomberg, 12/16/2015

MarketMinder's View: This piece suggests easy Fed policy has fueled the bull market since 2009, and now that the Fed will raise interest rates, stocks may be under pressure going forward. Folks, we’ve seen many express the “Fed is removing the punchbowl from the party” meme countless times, and it simply isn’t true. Short-term rates alone don’t much influence money supply, lending or economic growth. The yield curve spread—gap between short- and long-term rates—is the kicker. Quantitative easing— also widely believed to be stimulative—actually stunted growth by lowering long-term rates, shrinking the yield spread, reducing banks’ profit margins and discouraging lending (banks borrow at short-term rates and lend at long-term rates). In our view, the economy has grown nicely during this expansion despite Fed policy, not because of it. The yield curve is steeper now, and the Fed’s rate hike didn’t severely flatten it. Regarding market valuations, they aren’t predictive, don’t revert to the mean, and regularly expand as bull markets mature and investors gain confidence. Finally, as for markets becoming more volatile in the six months after an initial rate hike , that isn’t necessarily bad. Or even true, considering the sole evidence here is the VIX, which tries to track expected volatility, which is not actual volatility. Volatility comes in two flavors: down and up, and there is no way the market can rise without the upward kind.

By , Barron’s, 12/16/2015

MarketMinder's View: According to Fitch Ratings, Brazil’s sovereign debt now belongs in junk bond funds. The rating agency lowered Brazil’s credit rating from BBB- to BB+, citing “the economy’s deeper recession than previously anticipated, continued adverse fiscal developments and the increased political uncertainty that could further undermine the government’s capacity to effectively implement fiscal measures to stabilize the growing debt burden.” But markets knew all this long ago. Yields on Brazilian debt have spiked throughout the year, as Brazil’s economy has suffered from the global commodity slump, high inflation and a scandal that reached the highest levels of government. Rating agencies are notoriously late to the game, responding to information others have long known.

By , CNNMoney, 12/16/2015

MarketMinder's View: Some welcome good news for the US oil industry: Congressional committee leaders added a provision to the omnibus spending bill that would remove the 40-year ban on US oil exports. Congress must still approve this, but as we type it stands a fair chance of passing. As with many pieces of legislation, this will likely create winners and losers. US oil producers may benefit incrementally from an expanded market, though for US refiners—who have benefited by buying discounted US oil and selling gasoline for higher prices abroad, where Brent crude influences pricing—the export ban’s removal may be a negative. (Congressional leaders realize this and gave refiners a tax break to help offset these potential negatives.) Overall, we don’t expect this move to be a big game changer for the US oil industry, and it won’t do much to improve oil producers’ earnings, as their revenues are price-sensitive, not volume-sensitive. But ending pointless protectionism is a long-term positive and should make global markets more efficient.

By , CNNMoney, 12/16/2015

MarketMinder's View: Some welcome good news for the US oil industry: Congressional committee leaders added a provision to the omnibus spending bill that would remove the 40-year ban on US oil exports. Congress must still approve this, but as we type it stands a fair chance of passing. As with many pieces of legislation, this will likely create winners and losers. US oil producers may benefit incrementally from an expanded market, though for US refiners—who have benefited by buying discounted US oil and selling gasoline for higher prices abroad, where Brent crude influences pricing—the export ban’s removal may be a negative. (Congressional leaders realize this and gave refiners a tax break to help offset these potential negatives.) Overall, we don’t expect this move to be a big game changer for the US oil industry, and it won’t do much to improve oil producers’ earnings, as their revenues are price-sensitive, not volume-sensitive. But ending pointless protectionism is a long-term positive and should make global markets more efficient.

By , The New York Times, 12/16/2015

MarketMinder's View: Since 2009 many have falsely predicted interest rates would materially rise. These predictions were partly a reaction to quantitative easing, which many believed would cause runaway inflation, and partly based on the thinking that after rates plummeted they would necessarily return to historically “normal” levels. This piece correctly points out that low rates have actually been the norm historically, as the yield on 10-year Treasury bonds was below 4% much more often than not from the post-Civil War era through the late 1950s. Higher rates in the 1970s and 1980s are seared into many people’s brains and thus feel normal, but that’s recency bias—a behavioral error. However, this errs in presuming “weak demand” across the developed world bears the blame for low inflation and thus low interest rates. That is a take on the “secular stagnation” theory, which has been pure myth since Alvin Hansen coined it in the 1930s. It also ignores vast productivity gains, much of which aren’t captured by antiquated econometrics. Lastly, it is a stretch to suggest that because rates were low for much of modern history they will likely remain so “for several decades.” The far future is impossible to predict. Unforeseen events in the next 20 to 30 years could cause inflation to rise materially, warranting higher rates. So focus on the foreseeable future instead. With money supply growing modestly, bank lending rising off a low base, productivity rising modestly and industrial capacity utilization fairly benign—and commodity prices in the doldrums—no big inflationary pressures exist, so low rates seem quite likely.  

By , CNBC, 12/16/2015

MarketMinder's View: Let’s set aside partisan leanings and feelings about politicians and assess whether Democratic Presidential frontrunner Hillary Clinton’s tax proposals will be meaningful market drivers. If they were to pass, they would create winners and losers, as all tax tweaks do. But that is a big “if.” Like any candidate’s proposal, they depend on a) the candidate winning and b) Congress passing them. It is far too early to handicap Clinton’s chances of winning next November. As for Congress, structurally, a Democratic sweep looks like a tall order. Anything is possible, but the Republicans’ strong incumbency in the House will make a Democratic victory there difficult. Democrats have an advantage in the Senate, with fewer seats up for re-election, but to gain a majority they would have to unseat some popular GOP faces. For now, like all broad campaign pledges, this is noise—there are too many competing proposals and viewpoints for any to sway markets meaningfully in either direction.  

By , Barron’s, 12/15/2015

MarketMinder's View: This piece spills a lot of pixels discussing whether stocks will do well in a rising rate environment, and which categories of stocks will likely do best. But it operates from a central misperception: that “The empirical evidence is persuasive that rising rates have simply not been good news for the stock market.” Actually, after the nine initial rate hikes since 1971, the S&P 500 was higher on average six months, 12 months and 18 months later. The author of the aforementioned quote more or less agrees, noting stocks returned an annualized “5.9% during restrictive periods,” which we guess are tightening cycles, though he didn’t show his math. Now, maybe that doesn’t seem so bad either, so how do we get to the claim a hike is “simply not good news for the stock market”? By applying a comically large inflation adjustment to bring the return down to 1%. (Again, no math shown.)  Also, it seems like a stretch to us to classify the near term as an indeterminate period instead of a rising rate environment because the Fed seems to have “little conviction” for hiking rates, and then suggesting certain types of stocks will likely outperform because they have done so during similar periods in the past. Either rates rise or they don’t, and there is simply no way to measure the Fed’s “conviction.” But setting this aside, and looking just at which categories of stocks do best when the Fed hikes rates still likely doesn’t benefit investors. Many factors impact a sector’s relative returns, rates hikes being just one. To ignore these factors oversimplifies the equation, as does a hyperfixation on Fed moves.  

By , Financial Times, 12/15/2015

MarketMinder's View: This piece suggests the Fed shouldn’t raise interest rates tomorrow because inflation remains very low and, despite good hiring data lately, slack in the labor force (people who are unemployed but don’t show up in unemployment figures because they gave up looking for work) will likely prevent wage inflation in the immediate future. This falls prey to the long-running myth—debunked by Milton Friedman decades ago—that unemployment and nominal wages (and inflation) have a strong link. They don’t. Employers compete on real wages, which include the impact of inflation. The wage-price spiral isn’t real. Moreover, a 25 basis-point rate hike probably won’t have that much of an effect on the economy one way or the other. As long as the Fed doesn’t overshoot by raising rates too much too fast, hiking would likely positively quell widespread fears an initial rate hike will spell doom for the economy as well as stocks and bonds, removing a long running source of trepidation among investors. Finally, the advice at the end that the Fed shouldn’t act as though it’s on auto-pilot with future hikes after tomorrow’s meeting is basically telling the Fed what they’ve been telling all of us for more than a year. We’re sure they will welcome the suggestion, though.

By , CNBC, 12/15/2015

MarketMinder's View: A reminder for investors who have large unrealized capital gains in their portfolios and are considering making a charitable donation before year-end: The IRS allows you to make non-cash donations to charities by directly gifting securities, which allows you to avoid paying taxes on the gains. You can even gift illiquid assets such as art, collectibles and real estate. Consult with your tax adviser for more details, but remember, it’s a good time of year to give a gift that may benefit you and the charity of your choice.

By , Bloomberg, 12/15/2015

MarketMinder's View: First: A minor quibble: Literally none of these are black swans, which were defined by the originator of the term as highly unpredictable and improbable events that are nearly impossible to identify beforehand. The Islamic State wiping out millions of barrels per day of global oil supply, a non-establishment candidate winning the US presidential election, the UK voting to exit the European Union and a massive cyber-attack seizing the US financial system have all been regularly discussed in the media. As to the broader issue, all these events are of course possible, but what matters more for investors is how likely they are to happen, and as this piece points out, the chances are slim. Successful investing involves assigning probabilities to a set of possible outcomes, and then structuring a portfolio to benefit from the most likely scenarios playing out. We certainly agree with sizing up negatives, but once you identify that something is extremely low probability, it is a mistake to design strategy around it.

By , Calafia Beach Pundit, 12/15/2015

MarketMinder's View: This is a fairly sensible take on why the current stress in the high-yield bond market likely won’t trigger a global bear market or recession. Junk bonds’ woes are concentrated in the troubled Energy and Materials sectors, and while broad-based high-yield bonds are signaling some stress, levels are nowhere near where they were in 2008, they resemble 1998’s and 2011’s levels. Also, swap spreads—a measure of banks’ willingness to lend to each other—currently suggest very low amounts of stress in the financial system. The discussions of gold being a “safe haven” and rig count here are a little off, but the general message—that high yield’s much ballyhooed problems are limited mostly to Energy—is a valid point indeed.

By , Marketwatch, 12/15/2015

MarketMinder's View: Last Saturday, at the 2015 United Nations Climate Change Conference in Paris, over 190 countries committed to reduce carbon emissions, and some suggest that, as a result, demand for fossil fuels will wane over time. Now, we’ll not wade into the global warming debate, but the investment impact of this is nil. The deal, some argue, will further pressure energy companies already struggling amid a global oil supply glut. While it’s certainly possible this agreement will spur alternative sources of energy and dent demand for carbon-based fuels, it is a very long-term thing, if it happens at all. The agreement will become binding only if at least 55 countries representing more than 55% of global carbon emissions ratify it, and if multilateral trade agreements are any indication, countries vying to accommodate their own interests is a major headwind for this to happen anytime soon. Furthermore, even if the agreement is ratified, the world can’t materially transition away from fossil fuel-based energy simply by the stroke of a pen. Any change would likely be glacial. Clean energy sources need to exist that are both economically feasible and big enough to replace much of the carbon-based energy that currently powers the world, and this just isn’t the case right now. Besides, not all fossil fuels are equal, and the growth of natural gas at coal’s expense would likely reduce emissions substantially on its own. And there will likely be change in efficiency and cleanliness on the demand side, too. There are plenty of reasons not to expect a big bounce in the Energy sector today, but the Paris deal isn’t among them.

By , The Telegraph, 12/14/2015

MarketMinder's View: All right party people, guess what time it is? That’s right, it’s time to check your personal biases at the door to size up the actual merits of a special overseas discussion of the impact of Presidential candidates’ economic policies on the US and beyond. Suffice it to say, we find little to like here. Let’s start at the top: the notion America is losing its competitive edge, based on one tally of start-ups and the labor force participation rate. Folks, the former doesn’t count many of the newer, Etsy-style small businesses that dot this country. The latter is a structural demographic shift largely underpinned by retiring baby boomers and folks spending more time in school. But this isn’t the only problem! Assuming the candidates are set for either party is a stretch at this point. The first primary isn’t scheduled until February, and we’re still in the midst of the political “silly season,” in which polls—of shaky accuracy as of late—determine who’s in first. At this point, assessing how one candidate’s policies will help or hurt the economy would strictly be an academic exercise, filled with assumptions and possibilities, not probabilities. And even here reality is stretched by the suggestion an off-the-cuff remark made a decade ago is an economic “policy” of one of the two candidates. Also, the argument here overlooks how politicians tend to moderate once they take office, as America’s checks-and-balances system prevents elected officials from running their ballyhooed and controversial policies through roughshod.      

By , TheStreet, 12/14/2015

MarketMinder's View: With the Fed set to meet this week for the final time this year, just about everybody with an opinion expects Fed head Janet Yellen and Co. to raise rates, the first initial hike since June 2004. And they very well might. But as this piece points out, the punditry has also predicted this throughout the year, only for the Fed to maintain the status quo. Whether Wednesday is the day of the hike or not, consider this article in 2016 and remember: It’s near-impossible to predict how 10 different people will interpret a spate of economic data and decide what the most appropriate course of action is. That is why folks fail so often to forecast Fed moves. So when more predictions arrive about what the Fed may do and how stocks will react, we suggest investors tune out that noise and see reasons why this Fed hype isn’t worth fretting over to begin with. No initial rate hike in history has sunk stocks for long.       

By , Bloomberg, 12/14/2015

MarketMinder's View: After its strong first round showing in regional elections last week, many expected Marine Le Pen’s National Front (FN) party to continue its success in the second round of elections Sunday. However, the FN failed to win a single region in the runoffs as the mainstream parties—the left-leaning Socialist Party (led by President François Hollande) and right-leaning Republicans (led by former President Nicolas Sarkozy)—teamed up to deny FN candidates from gaining a foothold into power. While the FN isn’t going away any time soon, this illustrates the challenge that still faces her euroskeptic party. Fringe parties tend to perform vastly better in regional elections than in a national race like the 2017 French Presidential Election, and their whitewashing means they still face the election as an outsider party. This result also raises a big counterpoint to worries about the alleged wave of euroskepticism washing over the Continent.  

By , Bloomberg, 12/14/2015

MarketMinder's View: When it comes to oil prices, headlines often highlight two benchmarks: West Texas Intermediate (WTI) and Brent Crude. (The former tracks US oil prices while the latter is a better proxy for global prices.) However, both WTI and Brent represent a “lighter” category of crude, which is more highly valued because it’s easier to refine. Other producers—especially those in Canada and Mexico, where the oil is thicker and darker—are dealing with much lower prices. Western Canada Select, for example, is down to $21.37 a barrel—its lowest level in eight years. With global oil production still surging, producers pumping heavier oil from higher cost wells in Alberta and the deepwater areas of the Gulf of Mexico face a stiff headwind.

By , Financial Times, 12/14/2015

MarketMinder's View: We present this piece as a fascinating account of how the best defense against any sort of fraudulent activity remains a skeptical mind and “humans using common sense.” The case here: An illegitimate tenant attempted to sell a property they were renting, duping a would-be buyer into making an all-cash transfer to an offshore account. While the fine folks of the land registry caught the deceit and saved the rightful property owner from having to defend herself from the fraud, the buyer is out the money. Either way, this is a timely reminder that even the most elaborate and sophisticated technology that facilitates modern-day living has its shortcomings. For investors, this tale reinforces the need to be diligent and skeptical when searching for financial advice—blind trust, whether it’s in a smooth-talking salesperson or the efficiency of an algorithm, can lead folks into a tough bind. For more, see Douglas Epstein’s commentary, “Gleaning Investment Wisdom From a Magician Turned Skeptic.”    

By , The Guardian, 12/14/2015

MarketMinder's View: Remember when Greece was the word for much of this year? After agreeing to its bailout terms in August, headlines have largely moved on, even though the hard work for Greece just started. Here is a progress report: Prime Minister Alexis Tsipras’ government just finalized a deal pushing more privatizations (including 14 airports), opening the Energy sector and implementing new rules for non-performing loans (allowing them to be sold to foreign funds). This should help appease Greece’s eurozone creditors for the time being, though a much more contentious issue looms: pension reform, set to be addressed in January. Maybe we get a flare up then, but for now, all seems quiet on the Hellenic Republic front.     

By , The New York Times, 12/11/2015

MarketMinder's View: Here is a story about a mutual fund that lived out investors’ fears of bond market liquidity. The fear goes like this: Many corporate bonds (particularly the high-yield variety) aren’t liquid, but bond funds offer the illusion of liquidity, and a vicious cycle of fund redemptions and asset fire sales during a downturn could seep into the entire market. Welp, this fund went from $2.5 billion to $788 million as its very junky bond portfolio sank and investors pulled out. So now it has halted redemptions and announced plans to slowly liquidate holdings over the next year, then dole out the proceeds to the remaining shareholders. But there is no contagion, and as wind-downs go, it’s quite orderly. Investors in other bond funds don’t appear to be stampeding for the exits. And by liquidating slowly and avoiding firesales, they further reduce the risk of contagion spreading as other firms are forced to make mark-to-market writedowns. This is all playing out in a fairly benign manner, and it underscores another point: Any issues involving liquidity are likely to be the symptom of a downturn (in this case, a widely known pullback in junk bonds), not the cause of one. For more, see Pete Michel’s analysis, “Why Bond Market Liquidity Fears Don’t Hold Much Water.”

By , The Guardian, 12/11/2015

MarketMinder's View: Productivity has inched slowly in recent years, and here is a pretty great theory about why this actually isn’t a sign of secular stagnation and doom: “One view, popular among economic historians, is that it takes time for the productivity-enhancing effects of new technologies to show. Indeed, when radical innovations are rolled out, their immediate effect is to reduce, not raise, productivity. Electricity, the new technology studied by Paul David, economics historian at Stanford University, is a case in point. As David explains, before electric motors were installed in factories, machines were arranged around centralised steam engines, to which they were connected by belts and pulleys. Self-standing electrical motors meant machines, the workers operating them, and their activities all had to be reorganised in more efficient ways. But this reorganisation took time. Meanwhile, established modes of production were ‘disrupted’, in 21st-century business school parlance, causing productivity to fall. But this slump in productivity was a harbinger of better times.” Time will tell whether that holds true now and in the future, but the anecdotal evidence in this article is compelling.

By , The Wall Street Journal, 12/11/2015

MarketMinder's View: So this piece errs (in our view) by omitting the issue of FAS 157—the mark-to-market accounting rule—which catalyzed the Global Financial Crisis by forcing banks to mark illiquid assets to the most recent fire-sale price, ultimately (and unnecessarily) erasing about $2 trillion in bank assets. Without that, the housing bubble’s aftermath probably would have been contained, with broad equity markets insulated. It also ignores the government’s haphazard intervention (helping JP Morgan buy Bear Stearns, nationalizing Fannie Mae and Freddie Mac, then forcing Lehman into bankruptcy when its predicament was identical to Bear’s and wiping out AIG’s shareholders), which fueled the sheer panic of September and October 2008. But, it does a great job of shattering the narrative that greedy bankers caused the whole thing and should go to jail. The facts might not be a very compelling Hollywood tale, hence their omission from the film, but they are facts nonetheless and crucial to a proper understanding of the seminal financial event of our time.

By , Financial Times, 12/11/2015

MarketMinder's View: Demographics don’t drive markets, as this shows handily. As we’ve written before, demographic trends are too slow-moving and too widely known to have any surprise power, for good or ill. But also: “In the aggregate, companies fund their capex out of operating cash flow. They don’t need external funding from household savers. In many rich countries, not just Japan, corporations are the only domestic economic sector engaged in meaningful net saving. Similarly, the biggest consistent buyers of corporate equity are corporations themselves through buybacks, mergers, and acquisitions. By contrast, households tend to be net sellers as a way to realise capital gains.” It’s a big, big market, folks.

By , The Washington Post, 12/11/2015

MarketMinder's View: The Senate Majority Leader has confirmed what most already knew: Lawmakers on both sides of the aisle aren’t keen to pass a sweeping trade deal during an election year, lest they ruin their re-election chances. Free trade is a tough sell with the public, and promising protectionism is an easy way to curry favor and win votes. This doesn’t kill the Trans-Pacific Partnership (TPP) outright, but it is yet another reason not to get overly optimistic about freer trade in the here and now. There are plenty of reasons to be bullish, but TPP probably isn’t one of them.

By , The Telegraph, 12/11/2015

MarketMinder's View: This new round of capital would satisfy the “minimum requirement for own funds and eligible liabilities,” aka MREL, which orders the EU’s biggest banks to hold extra equity and convertible long-term debt. In other words, it’s a “too big to fail” surcharge. As forced capital raises go, though, this one is fairly benign. It applies to a handful of UK banks, who have four years to raise it, and they need to issue bonds, not new stock. Thanks to today’s ultra-low interest rates, estimated interest costs total about £1.4 billion annually, a fraction of UK banks’ balance sheets. Any added expense probably does detract from lending, but the impact from this should be teeny-tiny.  

By , Bloomberg, 12/11/2015

MarketMinder's View: Alright party people, what time is it? Time to breathe easy because this is not an article about a certain Presidential candidate’s theatrics or anything else sociological. It is an article about behavioral finance and cognitive errors, in which said Presidential candidate is a metaphor for every market or security pundits were sure they had nailed: “‘Peak Trump’ has been declared more times than I can count. If he were a stock you had shorted, the margin calls would have begun weeks ago, and most of the so-called political experts would be bankrupt.” In a way, it’s a classic mania and an illustration of the follies of trying to precisely time market peaks. It also illustrates the importance of overlooking hype and carefully weighing fundamentals—in this case, the facts that early polls aren’t predictive and early primaries often don’t dictate the rest of the race. 

By , The Wall Street Journal, 12/11/2015

MarketMinder's View: Well, it’s potential government shutdown day, and Congress is nowhere close to a long-term budget deal. But fear not! Instead, they’re on the verge of employing their favorite trick, the short-term can-kick. This time, it’s a five-day budget extension, giving them a few more days to hash out the final spending bill. That’s nice of them. Though, it’s also unnecessary, as government shutdowns aren’t disastrous for the economy or markets. For more, see Todd Bliman’s classic commentary, “The Government Shuts Down.”

By , The New York Times, 12/11/2015

MarketMinder's View: This is just really interesting. Not much market implication, but a fun Friday read about one man’s quest to help ease the burden on Greece’s struggling private sector as the government tries to satisfy bailout terms and battle corruption.

By , Reuters, 12/11/2015

MarketMinder's View: Oh and speaking of Greece, apparently officials just made progress on two of the most contentious issues: the structure of the new privatization fund and the path to reform and privatize the power grid operator. Considering version 1.0 of the privatization fund was famous for privatizing more of its own leaders than state-owned assets, this should enable more actual sales, and it also helps clear the way for debt restructuring negotiations to begin. Greece still has a long way to go, but “Grexit” remains distant for now.

By , Reuters, 12/11/2015

MarketMinder's View: Oh and speaking of Greece, apparently officials just made progress on two of the most contentious issues: the structure of the new privatization fund and the path to reform and privatize the power grid operator. Considering version 1.0 of the privatization fund was famous for privatizing more of its own leaders than state-owned assets, this should enable more actual sales, and it also helps clear the way for debt restructuring negotiations to begin. Greece still has a long way to go, but “Grexit” remains distant for now.

By , The Wall Street Journal, 12/11/2015

MarketMinder's View: It’s welcome news that Congress is considering lifting the outdated and unnecessary ban on crude oil exports. It would create a more efficient global market without driving up gas prices, despite fears otherwise (see this for more). But, this whole discussion seems pretty overwrought, both on the political and economic fronts. We’ll set the sociology aside (after all, we shun political bias and prefer no political party, candidate or official) and focus on the economics. Simply, ending the oil export ban won’t much help producers in the here and now. It might drive up sales volumes, but Energy revenues are price sensitive, not volume sensitive, and right now the supply glut is the dominant force on prices.

By , The Wall Street Journal, 12/10/2015

MarketMinder's View: Here is a friendly reminder about one of mutual funds’ drawbacks: a potential unexpected tax bill, through no fault of your own. As this article notes, when mutual funds sell securities in their portfolios, they must distribute realized capital gains to shareholders—a taxable event. And these capital gains are distributed without considering the amount of time a shareholder actually held shares, so you may be stuck with a bill on gains you never enjoyed. Now, you may ask: Which funds incurred gains in a pretty flattish year for stocks? The answer: If a bunch of other shareholders sell out of the fund—like during extreme market volatility (see this summer’s correction)—that will trigger securities getting sold to fund redemptions, leading to realized gains for current shareholders. Depending on when the fund bought the stocks in question, those gains can be sizable indeed, even in a flattish year. We present this piece not because we’re anti-mutual fund, but rather, to remind investors that all investments have their pros and cons—and it’s important to be aware of all of them. For more, see our 10/14/2015 commentary, “Mutually Beneficial?”   

By , Bloomberg, 12/10/2015

MarketMinder's View: Folks, this is a prime example of overthinking at work. Now sure, it may be an interesting thought exercise to ponder the possibilities of what the Fed could do mechanically when it comes to a rate hike (whenever it may be) and what might happen as a result. But the risk of technical hiccups roiling markets significantly seems a stretch. It’s also worth noting the Fed has tested some new tools over the last couple years. Moreover, big picture-wise, initial rate hikes are neither bad for the economy nor markets. Now, for bond investors, a rate hike will have an impact, though more likely on short-term bonds. Recent history shows that long-term rates don’t necessarily surge after the Fed hikes. From June 2004 – June 2006, the Fed hiked 17 times, from 1% to 5.25%, yet 10-year rates rose only 52 basis points over that time, with most of the increase coming toward the end. So if you’re a fixed income investor with a sizable overweight to short-term bonds, you might be sweating the possible fallout. But given this rate hike may be the most widely discussed one of its kind of all-time, the surprise power here is lacking.     

By , NerdWallet, 12/10/2015

MarketMinder's View: So we agree with the initial argument presented here: Risk doesn’t equal volatility alone (it’s also a fun board game). However, we must unfortunately deduct points for the rest of the article. For one, reframing portfolio losses (or gains) in terms of dollars instead of percentages isn’t that revolutionary a notion—all it takes is a regular calculator. It might help the simulation feel more relatable, but the inputs are still arbitrary, and there is still no guarantee how you feel about a hypothetical scenario will translate to how you act in real life. But also, assuming risk tolerance should determine how you invest is one of the oldest myths in the financial services industry. Now, we aren’t saying how you feel about market volatility doesn’t matter at all—watching your portfolio decline, especially during volatile periods like corrections, can test the nerves of the most steely investors. Reacting to those feelings, as the article notes, can lock in losses and permanently set you back. But there are other risks to consider too. The biggest one, in our view: Are you at risk of not reaching your financial goals? Holding less volatile investments (which are often called “safer,” even though no “safe” investment exists) may hurt your portfolio’s growth potential. As important as comfort is, successful investing means staying disciplined and remaining on a path that gives you the best chance of reaching your long-term financial objectives, despite your fluctuating emotions.    

By , The Wall Street Journal, 12/10/2015

MarketMinder's View: For all the news we read about a sputtering eurozone dependent on the ECB’s “easy” monetary policy, here is a nice tidbit of news investors can put in their stocking: Ireland’s economic resurgence, which started before the ECB’s quantitative easing program launched. Ireland grew 1.4% q/q in Q3 (7% y/y)—expanding even more quickly than China. So when pundits get to fretting about the tepid state of the eurozone, keep Ireland (and Spain!) in mind.   

By , The Guardian, 12/10/2015

MarketMinder's View: The Groundhog Day trope is appropriate here, as we have read this sort of misperceived, dour take about trade deficits and the UK economy for the past few years. Folks, as we have said many times, trade deficits don’t give you an accurate snapshot of a country’s economic situation since they count imports as a negative input—even though imports represent domestic demand. Also, the UK economy isn’t a fixed pie—it creates plenty of wealth domestically. Now, exports falling -1.6% in October isn’t great, but imports jumped by a robust 5.4%. We are inclined to let the gentleman quoted from the ONS’ Institute of Directors have the last word here: “This is no cause for concern and robust demand at home is a sign of confidence in the British economy. It is also encouraging that businesses continue to invest in machinery and equipment from abroad. This may increase our trade deficit, but is clearly a sign that companies are ramping up production.”

By , Bloomberg, 12/10/2015

MarketMinder's View: No big surprise here: The latest numbers show the Organization of the Petroleum Exporting Countries (OPEC) pumped out 31.7 million barrels of oil a day in November, the highest rate since April 2012. Toss in production from non-cartel members like the US and Russia, and the world is awash with black gold. That flood shows no signs of abating, especially after OPEC didn't cut its output target at its latest meeting. While a headwind for oil producers—and a deterrent to those looking for opportunities in the Energy sector—cheap oil benefits those who count energy as a cost (e.g., consumers and non-energy companies).  

By , Bloomberg, 12/09/2015

MarketMinder's View: Indeed—even some of the world’s best-known economists have been foiled by markets, despite a lifetime of study devoted to finance and economics. Maybe discouraging to some, but accurate. This article hints at one of the reasons why: Financial markets are driven by human action, and humans have a penchant for acting unpredictably. But also, markets are amazingly adaptable. Our boss, Ken Fisher, has written about this extensively, most recently in his book Beat the Crowd: “Many economic theories are only true if ‘ceteris paribus’ (all else is constant or equal). In real life, nothing is constant and all else is never equal. The real world is full of changing variables. Theory doesn’t get you far.” Why? Because investing is a not a craft. A craft you can learn, apply and profit consistently from (like carpentry!). How a nail responds to a hammer in wood is predictable, and practice will make perfect. But financial markets aren’t like that: No single set of strategies has ever proven permanently superior, because widely known theories lose their ability to provide an edge over the crowd. Beating the market requires knowing what others don’t, and mere smarts and book learnin’ don’t ensure an informational advantage. On the sunnier side, however, this also shows a Finance PhD isn’t a prerequisite to investing success, which can be achieved by virtually anyone asking the right questions and employing a disciplined approach tailored to their needs.

By , The New York Times, 12/09/2015

MarketMinder's View: Thinking of bottom-fishing in the Energy sector? This is a must-read for you. Energy and Materials firms are bleeding money right now, and there are few signs suggesting a recovery is near. Most major industrial commodities the world over are vastly oversupplied, and meaningful production cuts seem distant. Stocks and bonds tied to the earnings of these struggling sectors are also bleeding red. In our view, now is not a time to be loading up on resource-related investments.

By , CNNMoney, 12/09/2015

MarketMinder's View: Years of high investment in the titular commodities drove a mining boom and, ultimately, a supply glut, while demand has risen slower lately. Unsurprisingly, prices have cratered. Long-term followers of commodity markets (go ahead, raise your hands) should be nodding right now: Metals move in cycles, their prices rising to great heights, then plunging over several years as production responds slowly to price changes. Right now, we’re certainly in the midst of one of the latter periods. But for stocks, note that there is no useful connection to commodity cycles outside the directly affected industries. Investors who fail to diversify may suffer the consequences of concentration, but sufficiently diverse strategies should see little lasting negative impact. Oh, and how about a nod to the companies the world over who benefit from reduced input costs to their operations? What of consumers who get the goods they need more cheaply? Low commodity prices certainly aren’t a crisis to them.

By , CNBC, 12/09/2015

MarketMinder's View: According to one survey, Americans are not very optimistic about the economy this holiday season. Many expect lackluster wage growth and home prices, which leads some to expect weak consumer spending. But before you set your expectations to “coal in the stocking,” consider: Surveys often don’t match future behavior, as they are heavily influenced by everything from recent news and market results to what the respondent had for breakfast. This makes it coincident at best, and often backward-looking. So the findings herein are hardly useful for Joe or Jane Investor, who’s just wondering how to properly position their account. Stocks move on what is to come, not what is past and already well-known. Finally, from a methodology standpoint, this is all a telephone poll. Recent political polls have shown massive skew, and the economy is much more complicated to forecast. We’re sorry to hear the American consumers polled feel a little down, but perception doesn’t dictate reality here, and the American economy remains robust.

By , The Telegraph, 12/09/2015

MarketMinder's View: Three years ago, the EU attempted to develop a financial-transactions tax (FTT), designed to assess a tiny levy on any securities or derivatives trade placed in participating nations as a means to make banks pay their “fair share” for government “aid” during 2008. Never a broadly popular proposal, only 11 of the 28 EU nations signed on initially, which you might think means the others would go on about their merry way. But the FTT, as written, would be levied on securities issued in the participating states, even if the trade takes place outside the participating nations. Hence, a New York firm selling a German corporate bond to a British investor would be taxed. This is why the British Chancellor of the Exchequer George Osborne objects, and also likely why one of the 11 participating nations—Estonia—is now out. This plan could very well be collapsing—an incremental plus for investors.

By , Investor’s Business Daily, 12/09/2015

MarketMinder's View: This piece offers some solid reasons to toss out positive mutual fund performance when you evaluate your portfolio—counterintuitive, but important. It’s possible you enjoyed outsized returns thanks to an outsized concentration in a particular sector. Congratulations! The stock gods have smiled on your portfolio, at least for now. But no one category or style will lead forever, and leadership swings could easily turn the stock gods’ smiles to frowns—the extra risk could easily work against you moving forward. Diversification and active adjustment of your positioning based on your expectations of the future are the key. The article also points out the need to monitor a fund for changes in management and expenses—prudent advice. Autopilot simply isn’t the optimal investment strategy, in our view. We’d only add that if you are a high-net worth investor, you might ponder the question of whether a mutual fund-based approach is truly optimal for you.

By , The Economist, 12/09/2015

MarketMinder's View: Chinese steel firms’ output vastly exceeds domestic demand, so producers are attempting to sell the surplus abroad—and slashing prices to clear the shelves. Sounds like normal behavior in a free-flowing international market for basic commodities, right? But one country’s low-low prices to get goods moving are another country’s protest-worthy “dumping,” and European and American steel producers claim the prices are unfairly subsidized by China’s government, justifying tariffs on Chinese steel. (Nevermind, for a moment, that if this were true, US consumers of Chinese steel would be getting a discount courtesy of Chinese taxpayers.) But the thing is, this story is being reported as though it is new news, when this could have been written at any point since at least 2009. Moreover, there are already tariffs on certain types of Chinese steel imports in the US. And we had a similar spat with China over cheap solar panels. None of these trade tiffs brought a trade war before, and we struggle to see why it will be so very different now.

By , CNBC, 12/09/2015

MarketMinder's View: This piece actually serves as a great example of why investors must dive into statistics rather than take them at face value. The argument here is that too high a proportion of the S&P 500’s returns come from too few firms—the top 10 by market capitalization—which are allegedly outperforming the remaining 490 by a whopping 24 percentage points (+21.4% to -2.6% as of 12/7/2015). Sounds pretty unbalanced, and if those few firms take a tumble, where would markets be? But you only get these extreme results by equally weighting and averaging all S&P 500 companies’ price returns, which makes market breadth look narrow and flimsy. Under the hood, 229 (or 46%) S&P 500 firms are beating the index year to date! 67 of those are above that 21.4% mark. While we expect breadth to narrow as this bull market matures—and it has to an extent already—claiming the market hinges on 10 firms is an overstatement. Moral: Statistical models that rely on bizarrely contorted data don’t tell you all that much. We would ordinarily say that they tell you only what has happened—and note that past performance doesn’t predict—but here, they gloss over what has happened, so they don’t even tell you that.

By , The Wall Street Journal, 12/08/2015

MarketMinder's View: Many small energy firms issued high-yield bonds over the past few years, to raise money to help finance their capital-intensive operations. But sharply falling oil prices have severely dented their revenues, making it difficult to pay interest and principal due to their creditors. As a result, their bond prices have cratered, a sign the market expects many firms to default over the near term. A wave of defaults may certainly happen for less creditworthy energy companies, but this isn’t necessarily a harbinger of troubles for the broader economy. High-yield Energy bonds are a small slice of the overall junk bond market, which is a fraction of total outstanding US corporate bonds. While defaulting small Energy firms isn’t good news, the broad economy can likely grow despite this, especially considering low energy prices are a positive for the economy outside of energy firms and exporters. 

By , The Associated Press, 12/08/2015

MarketMinder's View: China’s imports and exports contracted again in November, compounding concerns about the world’s second biggest economy. But once again, commodity prices bear much of the blame. The value of imports has fallen largely because a lot of the stuff China imports—raw materials—have dropped sharply in price due to global oversupply. Meanwhile, the quantity of imports for many goods is rising:  “In November, the volume of crude oil imports rose 8.7 percent over the previous year.” As for exports, they’ve struggled a long while—partly because Chinese manufacturing is losing competitiveness relative to less developed nations, and partly because global trade has endured a broad slowdown this year. But China doesn’t depend on soaring exports. Domestic demand increasingly drives growth, and retail sales are growing at double digit rates. Given services now account for the majority of China’s economy, modest growth should continue even while international trade is a relative weak spot.

By , The New York Times, 12/08/2015

MarketMinder's View: How do you make a recession disappear? By declaring it never happened in the first place. According to the Cabinet Office, Japan’s economy grew 1.0% annualized Q3 instead of contracting -0.8% as the country’s economic bean counters initially reported. This erases the two consecutive contractions, evading a widely accepted definition of recession. Stronger business investment and consumer spending and smaller inventory drawdowns were behind the upward revision. This is certainly good news for Japan, but the report covers activity two to five months ago. It says nothing about where Japan’s economy goes from here, and Japan’s economy still faces many headwinds, including a flat yield curve, ill-conceived monetary policy and structural competitiveness issues.

By , Bloomberg, 12/08/2015

MarketMinder's View: UK manufacturing activity fell -0.4% m/m in October, but this doesn’t necessarily point to broader economic weakness as some believe. Unlike the post-industrial revolution era when heavy industry dominated the economy, manufacturing is now a small slice of overall output in most developed countries as service industries dominate. Services account for about 80% of the UK economy and growth there has long outstripped manufacturing. This isn’t “lopsided”—it is normal in advanced economies. If it were a problem, we reckon China wouldn’t be trying its darnedest to replicate the formula. There is nothing inherently unhealthy when the largest part of an economy is doing the best, and continued weakness in UK manufacturing, if it happens, needn’t prevent continued economic growth.

By , MarketWatch, 12/08/2015

MarketMinder's View: The S&P 500 hasn’t achieved two consecutive up days in about a month. Over the last 20 years this has happened only a few other times, and in many of those instances stocks were either in a bear market or correction, so some suggest this is a sign a significant stock market downturn may lie ahead. Folks, this is trying way too hard to try to find meaning where none exists. Streaks like this are interesting observations with zero predictive powers. 2010’s correction and the 2000-2002 and 2008-2009 bear markets contained month-long periods when stocks failed to rise for two straight days, but those periods occurred during the downturns, not precluding them. This makes sense because stocks tend not to go up that frequently while they’re trending down. And earlier this year stocks did not post back-to-back gains for 29 days, the longest such period in two decades, yet stocks have zig-zagged a bit higher this year. In our view, this is yet another example of searching for meaning in bouncy times.

By , The Telegraph, 12/08/2015

MarketMinder's View: Central banks in the US, UK, eurozone, Japan and elsewhere have been unable to push inflation higher from near record low levels. This piece suggests this means they won’t be able to contain rising inflation either, and this will be a problem when prices finally move higher. But it isn’t that traditional monetary policy no longer affects inflation. Instead, global inflation is currently low for reasons that monetary policy can’t influence—a commodities supply glut, pressuring prices of natural resources and products derived from them. For what it’s worth, “core” inflation rates, which exclude energy and food, hew much closer to Western central banks’ targets. Now, monetary policy has further weighed on inflation, but mostly because central banks apparently had mass amnesia and forgot the yield curve’s influence on money supply growth. By lowering long-term interest rates while short-term rates are fixed, quantitative easing flattens the yield curve, reduces banks’ profit margins and discourages lending, a drag on the economy and thus inflation. And although in theory charging to park money with the ECB (negative deposit rates) will encourage banks to lend more, in practice banks have largely passed these costs on to consumers or parked excess liquidity in bonds or other central banks. When inflation finally picks up, central banks will have plenty of traditional tools to manage it by influencing the rate of money supply growth. Whether or not they use them effectively is another matter and can’t be handicapped today.

By , The New York Times, 12/07/2015

MarketMinder's View: This article’s attempt to make the point that no one knows how markets will react to the first Fed hike (whenever it comes) reads like Vizzini’s “dizzying intellect” from The Princess Bride’s battle of wits. It is completely circular and leads you to no conclusion, which we guess is the aim. However, we’d suggest this operates on the presumption that a) the bull market is artificially inflated by retail investors selling low-yielding bonds and buying stocks, although there is no evidence of big bond fund outflows and stock inflows b) that the Fed hiking from 0.25% to 0.50% is a big deal and utterly different than an initial rate hike starting from higher levels. Look, we agree that no one knows what stocks’ immediate reaction will be, but it is worth noting that no initial rate hike in history has ended a bull market. You can’t know with certainty, but that suggests the probability of one Fed hike causing a bear this time is exceedingly low.

By , The New York Times, 12/07/2015

MarketMinder's View: This article details the risk presented by the fact the economy may be in better shape—if not much better shape—than investors commonly presume, and lays out some good and interesting evidence in the process. But yes, you read that correctly, it strangely couches this pleasant scenario as a “risk,” because it could mean the Fed would hike at a much quicker pace than they are presently telegraphing, which would be very bad for stocks. But the alternative factor—that a stronger-than-anticipated economy would be a positive surprise and a tailwind for corporate profits—is oddly unexplored. Folks, this bull market isn’t all about the Fed. It has been private-sector driven from the get-go. Yes, there is a risk of rate hikes overshooting and inverting the yield curve, but with short rates presently at 0 – 0.25% and 10-year rates at 2.27%, that risk isn’t very real in the here and now.

By , CNN Money, 12/07/2015

MarketMinder's View: In the wake of Friday’s messy OPEC meeting, in which no production target was officially set, oil is selling off anew—plunging below $40 per barrel. Folks, the supply glut that is behind faltering prices isn’t going away any time soon. For investors, this is not a time to bottom fish. It also isn’t a time to dabble in master limited partnerships, which despite some folks’ claims, are exposed to oil prices. This is an industry that faces a stiff headwind, and it doesn’t look likely to abate soon.

By , MarketWatch, 12/07/2015

MarketMinder's View: Yes, there is a historical tendency for stocks and junk to move in similar directions, and widening credit spreads can indicate trouble ahead. But the charts here are hugely troubled. The first one doesn’t account for the fact that the S&P 500 and high-yield debt—even when you exclude Energy—have very different sector make ups. High yield holds 15 percentage points less Technology than the S&P and much less Financials and Health Care, too. Stripping out the Energy debt doesn’t eliminate this issue. What’s more, most of the discussion in the article highlights Energy firms, so it reads like a bit of a head fake. And finally, in the chart showing widening Energy spreads foretell recession, it’s pretty liberal to call 1997-1998 “leading a recession” that didn’t come until three to four years later. And why isn’t 2011 circled? Ultimately, seems to us there are false reads here that the article attempts to explain away. Note also: Spreads today are nowhere near as wide as before the three recessions shown.

By , Reuters, 12/07/2015

MarketMinder's View: We’d like to think that this signals a sea of reforms will soon come to Venezuela, but Chavista President Nicolás Maduro will be in office until April 2019, and we are skeptical he will enact a raft of free-market-oriented reforms. This is nice news, but for investors, it’s trivia.

By , The Washington Post, 12/04/2015

MarketMinder's View: Inevitably, the latest employment data have prompted a host of speculation over the Fed’s next move, and most agree it makes a rate hike all but assured later this month. All this handwringing is a thing because of three sentences buried about halfway through this article: “If the Fed calls for liftoff, it would end an unprecedented period of easy borrowing that has helped drive investment and spending. The Fed feels that rock-bottom interest rates — if allowed to linger too long — could lead to risky behavior from investors and cause price bubbles. But a rate hike, even a gradual one, carries with it the risk of a pullback in business investment and hiring.” Folks, just because the Fed presumes all this stuff doesn’t mean it’s true. Near-zero interest rates alone haven’t driven spending and investment, and rates a smidge higher won’t kill them. Short-term rates don’t operate in a vacuum. The gap between short- and long-term rates (aka the yield curve spread) is what matters, and over a century of theory and data hold that wide spreads boost growth, while slim or negative spreads (short rates exceeding long rates) are bad. Today’s spread is plenty wide (and has widened in recent weeks), and an incremental short-term rate hike shouldn’t really change that. Nothing to fear here, in our view, and the sooner the Fed gets on with matters, the better.

By , The Wall Street Journal, 12/04/2015

MarketMinder's View: In a refreshing change, the bill (if signed, which seems a foregone conclusion) will give us all a five-year break from transportation funding brinksmanship, an all-too-frequent annoyance over the past 17 years. It also settles (for a while) other hot button issues, including re-upping the Export-Import bank. None of the provisions are terribly significant from an economic perspective, and the market impact is likely minimal, but we look forward to politicians having one less thing to bicker over for a while.

By , The New York Times, 12/04/2015

MarketMinder's View: The notion that European states must drastically hike taxes to fund their anti-terror and other national defense efforts is extremely far-fetched, historically ignorant and a bizarre idea that would never work. Contrary to the assertion otherwise, tax hikes didn’t pay for the US effort in WWII. Massive debt financing did. Those top tax rates? Virtually no one paid them, and the code was structured so the highest rates applied only to amounts in excess of the threshold. There is no way this raised enough cash to get the job done. And there is no way an easily avoidable tax on certain financial transactions would raise sufficient capital now. The unintended consequences of this likely outweigh any benefits.

By , The Telegraph, 12/04/2015

MarketMinder's View: While the debate over climate change is predominantly a sociological issue, there is an economic offshoot known as the stranded asset theory: The belief climate policy will prevent many oil and gas reserves from ever being exploited, upending bank balance sheets as the collateral underpinning many loans to the Energy sector goes kaput. This article quite helpfully debunks it, shunning ideology and focusing on facts—our favorite kind of debunking. “Let’s ignore the myriad questionable assumptions and arbitrary targets that lie behind the stranded asset argument, and assume that it is essentially right – that only a third of the world’s known remaining hydrocarbon reserves can be burnt if we are to prevent catastrophic climate change.  As it happens, the assumed two thirds of stranded assets correlates almost exactly to coal’s share of global hydrocarbon reserves. Of the remaining third, around 60 per cent are oil, and 40 per cent gas. Get rid of coal, then, and the problem would be substantially solved without so much as touching the other two.” And cheap, abundant, cleaner-burning natural gas has already made coal pretty redundant. Market forces are already at work, and investors are well aware of it.

By , The Wall Street Journal, 12/04/2015

MarketMinder's View: Here is a great piece on how to adapt an investing mindset to charitable giving. If you contributed even $1 of the $358 billion Americans gave to charity last year, it is a must-read. Enjoy!

By , Financial Times, 12/04/2015

MarketMinder's View: And it ended without an official production target—just plans to meet again in June, if not sooner. It is increasingly clear Opec is a relic, with very little relevance to oil prices in a global market where countries outside the cartel contribute a massive chunk of supply. Its internal bickering makes interesting headline fodder, but for investors, it doesn’t really change the broader picture. The world is awash in oil with or without Opec quotas, and raising or dropping their target by a million barrels per day won’t change that. It’s a drop in the barrel, if you will. 

By , The Telegraph, 12/04/2015

MarketMinder's View: And here is the only sort-of-market-related thing to come out of the COP21 climate summit. This taskforce will supposedly set standards for corporate disclosure of carbon emissions and other environmental factors, all in the name of giving investors more information. Says the BoE chief: “Whatever your views on climate change... What you can't do with those views [at the moment] is express this in capital markets. Once you have the information to make judgments about individual companies and sectors, and their exposure to climate risks... that transition [towards a low carbon or net-zero carbon world] gets pulled forward. Having that information out there will amplify that success because it means markets will be able to move quickly.” Look we are all for transparency and arming investors with information, but this is all pretty much window dressing. We’re skeptical markets will learn anything they didn’t already know, and markets are already pretty darned efficient. Witness, for example, the coal industry’s well-documented struggles. It didn’t take EPA targets or policy for coal companies to struggle. All it took was cheap natural gas. That factoid alone gave investors all the information they needed to make educated guesses about where the Energy industry was heading. As for the other implicit angle here, divestment (investors shunning companies whose environmental policies don’t fit with their beliefs), while having more information might help investors who go this route feel better, divestment campaigns have pretty much no impact on stock prices. Markets are too broad, with too many participants trading on too many competing viewpoints. For more on that, see Elisabeth Dellinger’s commentary, “Divestment and Rational Expectations.”

By , The Wall Street Journal, 12/04/2015

MarketMinder's View: Here are 14 nifty charts illustrating the underappreciated health of labor markets. Like all facts, they are friendly and speak for themselves.

By , The Telegraph, 12/04/2015

MarketMinder's View: Err, no, not really. We get that there might be some similarities between what Denmark just rejected (an opt-in to certain aspects of the EU justice system and Europol, the bloc’s sort-of-federal law enforcement) and what Brits might vote on in 2016 or 2017, but there are also probably some key differences. We say “probably” because no one knows yet what terms Prime Minister David Cameron will secure from Brussels and put to voters. But in general, if Cameron gets his wish, UK voters will be asked to bless a package that includes “less Europe” than they currently have. The Danish package amounted to a bit “more Europe.” So the Danish zeitgeist might not be terribly relevant. Especially a year or two from now.

By , The Wall Street Journal, 12/04/2015

MarketMinder's View: Raising rates on universal life insurance policies—which offer death benefits and tax-advantaged savings—has long been taboo, but the insurer’s right to do so was always there in the contract, and now many are. Insurance firms aren’t charities, and it is to be expected that they would raise rates to compensate for ultra-low interest rates. The fixed income market just hasn’t provided the returns they need to satisfy old contracts, especially those written in the high-yielding 1980s. Always read contracts carefully, and investigate all options and tradeoffs before you make financial decisions.

By , The New York Times, 12/04/2015

MarketMinder's View: So it’s beyond a stretch to call fast food and casual dining economic bellwethers. But, we highlight this anyway because it presents a lot of timely evidence illustrating the so-called wage-price spiral is a myth. As is its cousin, so-called cost-push inflation. Prices, always and everywhere, are a function of supply and demand—or in other words, the amount of money chasing a certain amount of goods. (Also, disclosure, we’d highlight this regardless of the companies mentioned, and we aren’t recommending you buy, sell or do anything else with the securities discussed—illustrative purposes only and all that disclosurey jazz.)

By , The New York Times, 12/03/2015

MarketMinder's View: ECB head Mario Draghi cut the interest rate the central bank pays banks on excess reserves further into negative territory (to -0.3% from -0.2%) and extended the bank’s €60 billion monthly bond purchases by six months, through March 2017. However, it is highly unlikely these moves, taken in concert, stimulate banks to do much more than buy bonds of non-eurozone governments and deposit the funds at central banks abroad. After all, charging banks to deposit reserves at the ECB does not mean they will lend more, particularly when the bond buying flattens the yield curve, making lending less profitable. Now, that is why fundamentally we don’t consider Draghi doing less than expected a negative. It does seem to have disappointed some investors, who wrongly see quantitative easing as stimulus for stocks, but that effect is likely fleeting.

By , The Washington Post, 12/03/2015

MarketMinder's View: In what amounts to arguably the most annoying annual rite of the holiday season, the US government is once again playing politics with the so-called “tax extenders”—special deductions and tax provisions the government seems to extend by one year every December. Now, in all likelihood, these will happen at some point this month (some maybe next year, using the Government’s fun time machine, retroactive enactment). Of these, arguably the most impactful one for investors is this: “Charitable distributions from an IRA. This break allowed taxpayers who were at least age 70 1/2 to rollover up to $100,000 to a charity from their IRA. The donation would count as the required minimum distribution that IRA holders need to take out after age 70 1/2. And consumers using this option would not need to pay taxes on the amount donated, making it more tax-efficient than donating straight cash.” Anyway, if you are 70 ½ or older and looking to utilize this provision, we’d suggest the following steps to ensure you’re ready when (if, we guess) Congress acts at the last minute: a) contacting your tax advisor b) ensuring you have all the necessary instructions from the charity to transmit the securities c) get and complete the requisite paperwork from the firm housing your assets d) call your congressman and tell them this politically motivated exercise isn’t how you want to spend your golden years.

By , Time, 12/03/2015

MarketMinder's View: The theory here is allegedly “divergent monetary policy”—a fancy way of saying the Fed hiking while the ECB attempts to reduce rates and stimulate—will inevitably cause the dollar to skyrocket, crushing US exports and manufacturers and thereby killing off the US expansion, which we are told is already long in the tooth, as most US expansions end after seven-to-nine years. Folks, this is utter nonsense, unsupported by any real data. Rate hikes do not necessarily drive the dollar higher—including when policy “diverges,” which until 2008 was known as normal monetary policy. For example, in 1994 the Bundesbank and Fed literally coordinated divergent policy when the Fed began its tightening cycle. The dollar fell. Moreover, the US (and most Western economies) are predominantly services- and domestic-consumption driven, so exports and manufacturing faltering would be only slight headwinds. What’s more, the strong dollar isn’t that much of a headwind for manufacturers in total—to their revenues, perhaps, but their costs likely drop based on cheaper imported components. Finally, age is not a risk factor for expansions and bull markets. Many haven’t made it to seven years, some surpassed it.

By , The Wall Street Journal, 12/03/2015

MarketMinder's View: So it seems Brazilian House leader Eduardo Cunha has approved impeachment proceedings against Brazilian President Dilma Rousseff, while he himself is embroiled in scandal. And many are approaching the political scandal currently enveloping the Brazilian President as though it is the center of the economy’s problems, in the sense that it prevents the government from enacting reforms needed to shore up the country’s fiscal accounts and growth. Which is possible, but consider: There isn’t that much evidence fiscal consolidation (raising taxes, cutting spending) would be a plus during a deep, protracted recession. Moreover, the Brazilian government isn’t of one mind on the reforms, impeachment or no. Hence, we sort of consider the impeachment saga the sideshow. The real movie, while not as scintillating, is that faltering commodity prices, high inflation and rising interest rates have quashed growth and revealed the sore spots in Brazil’s economy.

By , The Wall Street Journal, 12/03/2015

MarketMinder's View: While measures of growth tallying the manufacturing sector seem to garner near constant attention, the US economy is roughly 80% services. So while the ISM Manufacturing gauge’s decline prompted much media handwringing, this gauge—the ISM Non-Manufacturing PMI—is actually more representative of what makes growth go. Hence, a 55.9 reading is a good sign the US’s services- and consumption-driven economy is on solid footing. That is especially true when you figure one of the four declining industries (out of 13 overall) is mining, which isn’t really a service and has some pretty well-known problems presently.

By , Bloomberg, 12/03/2015

MarketMinder's View: Take all the stuff we said about the US economy’s structure and apply it to the UK, too. Services dominate the developed world’s economies, and in most cases, growth in that sector is robust.

By , MarketWatch, 12/03/2015

MarketMinder's View: We are pretty darned ambivalent about this one. At a high level, we totally agree that the fund firms employing “closet indexing”—buying  a slew of stocks so that their portfolios mimic indexes, then charging a lofty fee for it—is a poor strategy indeed. And we truly like the first point here, which echoes one we’ve made many times: Passive products like index funds abound, but passive investors border on nonexistent. But the rest of it we find a little bit dodgy, in the sense claiming the funds indicated are closet indexers seems to be refuted by relative performance disparity against the index. For instance, many of the six-month returns indicated deviate wildly from the S&P 500. That seems to suggest something other than closet indexing is afoot. Moreover, tax-adjusting returns is a dodgy business, given tax rates vary from zero (tax-deferred accounts) up to 39.6% (short-term capital gains rates for high earners). All in all, this is a good reminder that performance alone isn’t a very meaningful metric—how performance was attained is much more important.

By , US News & World Report, 12/02/2015

MarketMinder's View: Sorry, folks, but there is no such thing as an inherently “safe” stock. Stocks are stocks, and all come with the risk of loss (as do all other assets not named cash). Yes, Utilities and Health Care stocks often do hold up better during troubled times, but it’s more because demand for their products and services isn’t tied to the economic cycle’s ups and downs. You still turn on the lights and pick up your prescriptions during a recession. That fundamental feature is true regardless of valuations, which do not predict future returns. Sometimes high valued stocks remain that way, or become even more highly valued as bull markets mature. Sometimes low valued stocks remain cheap on a relative basis or become even cheaper. Investors may well place an even higher premium on less cyclical categories whenever the next bear market rolls around (which we don’t anticipate in the foreseeable future). That said, this piece gets points for highlighting the fact dividends are but one component of a stock’s total return, its price movement being the other. High-dividend stocks’ prices can fall, and dividends get cut. Especially during a downturn. Don’t chase dividends alone—focus on fundamentals and total return potential instead.

By , The Telegraph, 12/02/2015

MarketMinder's View: This is all interesting and whatnot, but for investors, it has about as much use as using the board game Risk to forecast geopolitics. Think about what this study does: “The consultancy simulated a slowing of residential investment in the Chinese economy, causing house prices to slump and trigger a sharp drop in bank lending. As a result, China’s GDP would be 4.8pc lower in 2017 than currently forecast.” (Boldface ours.) Soooo, it assumes China grows fine this year, grows fine next year, and grows most slowly in 2017. And it assumes the slowdown comes from sagging property investment, which is odd considering residential real property investment has been in the dumps there for a couple years now. Sorry, but this doesn’t pass a basic logic test. Moreover, the nature of this hypothetical downturn tells you the study presumes the primary global impact will be on the commodities trade, which ignores just how heavily China is integrated into global supply chains for a host of products. It could very well underestimate the global impact of an actual hard landing. As for the global impact of a severe property investment slowdown in China, we’re living that now, as we did in 2014. Don’t overthink it.

By , CNNMoney, 12/02/2015

MarketMinder's View: When planning for retirement, some estimate how much cash flow they will need to generate each year based on rules of thumb. For example, that you will need to replace about 70% to 80% of your pre-retirement income from other sources after your paychecks stop coming. While such guidelines may be accurate for some, they likely overestimate many retirees’ annual expenses … and underestimate other folks’ needs. Some may decide to travel more, some choose to help grandchildren with education expenses, while others live a more modest lifestyle. As this piece advocates, when planning for retirement, it makes most sense to assess your own personal situation and itemize every last projected expense, both discretionary and necessary. From there, you can estimate how large of an investment portfolio you will need to generate the cash flows you will require, and properly allocate your portfolio to maximize the chances you reach your long-term goals.

By , The New York Times, 12/02/2015

MarketMinder's View: Some senators and congressmen believe the US would be better off if it returned to the gold standard—where the value of each dollar is tied to a fixed quantity of gold—believing an unconstrained central bank in a fractional reserve banking system will enable the creation too much money, devaluing it over time. Setting aside the political aspects of this piece, it is a great historical explanation of why a gold standard is by no means the Holy Grail. It limits a country’s ability to expand the money supply when necessary—for example, during financial crises. It also constrains the quantity of money in circulation to the supply of gold, which can be hampered by supply disruptions. This arguably is one reason the Great Depression was as bad as it was, as the Fed was forced to allow the money supply to contract by a lot in 1931, exacerbating the downturn. Also, we had plenty of periods of high inflation on the gold standard—and plenty of periods (like now) of low or no inflation without it. Oh and that vaunted historical gold standard wasn’t fixed for all time. Politicians routinely monkeyed with gold’s fixed value. There is no perfect way to control the money supply that avoids all potential negative outcomes, but a return to the gold standard is no improvement on the current system, which is much more nimble to adapt to changing market conditions. Besides, inflation has been very benign for some time, so this seems like a solution in search of a problem.

By , The Wall Street Journal, 12/02/2015

MarketMinder's View: Owning a home provides a lot of benefits over renting: You are free to renovate or remodel it to suit your tastes, you receive a tax break on mortgage interest paid, your house will likely appreciate in value over time and once it’s paid off you essentially live rent free. But this doesn’t necessarily mean a house is a good financial investment. Studies have found that over time real estate prices generally rise with the level of inflation, but no more. Most real estate indexes showing strong gains are skewed by rising home sizes—measuring price-per-square foot paints a much different picture. And routine maintenance, repairs, and commissions to sell detract further from those returns. This doesn’t mean it’s a bad purchase, as it’s difficult to put a price on the enjoyment of owning a home and making it whatever you want without having to answer to a landlord. But that is the value of home ownership. Purely in terms of return on investment, in many cases, real estate is probably suboptimal.  

By , The Wall Street Journal, 12/02/2015

MarketMinder's View: But … but … but … the data included herein (a year-over-year measure of business investment from the US Q3 GDP report) grew. Growth, last we checked, is by definition not a slump. And, it’s odd to look at year-over-year measures of US GDP and not annualized ones. The former introduces a lot of skew from matters a year old (think: Commodity price downturn). The latter is rooted in the quarter, and it rose 2.4%, the second-fastest rate this year and, like the year-over-year measure, not slumping.  Finally, not all buybacks are cash-funded—many are debt-financed—so buybacks do not actually prevent business investment. The facts simply do not support all the recent ranting about an alleged business investment “slump.”

By , The Wall Street Journal, 12/01/2015

MarketMinder's View: So this article seems pretty internally confused. It spends most of its pixels discussing one relatively narrow measure of US business expenditures on capital equipment (nondefense capital goods orders excluding aircraft), which is down -3.8% in 2015 through October. And since business investment drives overall growth, readers are told this “saps the economy’s future potential.” But according to the Commerce Department, “The broadest measure of U.S. business investment advanced 2.2% from a year earlier in the third quarter.” So, following, the article’s logic, this adds to the country’s potential? What’s more, consider that this growth was slowed primarily by one factor: a -44.4% y/y drop in investment in mining exploration, shafts and wells. Absent the skew of a year-on-year comparison bringing you that drop, business investment rose 2.4% annualized, the second-fastest rate in the last four readings. Investment in equipment rose 9.5% in Q3 and is up nicely year to date, suggesting that decline in capital goods orders wasn’t so telling. And either way, the global commodities slump has caused many Energy and Materials firms to pull back on investment, but this is a sector-specific issue of oversupply that creates winners and losers. Barring another big drop in oil prices, it’s pretty unlikely this degree of headwind in one category persists, which this piece acknowledges, but then goes on to replace with fears other headwinds may constrain business spending, like “an escalating war in Syria, worries about terrorist attacks, rising interest rates in the U.S. and a holding pattern ahead of the U.S. presidential election.” There is zero evidence terror attacks or a war in the Middle East threaten domestic business investment. Ditto for an initial rate hike while the yield curve is steep. Finally, government tends to refrain from passing broad, sweeping legislation in an election year for fear of alienating voters. This provides visibility for businesses regarding the tax and regulatory landscape, mitigating a potential headwind to making new investments. That perhaps explains why business investment has been positive in 17 of 21 Presidential election years since 1930, or 81% of the time. In non-Presidential election years, business investment rose less often, 69% of the time.

By , Bloomberg, 12/01/2015

MarketMinder's View: By including China’s yuan in its Special Drawing Rights (SDR) reserve currency basket, the IMF must naturally reduce the weighting of other currencies to make room, and the euro apparently drew the short straw. Its weighting will drop from 37.4% to 30.93% as of October 1, 2016 while the yuan will join the SDR at a 10.92% weighting. But we think characterizing the euro as “bearing the brunt” [of the yuan’s inclusion] is a bit over the top. Global central banks might reduce the weighting of euros in their foreign currency reserves, but this is very likely a completely separate issue from the euro’s reduced weighting in the SDR as of next October. Central banks are not required to match the SDR weights in their forex reserves, so it will likely be determined more by trade flows and the relative returns on euro-denominated assets, such as German and French sovereign debt. And as for all the discussion here of a weaker currency, we are confused. The dollar is supposedly too strong (the pound, too), threatening exporters. But now a weak euro currency is “grim”? The media take on currency fluctuations reminds us of Goldilocks and the Three Bears.

By , Associated Press, 12/01/2015

MarketMinder's View: The Bank of Japan’s governor and other Japanese officials are urging profit- and cash-rich firms to spend and invest more to help Japan’s struggling economy. And they have one thing right, more business investment would boost growth. But companies don’t invest to be altruistic to employees or patriotic toward their country. Instead, they spend when and where they believe they will profit off those investments, and in the process, workers naturally become better off. Japan’s problem isn’t that firms are hoarding money. It’s that the government hasn’t pushed ahead to enact reform encouraging them to invest of their own accord, like restructuring its byzantine labor code, which enshrines lifetime employment, fostering low productivity, inflexibility and a lack of innovation. This leads to a large number of workers getting paid to do not much of anything, which firms try to skirt by hiring temporary workers while looking abroad for investment opportunities.

By , Financial Times, 12/01/2015

MarketMinder's View: Puerto Rico made payments on more than $350 million of debt due today, avoiding default. But it has another, larger debt payment due next month, so it will need to find more change in the couch cushions. Many suggest—including Puerto Rico’s governor—that it is only a matter of time until the US territory defaults. Although this is certainly bad news for Puerto Rico, it probably isn’t for investors (except those who loaded up on Puerto Rican debt). At about $100 billion, Puerto Rico’s GDP is roughly half the size of Detroit, whose 2013 bankruptcy did not roil the US muni market, let alone global credit markets. While  Puerto Rico has $72 billion of total debt, this is far too small to create ripples in the US capital markets—it is only about 2% of the US muni bond market. What’s more, not all $72 billion is threatened—some of that is revenue bonds that rely on things like tolls and fees, and those are thought to be in better shape than general obligations, which rely on the island’s tax revenue. And only a fraction of Puerto Rico’s debt needs to be repaid over the near term—for the fiscal year ending June 30, 2016, Puerto Rico owes just $2 billion. To be sure, Puerto Rico has problems, but its issues are its own, and markets know this.

By , CNNMoney, 12/01/2015

MarketMinder's View: Yes, Brazil’s GDP shrank for the third straight quarter from July through September, its longest recession in over 75 years. But no, in our view, this isn’t “a scary situation to be in” if you aren’t trying to make a living in Brazil’s economy or aren’t overconcentrated in Brazilian stocks, as Brazil’s troubles aren’t likely to spill over to the rest of the world. Its resource-reliant economy is suffering from low prices for oil and metals. Many government-administered prices are keeping inflation persistently high despite a series of rate hikes and a recession. And the resulting tough credit conditions are weighing on consumers. The major political scandal noted here doesn’t help much, either. Ultimately, these are some pretty darn widely known issues in a nation that amounts to roughly 3% of global output. So, whatever negative impact Brazil might have is likely to be small and has probably already been cooked into securities’ prices.

By , CNBC, 12/01/2015

MarketMinder's View: Over the last 86 years December has never been the worst month of the year for stocks, and moreover, on balance, it has been one of the best. This has led some to suggest stocks will zoom higher throughout the rest of the year. Look, we think the fundamentals underlying stocks are positive, and it wouldn’t surprise us at all for the market to post nice gains in December. But seasonal trends are long-term averages of past returns, which are never predictive. Anything can happen in any one period. Predictions of a Santa Claus rally are attempts to find meaning in festive times. Besides, if you’re a long-term investor, it doesn’t matter if stocks move higher this month, next, or the one after that. Heck, if stocks flat-lined for the next six months and then surged over the subsequent half a year, investors with equity-like needs and goals would be best served just standing pat. And that is basically always true, unless you think you see trillions of dollars of negatives others aren’t seeing.

By , Reuters, 11/30/2015

MarketMinder's View: Today, the Fed approved a rule specifying its emergency lending procedures in response to changes demanded by Congress through the 2010 Dodd-Frank Act. While some proclaim this regulation a check on the “too big to fail” concern, we aren’t convinced a whole lot has changed here. For example, while emergency lending is to be limited to programs with “broad-based eligibility,” all this really means is the Fed can’t craft a program specifically focused on one firm’s issues. Which is all fine and dandy—if it prevents the Fed getting crazy creative, we are on board. We don’t really think it will successfully do that, because there are a slew of loopholes, but in theory, great. There is also a lot of talk about this restricting lending to “insolvent” firms, which it defines as those that haven’t made a payment on undisputed debt in the previous 90 days. But this would have applied to basically zero of 2008’s major firms, including AIG and Lehman. So this new rule doesn’t seem like a big deviation from business as usual. Which is overall good because we are wary of any restrictions that may prevent the Fed from performing its primary duty: serving as lender of last resort.         

By , The Washington Post, 11/30/2015

MarketMinder's View: Here are two interesting tidbits from this piece. One: “The National Retail Federation found that 61.7 percent of consumers, or 151 million people, shopped online or in-person this holiday weekend and spent an average of $299.60 each.“ While preliminary estimates often get revised, that works out to about $45 billion (with a b) spent this weekend. Second tidbit: “The 151 million people who reported shopping this weekend was a significantly greater number than the 136 million who said just weeks ago that they planned to shop during this time period.“ Again, the final numbers will likely change, but the larger point remains—fears of Americans suddenly turning frugal this holiday season seem greatly exaggerated.  

By , Bloomberg, 11/30/2015

MarketMinder's View: What makes it a make-or-break week? A lot of hypotheticals. The take here posits the dollar may be poised to surge because the ECB may continue with its “easy” monetary policy (weakening the euro further), the late-lagging US unemployment report may look strong (giving the Fed more evidence the economy can take a rate hike) and Fed head Janet Yellen may give more “forward guidance” suggesting a rate hike is coming in December. All these “mays” apparently equal the further strengthening of the dollar, since everyone knows Fed rate hikes automatically mean the dollar rises. Except history shows evidence to the contrary. Even when central banks diverge, as the Bundesbank and Fed did in 1994, the dollar didn’t rise. Folks, we recommend staying away from the myopic headlines highlighting what a false fear will do in a short period of time and instead focus on the overall bullish backdrop stocks currently enjoy.  

By , The Wall Street Journal, 11/30/2015

MarketMinder's View: Other than the title—there is nothing truly “elite” about the Special Drawing Right (SDR) designation—there are a bunch of sensible points here covering the IMF’s decision to include China’s yuan in its reserve-currency basket starting late next year. The practical impact of this move is basically nil. Estimates suggest the yuan’s new status would lead to a 1% annual shift to yuan-denominated assets over the next five years, representing less than 10% of what central banks hold—the dollar’s share is 65%. That is no sea change threatening the global economy as we know it or the US dollar—the move is symbolic. For more, see our 11/17/2015 commentary, “The Yuan’s Symbolic Ascent.”   

By , The Guardian, 11/30/2015

MarketMinder's View: All right folks, what time is it? That’s right, it’s time to put aside any political biases you may have, because this piece offers a fairly bipartisan destruction of political rhetoric as it pertains to investing, all in the course of criticizing what we believe is a damaging and widely used analogy in investing—that the stock market is like a “casino.” “News flash: investing in stocks can be gambling, but it shouldn’t be, and only when it’s done recklessly or without adequate research or information is it so. In the stock market, you’re buying assets that have real appraised values – history suggests that over the long haul, the value of a diversified portfolio will appreciate.” Politicians’ M.O. is to toss around blustery language, facts being optional. You should never mistake their language—crafted to ensure they stay in office—for financial wisdom.       

By , CNNMoney, 11/30/2015

MarketMinder's View: World leaders are meeting in Paris this week to discuss how to address climate change and the potential negative ramifications. We present this not to comment on climate change itself, but instead, the long-term economic projections associated with it. While many predict catastrophe to the tune of trillions of dollars, these are long-term forecasts extrapolating current conditions and assuming a whole set of variables that may not actually happen. That is true both of climate science and economics. After all, whether the world warms or not isn’t the only question: It is also, “How do humans—creative, adaptive people—innovate for whatever world we get?” That second question is why, historically, slow-moving things don’t tend to create financial turmoil. If you give people enough time, profit-seeking entrepreneurs will solve most problems. These two issues are, in part, why we’d suggest you shouldn’t forecast longer than say, 30 months into the future—and focus most on the next 12-18 months. Fewer variables, less time for complex, adaptive systems to shift.

By , The New York Times, 11/27/2015

MarketMinder's View: This is an interesting look at the progress—and limitations—of online polling, which seems to be rising as telephone polling is fading. With 87% of Americans connected to the Internet, it does seem polling is likely to end up being conducted online too—and companies big and small have been utilizing innovative methods to improve accuracy. However, substantial challenges remain: potentially biased, unrepresentative sampling and extensive modeling adjusting for a lack of randomness are two. For investors, this is just a small reminder that polls are likely to prove noisy as we approach 2016’s US presidential election. We’d suggest not getting caught up in headlines screaming about candidates’ poll numbers. They may not be indicative of reality, especially this early in the process. For more, see our 9/21/2015 commentary, “POLL-ution.”  

By , The New York Times , 11/27/2015

MarketMinder's View: This article does a fair job documenting gas price fluctuations around the US this holiday season, but it seems a bit bizarrely surprised ongoing tensions in the Middle East haven’t caused prices to rise. That they haven’t shot up, though, is hugely unsurprising: ISIS, Syria and the shooting down of a Russian warplane by Turkish forces don’t materially threaten global oil supply. The world is presently awash in crude oil, and if Iran boosts output by 500,000 barrels per day as expected, supply will only increase. Besides, tensions in the Middle East are a regularity. It takes something much more extreme than the present to materially impact oil prices, particularly given most of the increased supply in recent years comes from non-Middle Eastern producers.  

By , Bloomberg, 11/27/2015

MarketMinder's View: Early estimates suggest many folks pulled their Black Friday shopping forward to Thanksgiving Thursday, preferring to make their purchases in the comfort of their own home rather than waiting in line and battling crowds. So is “Black Friday” doomed as we know it? Perhaps, though concerns about its demise are greatly exaggerated. For one, Black Friday “deals” have gone from one day, to a weekend, to now a much longer period—retailers are no longer saving perks for the day after Thanksgiving. But more importantly, what consumers do on Black Friday itself is way too myopic. A single day matters less than the greater holiday season, which matters less than the entire year. For more, see our 11/24/2015 commentary, “Black Friday Is No Barometer.”

By , The Guardian, 11/27/2015

MarketMinder's View: The second estimate of UK GDP remained unchanged at 0.5% q/q seasonally adjusted growth, its eleventh straight quarterly rise. Growth was driven by domestic demand, as consumer spending rose 0.8% q/q. However, many—including this piece—focused on the negatives, like trade or weak manufacturing. Yet this overlooks some important context. For one, services have been the UK’s primary growth engine during the current expansion. And trade wasn’t weak: Exports and imports grew, it’s just that imports boomed, which suggests overall growth is even stronger than appreciated. On an annualized basis, import growth detracted an astounding 7.1 percentage points from the Q3’s 2.0% annualized headline growth. Booming imports are a good sign for the UK since they highlight healthy demand. That imports detract from headline GDP growth is merely a quirk of GDP’s calculation, likely rooted in its 1930s-era invention.

By , The Economist, 11/27/2015

MarketMinder's View: All right folks, what time is it? That’s right, it’s a special, Black Friday edition of political drama  highlighting the importance of putting aside any political biases you may have when it comes to investing. When the UK’s Labour Party elected long-time far left Parliamentarian Jeremy Corbyn its leader in September, many pundits feared it heralded Labour taking a much more radical tack and started attempting to gauge his impact on future UK politics—even making projections as far off as the next General Election, currently scheduled in 2020. Yet as this piece highlights, Corbyn’s short tenure already faces stiff resistance from MPs in his own party. While politics are indeed an important driver, we caution investors from assuming the ascension of a single politician is either wonderful or perilous for stocks—no party or ideology is inherently good or bad for markets.     

By , Bloomberg, 11/25/2015

MarketMinder's View: “Bookings for non-military capital goods excluding aircraft rose 1.3 percent, the most in three months, after an upwardly revised 0.4 percent increase in September, data from the Commerce Department showed Wednesday. Orders for all durable goods -- items meant to last at least three years -- climbed 3 percent, almost twice the median estimate in a Bloomberg survey.” The US economy is doing just fine, thank you very much.

By , Bloomberg, 11/25/2015

MarketMinder's View: “Bookings for non-military capital goods excluding aircraft rose 1.3 percent, the most in three months, after an upwardly revised 0.4 percent increase in September, data from the Commerce Department showed Wednesday. Orders for all durable goods -- items meant to last at least three years -- climbed 3 percent, almost twice the median estimate in a Bloomberg survey.” The US economy is doing just fine, thank you very much.

By , Barron's, 11/25/2015

MarketMinder's View: While this article most specifically pinpoints one politician’s words, we feel compelled to note the theory the Chinese yuan is artificially “undervalued” relative to the US dollar is a fully bipartisan misperception. So, chuck the partisan or politician-specific stuff out the window here. The notion China manipulates its currency lower to make its exports more competitive and gain an economic edge over the US is greatly outdated. Since 2010, the yuan has appreciated against the dollar—somewhat significantly. And, as this article correctly notes, China’s government has been intervening to artificially prop it up against the dollar in the last year. We are of the view these currency market gyrations get too many pixels relative to the actual economic impact, but either way, this is a good discussion to read given next year’s election likely means much more political rhetoric over exchange rates to come.

By , The Wall Street Journal, 11/25/2015

MarketMinder's View: Here is an interesting, if somewhat overstated, take on the recent House bill that would make some operational changes to the Fed. This focuses mostly on the bill’s requirement the Fed adopt a monetary policy rule to guide its decision making and, if they deviate from it, explain why. Now, strict rule-based policy could be problematic, as this article goes to great lengths to point out. However, the proponents of the bill are accurate in saying this doesn’t do that—it allows the Fed to select which rule, change it and even operate outside of it. It is theoretically possible that this approach could bring the beneficial transparency the Fed has claimed it seeks in recent years, but that isn’t assured. Overall, despite this article’s singular focus, we believe this bill has some positives and negatives outside the rule-based policy requirement. On the plus side, it would require the Fed to perform cost/benefit analyses on new regulations. Sensible! On the minus side—and this is the biggest problem with this bill, in our view—it would slap restrictions on the Fed lending to troubled banks. Central banks exist primarily to quell panics by acting as the lender of last resort, and we are quite wary of politicized efforts to constrain that.

By , The Wall Street Journal, 11/25/2015

MarketMinder's View: The debate here boils down to whether 2011 (deep correction/sharp rebound/flat year) or 1937 (beginning of a massive bear) is the more appropriate comparison to 2015. Look, 2011 is a loosely fair comparison in the sense 2015’s negativity appears to be a correction—a brief blip in a broader bull market. But this article argues 1937 is more apt, which to us seems very wide of the mark. The whole comparison is based on false Fed tightening fears. It’s true 1937’s crash was caused by the Fed. However, it isn’t like the Fed hiked rates by 0.25 percentage points or something back then. They massively increased reserve requirements, erroneously presuming banks wouldn’t slash lending and raise capital because they had excess reserves already. But they didn’t see that banks were intentionally holding excess reserves because they desired to be more conservative than required in the wake of the 1929 – 1933 downturn. So, when required reserves rose, they raised more. The result was a catastrophic downturn. Today, a single rate hike would come against the backdrop of a still-steep yield curve. There is no history of a single hike derailing stocks and no evidence suggesting the US economy can’t take a hike (or multiple hikes) now. In our view, today bears a much more striking resemblance to 1997: Falling commodities prices, Emerging Markets currency fears, US-led markets, a gridlocked US government, and a growing global economy. We could go on, but we figure you get the picture.

By , Bloomberg, 11/25/2015

MarketMinder's View: That new-ish* OPEC member is Indonesia, which consumes more than twice the oil it produces, making this member of the Organization of Petroleum Exporting Countries a net importer, ironically enough. Anyway, this article does a good job summing up just how the incentives within the oil cartel’s ranks are increasingly at odds. OPEC is becoming marginalized within the oil market, based on advancing technologies in the non-OPEC world and these internal dissentions. *We say “new-ish” because Indonesia was a member of OPEC just seven years ago.

By , CNNMoney, 11/25/2015

MarketMinder's View: So we were a bit confused by the conflicting messages in this slideshow. The first point says that “Geopolitical shocks matter,” arguing that several hot spots could trip up the current bull market. Those hot spots include the usual suspects: terrorism, Russia, China, Middle East conflict, cyber hackers or an unexpected wild card like North Korea. But then the final argument says that markets are resilient, so as an investor, perhaps you shouldn’t be worried about any long-term fallout. While we agree that geopolitical conflicts tend to have a fleeting impact on markets, we find it misleading to then hype up several scenarios that could possibly derail a bull. Folks, we aren’t saying geopolitical events don’t matter—they can and do have a real (and too often, tragic) human cost. However, investors shouldn’t bank on possibilities. Probabilities matter more, and history shows geopolitical tensions rarely pack the wallop necessary to end bull markets.

By , The Street, 11/25/2015

MarketMinder's View: Here is this article’s thesis: “One thing is for sure: this year’s four-day shopping period will go a long way toward settling the debate on whether Black Friday is, once and for all, dead or alive.” Which seems unnecessarily dramatic. While Black Friday—and all the spending associated with it—has long had a reputation for being a barometer for US retailers and consumers, this is more hype than reality. For one, Black Friday deals are no longer reserved for the Thanksgiving weekend. Retailers are offering deals earlier in the month and extending them into December. And two, non-seasonally adjusted data show December is the strongest month for US retail sales—the early bird may get a Black Friday deal but procrastination seems to be most shoppers’ preferred approach. So regardless of how Black Friday 2015 turns out, one day doesn’t define a seasonal spending period.    

By , Bloomberg, 11/24/2015

MarketMinder's View: Inventory gains are always open to interpretation. On the positive side, they could mean businesses stocked up in anticipation of higher demand. Or, not so good, they could indicate a supply overhang. What do they mean this time? Considering consumer spending is strong and disposable incomes are up, a supply overhang would be very odd indeed. Seems more likely firms built stockpiles for the holiday shopping frenzy. That could mean inventory drawdowns detract from growth later on, but that is a statistical quirk more than anything.

By , CNBC, 11/24/2015

MarketMinder's View: Nah, they really aren’t. Corporate insiders’ trades aren’t a leading indicator for stocks. Execs trade for a host of reasons, not at all limited to their outlook for their own company. Diversification is a biggie—a lot of these guys and gals get paid in company stock, and if left unchecked, it can build up over-concentrations. Diversifying is always wise, whether or not a big position happens to be in the company you work for. Execs will also cash in to buy real estate, send the kids to college, pay for weddings, and any other big life-event expense. They’re people too, you know. This is a big reason why there is no set relationship between execs’ trading habits and future stock prices. As for the rest of this, which discusses the alleged evils and risks of stock buybacks, a couple counterarguments. One, business investment is rising, not falling, and presently sits at all-time highs. There is no conflict between buybacks and investment. It is a media construct, pure and simple. Two, many of those buybacks serve to offset the stock-based compensation mentioned above. When companies issue new shares or options to employees, they often buy the equivalent amount on the open market to prevent the dilution of existing shares. That is overall positive financial management and basically how you want the system to work.

By , EUbusiness, 11/24/2015

MarketMinder's View: Take this poll, which showed 52% of respondents favored leaving the EU, with many grains of salt. One, it had no “undecided” option—a competing poll, which did, had results of 43% for leave, 40% for stay, and 17% undecided. Two, it’s early. The referendum might not happen for two years, and with the government’s negotiations with Brussels on reform just beginning, voters have no idea what their eventual choice will look like. Three, as early polling in Scotland’s and Quebec’s independence campaigns showed, folks usually overstate their tendency to vote for change this far ahead of a vote, when it’s a hypothetical idea and they aren’t confronted with real-world implications. On voting day, when forced to weigh the consequences of a change, the status quo often seems much more enticing. So we wouldn’t read much of anything into any polls on the “Brexit” referendum until the vote is much, much closer. (And even then, pre-election polls have a dismal recent history.)

By , CNNMoney, 11/24/2015

MarketMinder's View: And then they rose a bit, underscoring localized conflicts’ long-running inability to sink stocks for long. Of course, this is all making way too much of intra-day volatility, so consider these charts instead.

By , The Washington Post, 11/24/2015

MarketMinder's View: This fun piece, which solicits names for the circa-Thanksgiving shopping extravaganza that no longer includes just Friday (our favorite: “The day I get to trample someone online to save 8 bucks on a Nespresso”), makes a pretty good point—and one all investors should keep in mind this holiday season. Black Friday gets all the hype, but it is increasingly less important in the grand scheme of things. Full-season sales matter more, and full-year sales matter even more than that. We’d advise against drawing big conclusions, good or bad, from one weekend’s totals.

By , The Telegraph, 11/24/2015

MarketMinder's View: So take BoE chief Mark Carney’s latest guidance on interest rates with a grain of salt, as his ever-changing jawboning has long since earned him the nickname of Britain’s “unreliable boyfriend.” We don’t like ad hominem arguments, mind you, but the recent history here speaks for itself. Anyway, what really caught our eye here was the recent spike in unsecured personal loans, which fall under that eyebrow-raising household debt. We have to wonder whether these loans are really, truly personal. After all, small business lending is still in the doldrums, and with yield curves flatter this year, banks don’t have much incentive to take the added risk. But what’s to keep a small business owner from getting a loan in their own good name, mentally accounting for it against their business’s future revenue, and plowing the proceeds of that loan into their business? We can’t help but wonder if at least some of these personal loans are really small business loans in disguise. Where there is a will, there is a way.

By , Financial Times, 11/24/2015

MarketMinder's View: Capping a seven-week saga of electoral uncertainty, Portugal’s President tapped center-left Socialist Party leader António Costa as Prime Minister. The Socialists will head up a minority government that relies on the far-left for Parliamentary support. Some fear this will make Portugal U-Turn and lose its status as bailout success poster-child, but that seems unlikely. Costa has vowed to abide by EU budget treaties and Portugal’s existing commitments, and his party’s spending goals aren’t radically different from the status quo—this isn’t Syriza 2.0. Also, minority governments are inherently unstable, and gridlock will likely forestall radical change. There probably isn’t much politicians can do to disrupt Portugal’s nascent, private-sector-led recovery.

By , Bloomberg, 11/24/2015

MarketMinder's View: Consumer spending rose 0.6% q/q and imports rose 1.1%, while export growth slowed to 0.2%. But GDP math (wrongly) counts imports as negative, even though they signify domestic demand, so net trade detracted from growth. Overall, Germany’s economy is in better shape than that headline figure of 0.3% q/q GDP growth would imply.

By , Financial Times, 11/24/2015

MarketMinder's View: Yes, world trade has slowed, but for investors, there are a few mitigating factors. One, this report measures trade in goods only, not trade in services—and the services trade is increasingly important for the US, UK and other developed economies. Two, this is a coincident economic indicator, not a leading one, and it doesn’t necessarily mean trade will stay weak or growth will weaken from here. The future determines the future, not the past. Three, stocks have long been aware of this slowdown and are already busy looking to the future, which actual leading indicators suggest should feature continued growth.

By , The New York Times, 11/24/2015

MarketMinder's View: The Fed official in question is Governor Daniel Tarullo, the central bank’s regulatory tsar and an overall big proponent of higher capital requirements. He didn’t give many details on what “stricter” means, but candidates include altering capital rules, raising the minimum capital buffer to pass the test, and giving the biggest banks an extra capital surcharge. Ostensibly, the goals are twofold: Preventing big bank failures and encouraging big banks to shrink. The first is frankly impossible—you can’t derisk the financial system, as banks are in the business of taking risk. Every new loan is risk. And there is no evidence marginally higher capital requirements will prevent a big bank from failing in a panic. It would only delay the inevitable once capital begins to flee. The second goal is a solution in search of a problem, as “too big to fail” wasn’t the problem in 2008. Smaller, focused institutions failed, and creating more megabanks through mergers was regulators’ chosen fix. As for the impact of stricter tests on banks, they are an incentive to hoard capital, which could mean fewer dividends and less lending, but it’s too early to quantify and handicap.

By , The New York Times, 11/24/2015

MarketMinder's View: The Fed official in question is Governor Daniel Tarullo, the central bank’s regulatory tsar and an overall big proponent of higher capital requirements. He didn’t give many details on what “stricter” means, but candidates include altering capital rules, raising the minimum capital buffer to pass the test, and giving the biggest banks an extra capital surcharge. Ostensibly, the goals are twofold: Preventing big bank failures and encouraging big banks to shrink. The first is frankly impossible—you can’t derisk the financial system, as banks are in the business of taking risk. Every new loan is risk. And there is no evidence marginally higher capital requirements will prevent a big bank from failing in a panic. It would only delay the inevitable once capital begins to flee. The second goal is a solution in search of a problem, as “too big to fail” wasn’t the problem in 2008. Smaller, focused institutions failed, and creating more megabanks through mergers was regulators’ chosen fix. As for the impact of stricter tests on banks, they are an incentive to hoard capital, which could mean fewer dividends and less lending, but it’s too early to quantify and handicap.

By , CNN Money, 11/23/2015

MarketMinder's View: Sorry Virginia, there is no Santa Claus (rally). But before accusing your friendly MarketMinder writers of being a bunch of Grinches, we remind investors that we are indeed bullish for the foreseeable future—the global economy’s strength remains underappreciated, the governments of many strong, developed economies are gridlocked and investor sentiment is becoming increasingly optimistic. Note, that rationale does not include “past data say stocks have gone up around a certain time of the year.” Seasonal patterns aren’t real, and in the short term, sentiment could make stocks swing hard in either direction for any or no reason. Basing investment decisions on a very short-term outlook won’t get you far at all. Also, this is only about half right on monetary policy. We agree markets will be best off if the Fed just gets on with hiking, but it’s erroneous to call quantitative easing an automatic positive in Europe (or the US). See this for more.

By , The Wall Street Journal, 11/23/2015

MarketMinder's View: So we award a point for the several nifty graphics in this piece (make sure your Internet browser is up-to-date). Unfortunately, we have to dock that point and administer several negative points for the many misperceptions shared here. Look folks, “experts” have been harping on about scary demographic trends for a long while now—the (false) theory of secular stagnation, which has been around since the 1930s, is rooted in those fears. However, demographics aren’t a cyclical economic driver—they move far too slowly to materially impact markets or derail (or boost) economies. Many point to Japan as an example of the damage demographics could cause to growth, but Japan’s struggles are due more to its byzantine labor code and restrictive immigration policies, which prevent the country from tapping the resources it needs to restore sustainable growth. Forecasting how the world will look in a year is tough. Projecting it a decade or beyond? Near-impossible, and a bit pointless, in our view, since so much will change in ways mankind can’t fathom today. We trust human ingenuity—fostered by capitalistic-driven societies—to create solutions to our future problems, much as they always have.          

By , Bloomberg, 11/23/2015

MarketMinder's View: On Sunday, Buenos Aires mayor Mauricio Macri won the runoff election against Daniel Scioli, the ruling party’s candidate of choice. Investors have reacted elatedly at the news, as Macri has pledged to reverse the former administration’s restrictive and damaging economic policies, ranging from seizing private property and adopting price controls to intentionally defaulting in order to avoid paying foreign debt holders who didn’t participate in a 2005 debt restructuring. Now, as promising and exciting as the new administration’s plans may sound, it is important to weigh reality against expectations. As this piece highlights, its challenges are substantial, from low foreign reserves to high double-digit inflation—private economists estimate it to be more than 20%. One man can’t change a country’s economic reality overnight, and Macri must also deal with a divided legislature, which has plenty of members still loyal to the former administration. It remains to be seen how successful Argentina’s new president will be, so we suggest managing your expectations.    

By , CNN Money, 11/23/2015

MarketMinder's View: The anecdotes here—that oil tankers are piling up at ports around the world because of excess oil supply—are further evidence of the current supply and demand reality facing oil (and commodities overall). With the Organization of Petroleum Exporting Countries (OPEC) determined to maintain its market share and other oil-producing countries like the US and Russia adding to the glut, the world is awash with black gold, keeping prices low. While these are headwinds toward Energy companies, other sectors benefit from low energy costs. Cheap oil can be a nice boost, especially for consumption- and service-driven economies.   

By , Bloomberg, 11/23/2015

MarketMinder's View: Here is the alleged mistake: By waiting too long to raise rates, the Fed may have put the US on the road to recession. Here is the (flawed) rationale: Monetary conditions right now are too easy, which will overheat the economy, and since investors will expect weak inflation because of the strong dollar, the Fed will have to tighten drastically to stabilize inflation—and that will boost joblessness to a level large enough to cause a recession. Whereas if they’d hiked earlier, they could take a smoother, more gradual path. If you’re confused with that line of logic, we are right there with you. As Milton Friedman said, inflation is “always and everywhere” a monetary phenomenon. It isn't driven by folks’ expectations of the future. Plus, today’s primary deflationary pressure isn’t contracting money supply or falling bank lending, but rather, low energy prices. Core inflation, which excludes volatile food and energy prices, suggests inflation remains benign.

By , Calafia Beach Pundit, 11/23/2015

MarketMinder's View: And if you want proof that the aforementioned bank lending isn’t contracting, here is some evidence.

By , EUbusiness, 11/23/2015

MarketMinder's View: The eurozone’s flash composite Purchasing Managers’ Index (PMI) hit 54.4 in November—the highest in four-and-a-half years—as both manufacturing and services beat expectations. While PMIs aren’t perfect, they are another data point indicating the eurozone’s choppy, uneven streak of growth continues. As an aside, France’s flash services PMI missed expectations, which many attributed to the Paris terrorist attacks on November 13. While some fret weaker consumer spending in the future for the eurozone’s second-largest economy, history suggests that declines in spending are usually temporary.    

By , The New York Times, 11/20/2015

MarketMinder's View: Yes, some banks are saddled with high-yield corporate bonds that they’ve been unable to sell, and they’ve had to take some writedowns. But this is far, far, far from a 2008 repeat. One, these are relatively liquid assets, designated as for-sale on their balance sheets rather than held-to-maturity—banks and investors are all well aware of the risk of volatility and loss, and banks have provisioned accordingly. Two, the estimates of potential losses across the industry are about $600 million, which sounds big, but is peanuts compared to the $2 trillion in unnecessary writedowns banks took in 2008. It is also peanuts compared to the amount of capital these banks have. Also, revenue in these banks’ other business units could easily offset these paper losses. (And, as the article notes, the securities in question could rebound. Volatility cuts both ways.)

By , The Wall Street Journal, 11/20/2015

MarketMinder's View: H.R. 3189, the Fed Oversight Reform and Modernization Act of 2015, would do four things. One, it would oblige the Fed to establish a “rule” of its own choosing to set interest rates, share that rule with the public, and let people know whenever they deviate from the rule and why. Two, it would make the Fed conduct a cost/benefit analysis for all regulations. Three, it would rein in extraordinary measures the Fed could use to lend to liquidity-starved banks during a crisis. Four, it would make the Fed add some information to the Industrial Production and Capital Utilization Report: an estimate of how much industrial production was directly enabled by the Export-Import Bank, and an equivalent for all foreign nations with similar development or trade-financing banks. Overall, this is a mixed bag. The first provision, on rule-based monetary policy, would increase transparency and perhaps consistency, which could ultimately shore up the Fed’s credibility if executed correctly. That’s a big if, but we could see it working out ok, and it is far preferable to other iterations of this provision, which would have written the rule for the Fed. Comparatively, this preserves much more of the Fed’s independence. Cost/benefit analyses for regulations are also a fine idea. The third part gives us the heebie jeebies, as the Fed was created in 1913 to serve as lender of last resort, and that is a big reason why financial panics became a rare breed. They have been far from perfect (and largely abdicated in the 1930s and 2008, escalating those panics unnecessarily), but this seems like a solution seeking a problem. And the fourth part, about the Export-Import Bank, is just bizarre and could ultimately heighten calls for protectionism. Anyway, there might not even be a point to spilling all these pixels, because the House often passes legislation that subsequently goes nowhere fast, and the Senate has yet to take this up. It’s also worth mentioning the bill received zero Democratic votes, and if the Senate is similarly divided on the issue, it will probably die. If its likelihood of becoming law improves, it will be worth considering its potential market impact, but for now, it’s more an academic question.

By , The Telegraph, 11/20/2015

MarketMinder's View: No knock on the ECB chief, whose legend is based on a Merlin-like ability to placate investors with grand phrases like “do whatever it takes,” but there is actually not a lot the ECB can do to bump up prices right now. More quantitative easing probably won’t do it, as bond buying flattens the yield curve, which is disinflationary. Stopping quantitative easing would help, because it would probably steepen the yield curve and speed money creation. But even then, the biggest drag on inflation is ultra-low oil and commodities prices. Prices are low because of an astronomical supply glut, and short of sabotaging oil wells and supply lines, there is really nothing a central bank can do about that. Unless Draghi and friends can pull a Jedi mind trick on OPEC oil ministers, Vladimir Putin and the entire US shale industry, then this is really a nonstarter. Which is fine, because developed-world consumers and non-Energy firms largely benefit from cheap energy.

By , Reuters, 11/20/2015

MarketMinder's View: Indeed, it isn’t—it’s just the result of supply trends in oil, natural gas and mining. “Very high capacity was built in anticipation of a commodity super-cycle, and the free-fall does not indicate pending doom, said [Ed] Yardeni, founder and president of Yardeni Research Inc, at the Reuters Global Investment Outlook Summit in New York. ‘I don't think it's demand that's falling off a cliff,’ he said. ‘Because so much capacity was built into the commodity space anticipating a super-cycle, that now that all those assumptions have fallen apart, guess what? They can't get out of their own way.’” In other words, they’re all still producing like crazy—some revenue beats no revenue when you’ve spent years building projects with high up-front costs—and it will likely be some time before supply responds to low prices.

By , A Wealth of Common Sense, 11/20/2015

MarketMinder's View: Unrealistic expectations and flawed assumptions about how markets work can severely impact investors’ ability to reach their long-term goals. Here is an overall great list of some of the biggies. The more you know!

By , Reuters, 11/20/2015

MarketMinder's View: The “cost” is too much demand, which strikes us as a fantastic problem to have and a good sign for the UK economy. We get that some worry about the impact of deep discounts on retailers’ margins, but we see that same fear annually in the US—and it typically ends up far better than expected.

By , The Telegraph, 11/20/2015

MarketMinder's View: We highlight this bit of Friday fun as an example of how inflation statistics can have trouble measuring actual price changes over time. Take the videogame example. Today, a snazzy system with wireless controllers, spiffy graphics and incredible computing power costs about £300. 30 years ago, a first-generation console with 8-bit graphics, a tinny four-note midi soundtrack and simplistic gameplay cost £130, which is £400 in today’s pounds sterling. Sooooo…is that inflation or deflation? Beyond that, this is just a testament to the miraculous powers of technology and capitalism to make products like calculators and mobile phones cheaper and far more powerful over time. Want to own that? Then own stocks!

By , The Wall Street Journal, 11/20/2015

MarketMinder's View: Nope, the Treasury’s latest tax code reinterpretation probably won’t stop US firms from buying smaller foreign competitors and adopting that foreign address to avoid double taxation on non-US earnings. It is largely window dressing, and this piece does a nice job of explaining why. (SPOILER: It merely winnows down the number of targets for US firms seeking to invert and doesn’t monkey with tactics firms use to bring capital back to the US to invest here.) So overall, this isn’t really a setback for Corporate America. But, the more government agencies try to tinker with written rules at the margin, the more risk aversion it could cause, and left unchecked it could weigh on investment. We aren’t anywhere near that, but it is a potential risk few notice.

By , Bloomberg, 11/20/2015

MarketMinder's View: Pre-election polls have become increasingly inaccurate in the past few years as the polling industry has struggled to keep up with changing technology and consumer preferences. For example, pollsters rely on landlines (due to FCC guidelines restricting the autodialing of cellphones and folks’ ability to screen using caller ID), but fewer folks have them. A “herding” mentality has also kept some outfits from publishing outlying results that ended up being accurate. And online polling hasn’t hit its stride yet, as pollsters have struggled to get demographically representative random samples of likely voters. Most online poll respondents volunteer, which messes with the integrity of the endeavor. But one privately held tech firm is trying to change all that and has made strong inroads into online polling, with striking results. Only time will tell whether their methods are consistently accurate and can help the entire polling industry transform, but it’s certainly worth keeping an eye on, particularly as we get closer to the 2016 election and markets begin trying to handicap the outcome.  

By , Financial Times, 11/20/2015

MarketMinder's View: This obituary for the UK’s coal industry—whose fate was sealed yesterday, when the Energy Secretary announced plans to shut all coal-fired power plants by 2025—doesn’t have much market takeaway. But it is an interesting tour through the industry’s history in Britain and an object lesson in how economies evolve over time, with old industries dying and new ones taking their place. Coal has been fading for decades, with its demise assisted by both state intervention on behalf of the industry and, later, privatization. The fallout made life hard for coal mining communities throughout Wales, Yorkshire and the north, as the interference with the natural evolution of such things left a sudden void. In Wales especially, it took a whole generation for new industries to begin taking coal’s place. But free-market economies are resilient, as are the people that power them, and Wales now has some of the fastest-growing tech hotspots in the UK. Y Ddraig Goch ddyry cychwyn!

By , Reuters, 11/20/2015

MarketMinder's View: Here is an example of how protectionism ultimately hurts consumers, as well as an example of why we’d encourage investors not to get overly excited about the Trans-Pacific Partnership (TPP) free trade agreement. Japan has a chronic butter shortage. Its dairy farming industry is shrinking as farmers age out and young folks decline to pick up the family business. Ordinarily, countries would import dairy products to fill the void, but Japan has strict dairy import caps and high tariffs to protect these increasingly nonexistent dairy farmers. Japanese folks had hoped TPP would fix this, and it did indeed ease the import cap—but the new one is still only 5% of annual Japanese butter consumption, and tariffs for imports beyond that amount remain sky high. This is one of many instances of protectionist loopholes in TPP, which—for all its benefits—doesn’t totally free trade among these 12 nations. It’s still a positive, but a very long-term one (should it ever take effect—a big question mark given political opposition in the US and elsewhere), and not a material near-term economic or market driver.

By , The Wall Street Journal, 11/19/2015

MarketMinder's View: Corporate inversions—where a US firm buys a smaller foreign competitor and switches headquarters to that foreign address for tax purposes—are one of politicians’ favorite bugaboos. Pols in both parties claim the practice robs America of tax revenue and business investment and therefore must be stopped. This is a falsehood. Firms invert to avoid double taxation of foreign earnings, but under the current code, they’re taxed only if they repatriate these earnings, and they don’t—you can’t lose revenue you wouldn’t get anyway. As for investment, companies invert so they can invest more in America without getting taxed hugely for it. So the Treasury’s latest crackdown, like its September 2014 reinterpretation of the tax code, could actually accomplish the opposite of what it intends, making it a solution in search of a problem. It could also encourage US firms to arrange to get bought by foreign firms instead of doing the buying—zero-sum for global markets, but really not a good look for Corporate America. As for the direct market impact of these latest rule changes, they’re mostly just a headache for the impacted firms, but they could raise risk aversion across the board. If the Treasury and other agencies do this sort of thing enough, it could ultimately discourage risk-taking and investment, which stocks would generally dislike.

By , Barron’s , 11/19/2015

MarketMinder's View: The theory here is unemployment “troughs” usually occur shortly before a recession arrives, which is true—unemployment is a lagging indicator, so historically speaking, when it looks best, the economy is poised to turn south. However, you can’t really use this to navigate stocks, because 1) a trough is only apparent after the fact, not before and 2) it’s a lagging indicator—stocks are leading indicator—so by the time you know a trough has formed, it may be too late. Finally, the way this forecast (recession in 2017) is built relies on the average rate of unemployment decline repeating for the next eighteen months and the theoretical floor being 3.8%, both of which are speculative bets indeed. So while it’s refreshing that this article doesn’t take the faulty stance that lower unemployment means boom-times are a-comin’, there are still plenty of flaws with it.

By , The Wall Street Journal, 11/19/2015

MarketMinder's View: We figure some folks are going to get caught up in the word “subprime” and fret this spells a 2008 redux. Balderdash. The fact auto lending is growing and reaching more poorly rated borrowers does no such thing. For one, there are fundamental differences between auto lending and mortgages. 1) Cars are a depreciating asset and everyone pretty much knows it. We sincerely doubt many borrowers took out huge loans they can’t afford on the notion the car will rise in value so that they can eventually sell it, cover the loan and still have cash left over. 2) The repossession process is much faster for auto loans. 3) Securitization isn’t as common. And, most importantly, 4) 2008’s financial crisis wasn’t caused by bad loans or subprime or however you want to say that. That was part of the sentiment backdrop, but studies show the actual losses incurred pale in comparison to the values banks wrote down tied to an accounting rule change (FAS 157, the mark-to-market accounting rule). There is no requirement banks write down loans they intend to hold to maturity today, so a major ingredient that drove 2008’s crisis is absent.

By , The Telegraph, 11/19/2015

MarketMinder's View: This is soooooooooooooooooo 2007. The Baltic Dry Index, a gauge of global commodity shipping costs based on the costs to book large freighters, is a fairly good gauge of the health of the commodity sector. And, if the commodity sector is leading an expansion, probably a decent gauge of the global economy. Hence, its utility in 2007. But this expansion hasn’t been underpinned by a commodities boom. In fact, their prices have been falling for years, based on rising supply and tepid demand growth. Hence, why this gauge has fallen throughout the present expansion and seems unlikely to turn higher any time soon. A container ship supply glut compounds the pressure, as abundant shipping competition keeps costs low. That is an industry-specific issue, not at all an economic barometer. This is an excellent example of the fact certain economic measures can flit in and out of favor based on economic trends.

By , The Wall Street Journal, 11/19/2015

MarketMinder's View: The title is actually a little wide of the mark, as the following passage makes clear: “Export volumes also slid 4.6%, offering another worrying sign of weakness, falling for the fourth straight month, according to the Ministry of Finance.” The reason export values were positive until now was exclusively the weak yen, which artificially propped up value-denominated figures. However, if it is an economy you wish to spur, volumes matter much more, as these are what would trigger exporters to restock shelves, expand production facilities and hire full-time workers. This is yet more evidence weak currencies aren’t automatic economic stimulus, in case you needed more.

By , MarketWatch, 11/19/2015

MarketMinder's View: The poor fellow noted here has been officially taught a very harsh lesson by the market, which our firm’s founder, Ken Fisher, often calls “The Great Humiliator.” We don’t feature this to rub it in at all, because everyone has been TGH’ed to some extent. Rather, we feature this to highlight the perilous practices used here in order to educate the public about how not to gamble with their investments. A concentrated short position (borrowing stock from a brokerage, selling it and hoping it will fall) is a complete gamble. It is how you attempt to turn the stock market into a casino. The reason is because stocks’ upside has no ceiling. If you short a concentrated position and it goes against you, you can lose much, much more than your initial investment. But also, take our quiz:

  1. Name a famous day trader you are assured made his or her fortune day trading. (Hard to do.)
  2. Name a famous investor who took a longer view and made a fortune. Easy to do. There are many. 

To us, that is simple math.

By , Bloomberg, 11/19/2015

MarketMinder's View: So this article discusses what it considers a vexing problem: How, after seven years of central bank stimulus, can the world economy have grown so slowly? The reason for positing this question now is the IMF's forecast that global growth will slow in 2016 to 3.6% from their earlier expectation of 3.8% and a bunch of central bankers positing some weird ideas about how to stimulate growth (like eliminating all paper money and leaving only electronic—which we expect would make gold bugs go batty!). Ultimately, though, this seems like a lot of handwringing over a forecast of a 0.2 percentage-point slowdown that may or may not play out, and one that never explores the crucial question. That question is: Why presume central bank's actions have stimulated anything? There is a century's worth of evidence that flattening the yield curve will slow lending and growth, yet central banks' asset purchase programs did exactly that. Besides, there is no evidence that an economy growing for seven or more years at a 3.6% clip is somehow bad. Growth, friends, is growth.

By , The New York Times, 11/19/2015

MarketMinder's View: The fundamental economics problem is the allocation of scarce resources, and this is a very interesting tale of one farmer’s struggle and eventual success. Not much of a market takeaway here, but we found it festive, interesting and a fun take on economics at work. Enjoy.

By , Barron’s, 11/19/2015

MarketMinder's View: This is yet another attempt to dig into Fed meeting minutes to divine their actual intent for the long-run path of short-term interest rates, and like the others, it constitutes a major waste of your time and energy. There is no way to know what central bankers’ actual intent is in the short or long term, which the last few years have shown in spades. After all, the Fed initially said it would look to hike after the unemployment rate hit 6.5%, which happened in April 2014. Then it would probably hike, “something on the order of six months” after the bank finished tapering its quantitative easing bond purchase program. That ended in October 2014. It’s more than a year later, still no hike. The same applies to the Bank of England’s “forward guidance,” which seems like a total misnomer at this point.

By , Agence France Presse, 11/19/2015

MarketMinder's View: If this headline seems to you like it could have been written in 2010, 2011, 2012, 2013 or 2014, you are definitively correct and earn points for being attuned to the news. Congrats! While this latest twist likely won’t derail implementation of the reforms, it is just a small example of the fact that though Greece has faded from the headlines, that doesn’t mean things are progressing smoothly. Remember that the next time Greek fears rise, lest you lose the points we just awarded you. Disclaimer: These are not real points, and even if they were, they do not have any monetary value and are not redeemable for anything at all. They are exclusively a joke. Past points do not indicate future points awards. There is a risk of losing your points.

By , The Wall Street Journal, 11/19/2015

MarketMinder's View: 36 smaller US Energy firms have filed for bankruptcy in 2015 as a result of oil prices falling off a cliff due to the global oversupply. There are few signs global producers are materially cutting back presently. So, if you are bottom-fishing in the Energy sector these days, read this article and make this your new mantra: What goes down doesn’t necessarily come up.

By , The Telegraph, 11/18/2015

MarketMinder's View: Futures markets show investors think the Bank of England won’t hike until 2017, though the bank’s own guidance has been all over the map. Investors try, try and try again to read the tea leaves, even though it is ultimately fruitless. So we would like to raise a glass to BoE Deputy Governor Ben Broadbent for reminding the world his bank’s actions are ultimately unpredictable and their forward guidance isn’t a policy roadmap. They’ll hike when they hike, and they’ll cut when they’ll cut, and whatever they do next will depend on how they collectively interpret future economic information.

By , Financial Times, 11/18/2015

MarketMinder's View: Up until the last sentence, which is a solution in search of a problem, this is an insightful, telling look at investor behavior. Even though all prospectuses say past performance doesn’t determine future returns, it is still most investors’ chief concern. Many also overemphasize arbitrary considerations like third-party rankings, which are based on the organization’s interpretation of past results and might not always compare the fund to the right benchmark (among other potential pitfalls). When picking a fund or investment manager, it’s important to look far beyond performance and consider who the managers are as well as their resources, expertise, investment philosophy, tenure and strategy mandates.

By , Vox, 11/18/2015

MarketMinder's View: The real reason, supposedly, is demographics—Japan’s slowly shrinking population. The logic goes like this: Japan’s economy is at full employment, which should boost growth, but it isn’t because the population is shrinking and therefore not producing as much. And we should therefore be ok with Japan going into recession often. Sorry but this is not how economics works. Demographics are not a cyclical economic driver. They move slowly, over long stretches, and no business cycle in history has begun or ended because of population trends. Plus, shrinking populations can still produce economic growth if they make productivity gains. Japan’s problem is that its byzantine labor code, which enshrines lifetime employment, cultivates unproductivity, doesn’t foster innovation and leads to a large number of workers getting paid to do not much of anything. Many firms skirt this by hiring temporary workers, so a lot of that enviable unemployment rate is a mirage. If Japan’s leaders finally got around to passing and implementing all the reforms they talk about, Japan would have a fighting chance with or without a shrinking population. In the meantime, articles like this serve as evidence sentiment toward Japan remains too high.

By , Financial Times, 11/18/2015

MarketMinder's View: According to one analysis, “About $165bn (billion) has gone into money-market funds since July, more than the risk aversion episodes in 2011, 2012 and 2013.” Some theorize this money came from investors liquidating stocks during the recent correction, and that much of it will pour back into the market as investor uncertainty subsides. The supposed reason a looming Fed rate hike—which will boost money market rates, making them more attractive—will not impede this capital flow back into stocks is because money market inflows have historically not increased until a year after the first rate hike. Look, we believe the bull market is far from over so we hesitate to rain on anyone’s bullish parade, but fund flows just aren’t a market driver. For every buyer, there is a seller. Stocks don’t need new money flowing in to rise, they just need buyers from any source to bid prices higher. Oh, and about the supposed “poor” market breadth (a lower percentage of stocks rising), this is not “unhealthy” as some claim. Instead, it’s simply a sign large cap stocks are outperforming, typical of maturing bull markets, and it can last for years.

By , Time, 11/18/2015

MarketMinder's View: And the reason is . . . because investors believe central banks will ramp up stimulus in response. And hey, maybe they will, but we’d hesitate to draw that (or any) conclusion from a mere two data points.  More broadly, it’s impossible to say what makes stocks move over any short period. But we have noticed stocks becoming increasingly resilient to terrorism over time. Not mentioned in this article, for example, is the fact UK stocks recovered all of their 7/7/2005 losses the next day. We think it’s more likely the terrorist attacks in France failed to derail markets because investors have become more attuned to these events—terrorist attacks, horrific as they are, are losing their surprise power. This is arguably why terrorist acts subsequent to 9/11 showed even less power to rattle stocks for any meaningful period of time. In our view, the central bank theory of resilient markets is an assertion without very much supporting evidence.

By , The Wall Street Journal, 11/18/2015

MarketMinder's View: Last month Congress and the White House agreed on a budget for the coming fiscal year and suspended the debt ceiling until March 2017, dousing water on fears of a government shutdown. But although the government agreed to how much money they can spend, they have yet to agree on exactly how the funds will be allocated. So another, more detailed budget bill is in the works, and as usual, Congress is already talking about duct-taping several policy riders to it, with an eye toward watering down parts of Dodd-Frank and tackling other otherwise unrelated items. And also as usual, the President is threatening to veto a bill that has duct-taped appendages he doesn’t like. So there is still a chance of a shutdown when current funding expires next month. But it isn’t a foregone conclusion. In many prior budget quarrels both sides ended up compromising at the eleventh hour, averting a shutdown. And history shows that even if a shutdown does occur, it likely won’t be a problem for stocks. For the 17 shutdown that have occurred since 1976, the S&P 500 was higher on average by 4.8%, 11.5% and 16.9%, respectively, three, six and twelve months down the road.

By , CNBC, 11/18/2015

MarketMinder's View: The Department of Labor (DOL) may soon finalize rules to apply the fiduciary standard to all investment professionals advising on retirement accounts. Currently, this standard (which requires advisers to consider clients’ interests first, disclose all known conflicts of interest and make an effort to limit said conflicts) applies solely to Registered Investment Advisers. Securities brokers have much looser disclosure requirements and need only recommend investments they believe suitable for the client. Some claim this rule will eliminate some frowned-upon activities like recommending higher-fee investment products over nearly identical lower-cost products, backdoor revenue sharing agreements with fund firms, and even selling variable annuities. But the DOL’s proposed rules don’t ban these practices. Its fiduciary standard is watered-down and full of loopholes, and in practice it will merely beef up disclosure. The onus will remain on the investor to read the reams of paperwork and online materials mandated by the DOL. Some also claim the high compliance cost will cause brokers and advisers to shun investors with smaller portfolios, leaving them underserved. But thus far, a stricter version of this rule adopted in the UK last year hasn’t hollowed out the market. We think the industry will likely adjust to the rules and find ways to continue servicing smaller accounts. Regardless, if the DOL moves forward with the new rules, it will still be up to investors to properly vet prospective advisers to ensure they value putting clients’ interests first, as rules alone, no matter how stringent, don’t govern one’s values.

By , The New York Times, 11/17/2015

MarketMinder's View: The (potential) hidden costs are ostensibly: restrictions on the free movement of people between European countries, increased surveillance weighing on civil liberties, reconstruction (versus where the money might otherwise have been spent) and a long, drawn out war on terrorism diverting investment capital. Indeed, all could have an impact, and it is well worth considering. But this is also hard to measure, as there is no counterfactual. All we have is the history, cited in this article, that 9/11, the Madrid bombings and the London bombings didn’t cause deep economic or market declines (9/11 occurred about 18 months into the Tech bubble-driven bear market and six months after the recession began). Whether growth would have been faster without the attacks, we can never know. But history suggests the world is resilient in the face of these horrific events.

By , UKPollingReport, 11/17/2015

MarketMinder's View: What went wrong with polling in the run-up to the UK’s general election in May, that is. That isn’t the only example of inaccurate pre-election polling over the last year. We’ve also seen it in Canada, Portugal, Greece, Argentina, Denmark and even US state elections earlier this month. Pollsters have done some soul searching, and this blog post is a fantastic summary and analysis of their findings. We highly recommend it to anyone who wonders whether current US Presidential polling is on the mark, and for all investors, it presents a timely reminder not to base your investing decisions on polls alone.

By , The Wall Street Journal, 11/17/2015

MarketMinder's View: Here is how the Fed allegedly warped 401(k)s: Historically low bond yields, caused by quantitative easing, caused those nearing retirement to shun bonds for stocks, and once the Fed starts raising rates,  investors will flip back, selling stocks and piling back into bonds. This, in turn, will drive long rates down at the same time the Fed is raising short rates, flattening the yield curve, and resulting in subpar stock returns until the “supply-demand imbalance is normalized.” This all seems wildly overstated. It is based on a single survey that 11% of 50-54 year-olds with 401(k)s at one firm had 100% of their retirement assets in stocks, with 18% of that firm’s total retirement account holders over-exposed to stocks. These are incredibly arbitrary and subjective presumptions, based largely on industry mythology about age-based investing.  With folks living longer than ever these days—and with time horizon a primary determinant of asset allocation—it likely makes sense for many to own stocks especially if they are seeking growth. The article also seems to assume folks invest in bonds solely for their yield. Some no doubt do, but many who invest part of their portfolios in fixed income likely do so to mitigate the volatility of stocks.  Also, individual investors are a sliver of the US Treasury market, and for every seller there is a buyer. Finally, there is no set relationship between stocks and interest rates. Stocks can and have done well alongside rising rates.

By , Project Syndicate, 11/17/2015

MarketMinder's View: Some claim a Fed rate hike will choke lending and cause the dollar to continue strengthening, pressuring the bottom lines of many US businesses and dragging down growth. This piece is a mostly sensible take on why this scenario likely won’t play out as some fear. A ¼ percentage point rise in short-term rates probably won’t dent economic activity, as the yield curve spread would still be nicely wide. Regarding the dollar, currency markets—like all similarly liquid financial markets—typically move in advance of widely discussed events, and a Fed rate hike is one of the most widely discussed events in recent years. This is probably at least part of the reason why the dollar doesn’t automatically strengthen after the first hike in a tightening cycle. Of the eight initial rate hikes since 1977, the dollar strengthened in the period following four of them but weakened following the other four. Admittedly, eight data points aren’t really enough to support a meaningful conclusion, but they are enough to strongly question the conclusion a rate hike means a stronger dollar lies ahead.

By , The Wall Street Journal, 11/17/2015

MarketMinder's View: It was a foregone conclusion that Greece would eventually get its money, but now it’s mostly official: Greece and its creditors have reached a tentative deal on the reforms necessary for Greece to receive the next tranche of its €86 billion bailout package, which includes €2 billion to pay civil servants and clear arrears, and €10 billion to recapitalize the struggling banks. The most contentious issue was bank foreclosure rules. Greece wanted to protect citizens in homes valued up to €300,000, but Greece’s creditors feared voluntary non-payment and prolonged forbearance would harm bank balance sheets and constrain new lending. The two sides agreed upon a middle ground on this and a host of other issues, and now Greece’s parliament just needs to pass a few dozen new measures on Thursday. Anything can still happen, but the likelihood another Greek debt crisis flare-up triggers a global bear market remains very low.

By , The Telegraph, 11/17/2015

MarketMinder's View: This may be true, technically, as the UK’s Consumer Price Index fell -0.1% y/yin October for the second straight month. But this isn’t the big, bad negative some presume.  If deflation results from falling bank lending and money circulating through the economy more slowly, this would indeed be a negative because it drags on growth. But the UK’s falling prices are almost entirely due to slumping energy costs, as core inflation (excluding food and energy) rose 1.1% y/y in October, ticking up from September’s 1.0% y/y rise. Though a negative for energy firms, it’s a positive for consumers and most other businesses, and it certainly doesn’t suggest the UK’s economy is in trouble.

By , Bloomberg, 11/17/2015

MarketMinder's View: Some suggest stock buybacks come at the expense of capital investments, limiting growth. But the evidence does not bear this out. Sure, buybacks have boomed throughout the bull market, but capital spending has too! One big reason for this is ultra-low interest rates. Firms can borrow cheaply and use the funds to buy back stock—and invest in property, buildings and equipment. Borrowing cheap to buy higher-returning stocks merely increases the return on invested capital. As a result, “S&P 500 companies have had capital investment dollars ahead of the amount used for buybacks for more than four and a half years and capex has hit a record every year since 2011." Excluding the slumping Energy sector—which has cut back on capital spending in the wake of cratering oil prices—capex is “poised to rise by 3 percent in 2015 and by 9 percent in 2016” according to some analysts.

By , Bloomberg, 11/16/2015

MarketMinder's View: After tragic events like the terrorist attack in Paris last Friday, it is natural for folks to fear stocks could get hit, too. But capital markets are resilient, as this brief historical accounting shows. Whatever short-term blips may arise because of a knock to sentiment, terrorist acts don’t break markets—even today, global markets are higher, despite concerns about the potential market impact. Try as they might, those who utilize terror to intimidate have never succeeded in bending the free world to its will—and we have no doubt free people will overcome this latest challenge as well. For more, see today’s commentary, “Terror Will Never Succeed.”      

By , Jiji Press, 11/16/2015

MarketMinder's View: After Q3 GDP fell -0.8% q/q annualized, Japan has once again entered recession by one widely accepted definition—two consecutive quarters of economic contraction. The biggest detractor was capital expenditures, as businesses remained hesitant to invest. This marks the second recession under Prime Minister Shinzo Abe’s current administration and fourth since the global bull market began. Now, many experts believe this contraction will be short-lived and that Japan could be rebounding this quarter. Either way, Japan’s story under “Abenomics” remains the same—fiscal and monetary stimulus aren’t enough to sustainably rejuvenate a stagnant economy. In our view, sentiment still remains too rosy toward the Land of the Rising Sun.       

By , The Wall Street Journal, 11/16/2015

MarketMinder's View: We like the effort that went into this survey, which aimed to discover which Fed people analysts find most credible when jawboning about monetary policy. The graphic looks cool, too. But none of this changes the simple fact that Fed words—regardless of who utters them—often don’t match reality. The Fed, like all central banks, has a long history of saying one thing, then doing another. Sometimes people change their minds, sometimes the data changes, and sometimes the consensus decision that stems from 10 people’s conflicting opinions and biases doesn’t match the forecast of one person. Fed moves remain impossible to predict. But thankfully, investors don’t need to predict them, because history shows the first rate hike in a tightening cycle has never ended a bull market. Trouble comes when the Fed eventually overshoots, inverting the yield curve, and even then a bear market or recession doesn’t usually start right away. Investors will have plenty of time to make adjustments when needed.

By , The Telegraph, 11/16/2015

MarketMinder's View: One popular gold misperception is that it’s a great hedge during times of “uncertainty.” Particularly after the recent attacks in Paris, investors may see an uptick in headlines advertising this thesis. Now, for one, we have a hard time determining when “uncertainty” doesn’t exist—we’d argue the only time that is certain is the past, since it already happened (and even then, folks’ interpretations of that past will vary). However, despite the mythology, history shows that gold doesn’t possess mythical hedging powers during tumultuous (or not) times—rather, it acts like a regular commodity, subject to the laws of supply and demand and big swings in sentiment. Gold fell in 2008, and it has been in a bear market for about four years—and high central bank demand hasn’t put a floor under it, so it seems odd to base a thesis to own gold on this factor today. One day gold will turn around, but articles like this are a sign sentiment hasn’t bottomed out yet. Goldbugs haven’t capitulated. Moreover, if capital preservation is your goal, then you probably shouldn’t own anything that carries the risk of loss. That leaves your options at cash and cash equivalents (which still face inflation risk). Gold is not a safety blanket and never has been. For more, see our 7/22/2015 commentary, “Gold: The Pyrrhic Hedge.”     

By , Reuters, 11/16/2015

MarketMinder's View: Some Finns want to discuss leaving the common currency, which they see as an impediment to Finland’s economic prospects. However, going from the euro back to the markka isn’t going to alleviate the country’s woes—an accounting change doesn’t flip an uncompetitive economy into a powerhouse. Sure, a weaker Finnish markka may make exports look stronger, but if a weaker currency was a real boon to growth, why did Japan just fall into recession again despite all its efforts to weaken the yen? Finland’s struggles stem more from its dependence on one struggling smartphone company and its timber industry, not because it uses the euro. For more about the misperceptions surrounding the euro, see Elisabeth Dellinger’s column, “The Common Currency: Cure or Curse?      

By , Bloomberg, 11/16/2015

MarketMinder's View: While the Chinese yuan potentially getting included in the IMF’s Special Drawing Rights (SDR) basket isn’t a big surprise—the supranational organization has hinted at this for a while—we would like to point out the IMF also announced a potential one-year delay on making changes to the SDR as recently as August. So despite the ringing endorsement from IMF staff, we suggest avoiding putting a hard date on the yuan’s formal inclusion, which might not happen until next September or later, regardless of what the IMF board decides this month. Whether it happens in a couple weeks, couple months or couple years, it is a symbolic move that doesn’t change reality: The yuan is slowly gaining foreign exchange market share, just as the euro did during the 2000s. For those worried about the implications of the yuan’s rising prominence and gaining SDR membership—and what it means for the US dollar in particular—we suggest checking out our commentary here and here to assuage your concerns.

By , FiveThirtyEight, 11/13/2015

MarketMinder's View: This is an absolutely fascinating account of the reporter’s journey to Davenport, Iowa (a place your friendly MarketMinder editors have visited and quite enjoyed), and his interactions with several locals. His mission: Figure out why folks’ economic sentiment is so wildly detached from reality. The evidence might be (literally) anecdotal, but it paints a pretty compelling picture of a manufacturing-heavy city finding its place in a services-dominated US. Most of the country has gone through this same evolution over the past 60 years. Folks directly impacted, or who interact closely with the affected workers, will just naturally have a more pessimistic economic viewpoint, extending their immediate surroundings to the country as a whole. It probably also doesn’t help that Presidential candidates in both parties are spewing doom-and-gloom rhetoric to fuel the fire. For investors, this study has a nice upshot: Sentiment still lags far behind reality, creating plenty of room for stocks to rise.

By , The Wall Street Journal, 11/13/2015

MarketMinder's View: If you own—or are considering buying—a master limited partnership (MLP) in an IRA, this is required reading.

By , Pragmatic Capitalism, 11/13/2015

MarketMinder's View: Admittedly, this topic will probably seem politically charged given a return to the gold standard has come up repeatedly at the GOP Presidential debates. Set all that aside. We highlight this post because it is pithy, full of smart, and a wonderful historical indictment of the gold standard’s many, many, many flaws and terrible economic track record. Our modern fractional reserve banking system might not be perfect, but it sure beats an inherently deflationary mechanism that manipulated the price of precious metals and contributed to several big panics.

By , Bloomberg, 11/13/2015

MarketMinder's View: Not cheap in terms of equity valuation—cheap in terms of how very little it costs to start them. Startup costs have plummeted in the last decade. Where it could take tens of millions to get off the ground in the 2000s, for many firms now, initial overhead is in the hundreds of thousands. And here is a pretty nifty hypothesis about what that might mean: “So when somebody points out that alarmingly little money seems to be going into investment in general and tech investment in particular in the U.S. in recent years, as economist J.W. Mason did in a Roosevelt Institute report that I wrote about Wednesday, it’s worth pondering whether this is a question of demand as well as supply. That is, there may be less demand for capital because many once-capital-intensive aspects of starting and growing a business are now cheap or free.” This, of course, requires testing and evidence to prove, but it sure seems plausible that this trend could mask real economic growth: particularly in a society where output is crudely measured as a sum of total spending and investment, a calculation that is increasingly bad at capturing productivity gains.

By , EUbusiness, 11/13/2015

MarketMinder's View: Eurozone GDP growth slowed a tick to 0.3% q/q in Q3, right in keeping with the modest growth of the prior nine quarters. Other than that, there isn’t really much to say—most countries haven’t released the full GDP breakdown, and you can’t draw meaningful conclusions from a smattering of qualitative statements and suppositions. For example, the VW scandal broke in Q3’s final week, so we have an exceedingly difficult time accepting the theory that its fallout drove Germany’s slowdown. Portugal’s headline GDP might have been flat, but the commentary from Portugal’s national statistics office implies consumer spending grew. These flash estimates are also subject to revision, and moreover, growth is growth. Oh and The Conference Board’s Eurozone Leading Economic Index remains in its long uptrend, suggesting growth should continue, however modest it may be.

By , The New York Times, 11/13/2015

MarketMinder's View: That $20 billion is $280 million higher than the loans’ book value, making this yet another profitable financial crisis-related transaction for the US and UK governments. Look, we weren’t fans of all the bailouts, nationalizations and overall ham-fisted government intervention in 2008. But this is nonetheless more evidence the supposedly toxic mortgage-backed securities at the crisis’s heart weren’t intrinsically toxic. They just looked that way thanks to a US accounting rule, FAS 157 or the mark-to-market rule, that forced US financial institutions to mark all these illiquid, hard-to-value assets according to the most recent comparable transaction. In late 2007 and 2008, those transactions were fire sales, and the writedowns hit bank balance sheets worldwide. Now that rule no longer applies to illiquid assets, market values have recovered, and the assets are profitable. This illustrates why, as former FDIC chief William Isaac wrote in his brilliant book Senseless Panic, “The financial panic of 2008 and the deep ensuing recession did not have to happen.”

By , The Telegraph, 11/13/2015

MarketMinder's View: Worries of robots displacing human workers are the latest in a centuries-long string of fears about automation destroying jobs. This is a predominantly sociological issue, with no market impact, but it does nevertheless weigh on sentiment. Here is why it shouldn’t: “We’ve always invented new jobs to make up for those replaced by machines. Farming and other primary activities accounted for half of all jobs in 1700; today the share is down to 1pc. Manufacturing rocketed to 45pc by the late 19th century; it is now down to 10pc, with services at 80pc. Yet roughly 50pc of the total population is in employment today, a similar level to that seen in the early 19th century.”

By , Bloomberg, 11/13/2015

MarketMinder's View: A couple things about this latest bout of Fed jawboning. One, rate hikes don’t automatically cause the dollar to strengthen, so it is far from certain that deferring a rate hike put a lid on the currency. Markets discount all widely anticipated events, and a rate hike has been pretty widely anticipated for a year. Anything is possible, but the Fed’s move might already be baked in. Two, it doesn’t really matter either way, because the strong dollar is not the stiff economic headwind so widely feared. It doesn’t automatically sap trade, earnings or stocks. All three fared great throughout the late 1990s, when the dollar was stronger than it is today. So nothing here should make you fear the Fed’s eventual move. History shows, time and again, that the first rate hike in a tightening cycle doesn’t end bull markets.

By , The Wall Street Journal, 11/13/2015

MarketMinder's View: This isn’t all that meaningful. For one, growth is growth. Two, this figure excludes most spending on services, which is far and away the biggest chunk of America’s economy. And three, falling sales at gas stations have skewed total retail sales downward all year as gas prices fell. Four, auto sales aren’t anywhere near the economic barometer this piece implies. They’re always volatile, and no expansion ever ended because auto sales were down.

By , The Wall Street Journal, 11/13/2015

MarketMinder's View: Indeed, and this even-handed piece explores both the pros and limitations of the brokerage industry’s online database of all brokers, some of their relevant experience and certain past sins. We are all for disclosure, and it’s great that investors have a resource like this to aid their due diligence process. But it doesn’t reduce the need to find other avenues of investigation to discover a broker or adviser’s values, investment philosophy, resources, experience and performance history. BrokerCheck is simply one part of a holistic approach.

By , The Telegraph, 11/13/2015

MarketMinder's View: Not great, but construction is about 6% of UK output. Also, official construction data have diverged wildly from Markit’s construction purchasing managers’ indexes (PMIs), which are sky-high. This raises interesting questions about which gauge is right. PMIs are surveys and therefore quite limited. But the Office for National Statistics has also warned of issues with its construction estimates and related inflation adjustments. Overall, we’d chalk this up as an example of why investors should consider all available economic indicators, not just one or two.

By , The Wall Street Journal, 11/12/2015

MarketMinder's View: Copper, considered by many to be “the only metal with a doctorate in economics,” due to its heavy use in wiring and other industrial products, hit its lowest level since mid-2009 Thursday. Now, some interpret this as a sign the global economy is weak, but in reality, it is in line with an overall trend of falling commodity prices existing since 2011 tied to a vast increase in commodity supply. There is little to no reason hard commodities would foretell the future of a services and consumption-based economy. Heck, while stocks and the economy boomed in the late 1990s, copper fell -45% between July 1995 and March 2000 (when the Tech bubble burst). Recession started a year after that. Many Economics PhDs are not in the business of forecasting cyclical conditions, and we guess maybe Dr. Copper is another.

By , Bloomberg, 11/12/2015

MarketMinder's View: This whole article attempts to explore the titular question, but never really reveals the actual outcome: From May 1994 on, the US and European economies boomed until 2001, stocks rose big and—wait for it!—the dollar weakened at first. As Gavekal’s Anatole Kaletsky notes at the end, “…History could repeat itself as in 1994 the dollar continued to fall against the Deutsche mark until April 1995, when it kicked off a two-year surge. ‘Of course, past performance is no guarantee of future results,’ said Kaletsky. Just because the dollar weakened in 1994 ‘does not mean it will weaken again. But it does mean it is far from inevitable that the dollar will strengthen.’” For more reasons you shouldn’t automatically presume a rate hike means a stronger dollar, see today’s commentary, “Will the Fed Hike the Dollar Higher?

By , MarketWatch, 11/12/2015

MarketMinder's View: Robots are coming for your jobs, according to the Bank of England’s Andrew Haldane, which is the latest twist and turn in the centuries-old fear of machines eliminating work for humans, rendering about half the US’s present workforce unemployed. In the 18th century, British weavers feared the flying shuttle and spinning jenny for the same reason. In the 19th and early 20th centuries, workers broadly feared machines stealing their jobs. (Don’t believe us? Read this Popular Science article from 1931.) And now it is robotics. While the article here admits as much, it posits that “‘…The smarter machines become, the greater the likelihood that the space remaining for uniquely-human skills could shrink further.’” However, the fundamental flaw in all these fears remains the same: It underestimates human creativity and ingenuity. History has shown in spades the more free time humans have, the more innovation you’ll get, the better the quality of life will be.

By , Bloomberg News, 11/12/2015

MarketMinder's View: We don’t usually run articles that feature one specific company, but in this case, we are making an exception. As such, let us briefly remind you of the following legal(ish) stuff: We are not recommending you take any action—buy, sell, hold, short sell, free deliver, gift to charity or take any other securities-related maneuver you can dream up—with respect to shares of Chinese retailer Alibaba. We feature this article, and its coverage of booming retail sales on 11/11—China’s “Singles Day” celebration (basically, a day for single folks to celebrate their status by buying themselves presents) as a granular example of China’s shift toward a consumption-based economy. While many folks wring their hands over manufacturing data and the old gauges of Chinese growth, consumer- and services-oriented statistics are doing just fine, if not, (dare we say!) booming.

By , Bloomberg, 11/12/2015

MarketMinder's View: The more things change, the more they stay the same. As Greek Prime Minister Alexis Tsipras wrestles with the country’s creditor quartet in an effort to unlock the second payment of the third bailout since 2010, it seems workers are taking to the streets and protesting austerity. Now, if that seems familiar, it’s because the same exact scenario has happened on many occasions in Athens. One key difference: Tsipras used to be one of the guys protesting. Now, after his summertime U-turn, Greek workers are deploying slogans Tsipras used against him. As William Shatner eloquently put it in Airplane 2: The Sequel, “Irony can be pretty ironic sometimes.” In case you ever wanted a reason to be skeptical of politicians’ intent, Greece is a case study. For investors, just remember that Greece, economically the size of Detroit, Michigan, isn’t big enough to derail a bull market on its own.

By , Reuters, 11/12/2015

MarketMinder's View: Here is yet more data suggesting Japan’s economy re-entered recession in Q3, and there isn’t much sign a material rebound is approaching. Years after Japanese Prime Minister Shinzo Abe took office and launched his Abenomics economic stimulus and reform plans, the reforms are late in coming and the “stimulus”—including the world’s largest quantitative easing bond purchase program relative to GDP—is falling flat. Those continuing to argue quantitative easing is a magic fountain of economic stimulus should take note.

By , Bloomberg, 11/12/2015

MarketMinder's View: The more things change, the more they stay the same. As Greek Prime Minister Alexis Tsipras wrestles with the country’s creditor quartet in an effort to unlock the second payment of the third bailout since 2010, it seems workers are taking to the streets and protesting austerity. Now, if that seems familiar, it’s because the same exact scenario has happened on many occasions in Athens. One key difference: Tsipras used to be one of the guys protesting. Now, after his summertime U-turn, Greek workers are deploying slogans Tsipras used against him. As William Shatner eloquently put it in Airplane 2: The Sequel, “Irony can be pretty ironic sometimes.” In case you ever wanted a reason to be skeptical of politicians’ intent, Greece is a case study. For investors, just remember that Greece, economically the size of Detroit, Michigan, isn’t big enough to derail a bull market on its own.

By , MarketWatch, 11/12/2015

MarketMinder's View: Look, we won’t weigh in on what Professor Krugman’s diet should or shouldn’t consist of, and he is far from alone in decrying austerity. But this article is absolutely correct that the austerity-is-awful camp in the long-running Keynesian/Austrian debate has taken several punches of late. This article does a good job of documenting Ireland’s rebound, but Spain and Portugal aren’t slouches either.

By , Reuters, 11/12/2015

MarketMinder's View: Here is yet more data suggesting Japan’s economy re-entered recession in Q3, and there isn’t much sign a material rebound is approaching. Years after Japanese Prime Minister Shinzo Abe took office and launched his Abenomics economic stimulus and reform plans, the reforms are late in coming and the “stimulus”—including the world’s largest quantitative easing bond purchase program relative to GDP—is falling flat. Those continuing to argue quantitative easing is a magic fountain of economic stimulus should take note.

By , MarketWatch, 11/11/2015

MarketMinder's View: Over the summer, Standard and Poor’s (S&P) warned they may lower the UK’s sterling AAA-credit rating if Britain inches closer to exiting the EU. Last month, S&P cut Saudi Arabia’s rating due to deteriorating fiscal conditions, and a credit downgrade also possibly lurks for Portugal, whose government fell yesterday. This article explores what it considers a vexing question: Why don’t investors today care and freak out over these downgrades? A question it answers with, “Central Banks.” This mistakes history, however. You see, investors have never really cared much about credit-ratings agency opinions because they are usually far behind what the market is already signaling or are based on dubious information, like S&P’s 2011 US downgrade, which included a $2 trillion mathematical error. So, in other words, this is a lengthy article positing an off-target thesis history has never jived with. But other than that, it’s spot on!

By , Bloomberg News, 11/11/2015

MarketMinder's View: Recent economic data show China’s much-discussed shift from a heavy industry and investment-led economy to domestic consumption and services remains on track. While October’s industrial output growth was the weakest since 2008 and fixed-asset investment climbed at the slowest rate since 2000, retail sales jumped 11%, the fastest pace so far this year. "While mining and heavy industry languish amid continued weakness in real estate construction, solid consumption continues to cushion the impact on overall growth and support healthier trends in light industry, services and, again, the car industry.”

By , Barron’s, 11/11/2015

MarketMinder's View: Because, ostensibly, Republicans are unfriendly to big banks, believing the government should require them to boost capital (they already have) and ban bailouts. You know what that means: Time to turn off your partisan leanings and ideological biases, and weigh this issue objectively! For sure, excessive regulations are a risk for any industry, and the fact both Republican and Democratic presidential candidates suggest more bank oversight may seem to increase this risk for Financials. But the question is: How much of this talk is just rhetoric to appeal to voters during an election campaign, and how much will actually translate into additional, onerous bank regulations? That is where the rubber meets the road, and it is waaaaaaay too early to try to handicap “the policy environment” for bank stocks coming out of an early debate in what journalists call, “the silly season.” Don’t get caught up in these “analyses” of far-flung policies that require a series of if-thens to actually happen. But at another level, doesn’t a lot of this talk seem like fighting the last war? Sure does to us. We felt like we took a trip on the way-back machine to 2010 reading this.

By , CNN Money, 11/11/2015

MarketMinder's View: Apparently, some bigwigs like the IMF and Organisation for Economic Cooperation and Development (OECD) lowered their global growth expectations for next year, citing China’s slowing economy as the chief culprit. But a couple of things about this: 1) This isn’t new, as China’s slowdown is a longstanding trend. 2) For stocks, financial markets don’t respond to reality alone, but rather, the difference between reality and expectations, which these reduced forecasts suggest are low. Furthermore, GDP (for a country or the world) is an imperfect measure of the flow of economic activity that includes some quirks and the public sector. Stocks are a pure private sector play, for the most part, and they are a measure of wealth. 3) Finally, the notion that “China’s economy will fall further in 2016,” is a twisted way to describe slowing growth. Falling means contracting, which means recession. Slowing growth means expanding, which means broadly adding to the world’s economic output. Those two things are worlds apart.

By , The Motley Fool, 11/11/2015

MarketMinder's View: The 4% rule states that if you withdraw 4% of your portfolio in the first year of retirement and increase withdrawals by the rate of inflation each year thereafter, you have a very good chance of not running out of money. Some claim lower stock returns and bond yields since 2000 invalidate this rule of thumb, and you should lower your withdrawal rate to avoid the poor house. This article documents a recent study that back-tested the rule and found it still holds, even in a period with two big bears like the last 15 years. Moreover, “A growing base of research suggests that retiree spending in real dollars tends to decline in later years, which means in practice, a 2000 retiree today is probably even better off and spending even less as a current withdrawal rate than these calculations would suggest." Now, to be sure, some retirees’ expenses are higher in their later years, and limiting your withdrawals to 4% of your starting value (plus inflation) doesn’t guarantee you won’t outlive your money. And, in our view, the 4% rule is too simplistic, and you should really start by calculating what you need to live on, your income sources, and then determining the gap. “Safe” is also a word we’d never apply to anything related to investing. But, as a general policy, it appears the demise of the 4% rule has been greatly exaggerated.

By , The New York Times, 11/11/2015

MarketMinder's View: Read this article. Then, read it again. As you do so, remember: Investing is always and everywhere about probabilities, not certainties or possibilities. This highlights the dangers of focusing on low-probability bad outcomes instead of much likelier positive scenarios. Granted, it’s human nature to worry about things. This helped our caveman ancestors avoid huge threats. But in investing, needlessly fretting over highly improbable events (another financial crisis lurking around every corner), or events that do occur but don’t have the negative impact on financial markets some fear (government shutdowns, Greece defaulting, etc.) can cause you to miss out on growth you need to reach your long-term goals. As is the case with many of life’s endeavors, the path to investment success is paved first and foremost by not being your own worst enemy.

By , Marketwatch, 11/11/2015

MarketMinder's View: This is a worthwhile read, if imperfect, and a good one for investors to learn from. We’ll start with the good news. Positively, this piece highlights well why investing 100% in stocks is not necessarily a crazy risky approach. For one, stocks rise far more often than they fall and, as noted here, no 20-year period since 1926 has been negative. We also like the discussion of diversification—a solid reminder that your equity exposure should be broadly spread over sectors, countries and more. Further, it also reminds folks longer lifespans can mean your money needs to work for you for a long time. As for the flaws, here you go: Not all investors with lengthy time horizons should have their entire portfolio in stocks. It depends most on your long-term goals, future expected cash flow needs and time horizon, in addition to your comfort level with volatility. Another negative, we dislike the use terms like “promise with upside,” used to describe the big positive 20-year periods with no negatives. History isn’t a promise. There isn’t anything that says you couldn’t get a negative 20-year period or that you couldn’t do better in other investments. Also, capital preservation and income are mentioned in the same breath in this piece, which isn’t a possible investing strategy. Sorry. Lastly, we disagree with the idea an all stock portfolio makes sense partly because bond yields are so low. Most who invest in bonds along with stocks do so not for the yield, but to mitigate the volatility of stocks. Low-yielding bonds do this just as effectively as higher yielding ones do.

By , Marketwatch, 11/11/2015

MarketMinder's View: This is a worthwhile read, if imperfect, and a good one for investors to learn from. We’ll start with the good news. Positively, this piece highlights well why investing 100% in stocks is not necessarily a crazy risky approach. For one, stocks rise far more often than they fall and, as noted here, no 20-year period since 1926 has been negative. We also like the discussion of diversification—a solid reminder that your equity exposure should be broadly spread over sectors, countries and more. Further, it also reminds folks longer lifespans can mean your money needs to work for you for a long time. As for the flaws, here you go: Not all investors with lengthy time horizons should have their entire portfolio in stocks. It depends most on your long-term goals, future expected cash flow needs and time horizon, in addition to your comfort level with volatility. Another negative, we dislike the use terms like “promise with upside,” used to describe the big positive 20-year periods with no negatives. History isn’t a promise. There isn’t anything that says you couldn’t get a negative 20-year period or that you couldn’t do better in other investments. Also, capital preservation and income are mentioned in the same breath in this piece, which isn’t a possible investing strategy. Sorry. Lastly, we disagree with the idea an all stock portfolio makes sense partly because bond yields are so low. Most who invest in bonds along with stocks do so not for the yield, but to mitigate the volatility of stocks. Low-yielding bonds do this just as effectively as higher yielding ones do.

By , The New York Times, 11/10/2015

MarketMinder's View: This is a pretty great look at why qualitative analysis of the economy is just as important as quantitative indicators. Statistics are great, and they give us a fairly accurate tally of activity in certain corners of the economy—particularly heavy industry. But the services sector is harder to capture, as are productivity changes in the digital age—both documented here. Anecdotal reports from businesses on the ground can fill in the gaps, and Fed transcripts show policymakers do indeed use them. Fed officials are always relaying soundbites from their contacts in local banking, retail, restaurant, country clubs, cosmetic dentists and much more. A holistic view is vital. Our one quibble: All of these show where the economy is now but don’t tell you very much about where it’s going. Truly forward-looking indicators are rare. This article notes two of them, the yield curve and stocks (while acknowledging stocks’ inherent volatility can send false signals). The Conference Board—a private research group— has compiled several of them in the aptly named Leading Economic Index (LEI). No US recession in LEI’s 55-year published history has started while this index was high and rising, as it is now, a sign the expansion likely has further to run.

By , The Washington Post, 11/10/2015

MarketMinder's View: The “$13 trillion question” is US debt, and the answer here is 10 bullet points on how folks might consider thinking differently about it. We won’t cover all of them in this space, though we will highlight two standouts: Aligning Federal Reserve and US Treasury policies and purposely flattening or inverting the yield curve. The idea behind the former is that having the Fed act independently of the Treasury sometimes results in diametrically opposed policies, like the Fed aiming to “shorten outstanding maturities and the Treasury seeking to term them out. “ But making the Fed subservient to the Treasury politicizes the central bank, always a recipe for trouble. This is also an odd characterization of Fed policy—the Fed relies on the Treasury issuing enough debt for them to buy, so “aligning” their policies as this piece describes would limit monetary policy. The Fed is trying to manage its own balance sheet, not America’s debt stock. Regarding the yield curve, a flatter curve—the difference between what banks pay to borrow and what they charge to lend—reduces banks’ profit margins and discourages them from lending. This piece calls that a negative, deeming “maturity transformation” a “risky structure” used heavily by hedge funds. Sorry, but that is just plain old banking, as boring as oatmeal and traditional as apple pie. Banks have always borrowed short and lent long. Asking banks to stop is like asking them to crimp growth or cause a recession.

By , CNN Money, 11/10/2015

MarketMinder's View: As the US dollar has strengthened quite a bit since mid-2014, pundits have relentlessly pointed out this is a negative for US multinationals as it makes their goods and services more expensive for overseas and/or reduces overseas revenues when converted back into stronger US dollars. This piece suggests the Fed could make things worse because a rate hike may boost the dollar’s value even more, further pressuring corporate America. But that overlooks markets’ forward-looking nature and strong tendency to discount all widely anticipated events. It’s entirely possible the dollar has already priced in a Fed rate hike (or two or three!), considering how long the world has chattered about a rate hike. Fed funds futures show folks think the Fed will likely lift rates at their December policy meeting, and currency markets know everything other markets know. But more importantly, the strong dollar isn’t the headwind for corporate America many claim. Yes, it can hit revenues, but it also reduces foreign-sourced input costs such as components, raw materials, transportation and labor. The end result is a middling effect on net profits, as evidenced by Q1 and Q2 beating most analysts’ expectations.

By , The Telegraph, 11/10/2015

MarketMinder's View: The International Energy Agency’s latest report warns low energy prices—the result of a global supply glut—will eventually force the world to rely on the Middle East for energy, making markets extra prone to supply disruptions, 1970s-style. This is waaaaaaaay the heck too speculative. For one, commodity cycles move extremely slowly, and the far future is notoriously impossible to predict. It could be years before production bottoms, assuming prices stay constant, and that is always a dangerous assumption. When demand outstripped supply a decade ago, Energy firms spent billions developing new supply, and once these projects were completed firms can not so easily turn off the spigots just because oil prices have since cratered. In many cases, it’s better for them to keep pumping, even at reduced prices, than to halt production altogether—if you’re trying to recoup old costs, some revenue beats no revenue. For sure, some firms are curtailing production, but this tends to be higher-cost projects at the margin.  Energy-reliant countries like Russia, Brazil and many OPEC nations are producing as much oil as ever these days, mostly because they need the money. And, finally, US shale-producing firms have also slashed costs so much that many wells remain profitable even with oil in the $40s, adding incentives to maintain production. There is also a growing “fracklog” of drilled wells waiting for someone to flip the switch, making it much easier for producers to respond to market changes in the coming years. The 1970s this is not.

By , MarketWatch, 11/10/2015

MarketMinder's View: For the love of everything good in the world, can we please put a stop to the idea Federal Reserve policies have “propped up” stocks since 2009 and that an initial rate hike is akin to “taking away the punchbowl”?  Since 1970 US stocks have continued to climb, on average, for 3.3 years after an initial Fed rate hike (of which there have been six), rising an average 80.6% through the bull market peak (source: FactSet, as of 7/24/2015). The beginning of a monetary tightening cycle doesn’t doom the economy, and short-term rates alone don’t influence economic activity. Trouble comes when the Fed overshoots and the yield curve inverts. Considering the gap between short and long rates is presently over two percentage points wide, the Fed has plenty of room to hike without stirring up trouble.  

By , The Telegraph, 11/10/2015

MarketMinder's View: However this shakes out, Portugal is about 1% of eurozone GDP—smaller than even Greece—and isn’t in a bailout program at the moment. It is happily borrowing on capital markets, and even with the recent political upheaval, yields remain near euro-era lows. This is not an existential crisis for the eurozone.

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

MarketMinder's View: Bear with us here as we dissect the methodology used to conclude that “Bad weather isn’t good for investors.” Some researchers argued that “unpleasant weather” negatively impacted capital market analysts’ moods, delaying their write-ups of corporate earnings releases. This leads to late reports, so investors getting updated by grumpy, tardy analysts would be at a disadvantage compared to investors hearing from happy, speedy analysts, since it may cause potential missed investment opportunities. How that would affect stock prices, we have no idea, since analysts compete with each other and are quite dispersed geographically, and stocks usually price in earnings releases within microseconds of when they hit the wires. Several other fallacies stood out to us. One, how weather impacts mood is a pretty darn subjective measure—some of us like cloudy, rainy days—so we don’t understand why “rain, wind and clouds” are automatically negative. Two, if someone is feeling down, it is beyond a stretch to attribute that entirely to the weather—life is a teensy bit more complex than that. And three, this assumes all the financial analysts studied and produced wonderfully accurate, actionable reports—even though professionals are frequently wrong. We could go on, but the general point remains the same: There is too much noise to accurately pinpoint the causes behind price movement over any short period.

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

MarketMinder's View: The Catalan regional parliament passed a resolution to move toward independence from Spain, setting up a showdown with the Spanish central government. Prime Minister Mariano Rajoy has already said he will ask Spain’s constitutional court to annul the resolution, and pending that review, the resolution would be suspended. Now, this issue has persisted for a while, and legally speaking, Catalonia is unlikely to win any case to secede (granted, when secession actually does happen, it is usually illegal anyways). However, this episode likely plays out slowly as both sides carefully deliberate their moves. The more immediate impact would be on Spain’s general election, scheduled for December 20, and whether voters will opt for the status quo or punish the incumbents for allowing the issue to drag out as it has.      

By , Bloomberg, 11/09/2015

MarketMinder's View: A Swiss initiative to ban fractional reserve banking, in which private banks create money through loans, and bestowing that authority solely to the central bank (the Swiss National Bank) has enough signatures to put the matter to a referendum. The logic behind the plan: take out boom and bust from the market cycle and allowing the central bank to decide who gets capital, since the government allegedly would make “better” and “safer” decisions. Private lenders would turn into intermediaries for the central bank. Similar to Iceland’s plan earlier this year, this Swiss proposal seems like a solution in search of a problem. For one, boom and bust isn’t inherently bad—it’s how the business cycle naturally works, and usually the biggest problems arise when regulators meddle with the distribution of capital. And, as this piece sensibly points out, “Proponents of a government monopoly on money creation say the central bank would take care to provide resources so the economy didn’t choke, but relying on that is just a tiny step removed from central planning.” If you need a reminder about how well a command economy works, may we point you to China’s “Great Leap Forward,” the former Soviet Union and present-day Venezuela. Whatever your feelings about bankers may be, they serve an important role in the economy by taking the risk in extending loans to businesses and regular folks alike.

By , Reuters, 11/09/2015

MarketMinder's View: Once again, some weak headline Chinese trade numbers—October exports and imports down -6.9% y/y and -18.8% y/y, respectively, in USD—have prompted murmurs of trouble in the world’s second-largest economy. Once again, these worries seem overwrought, in our view. Monthly trade data numbers are volatile, and imports’ big drop comes with a well-known caveat: falling commodity prices. Even though the value of China’s imports is down -15% y/y through September, volumes—a better indicator of how much stuff is actually moving—fell just -4%. Folks, nothing in recent Chinese data indicate anything out of the ordinary: a slowing economy transitioning from manufacturing-driven growth to a consumption- and services- based model. No “hard landing” to see here.        

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

MarketMinder's View: The punditry’s latest portmanteau—“Fedexodus”—amuses us, mostly because we wondered whether it referred to FedEx or a Biblical analogy (“Let my interest rates goooooooo”). But it is actually another euphemism for rate hike fears, and all this reading into daily market movement is an exercise in futility. Asking whether the market has “matured” so it could better deal with future Fed moves assumes an initial rate hike could be a big negative for markets. Now, stocks may bounce around day-to-day for any or no reason, monetary policy speculation included. However, the US economy is strong enough to handle a single rate hike, especially with current levels near zero. Plus, no initial rate hike in history has ever ended a bull market. In our view, when the Fed finally decides to hike, it likely skewers a long-running false fear, allowing the bull to climb further up the wall of worry (and reap the gains that come with it).   

By , USA Today, 11/09/2015

MarketMinder's View: Well, if you’d like a potpourri of commonly discussed false fears, look no further—this piece has it all! Fed rate hike concerns. Grumblings about weak economic growth, specifically due to weaker manufacturing. Geopolitical situations (e.g., Middle East conflict or a cyber attack) suppressing future market returns. We’ve heard versions of these ghost stories (and more!) throughout this current bull market, and despite some short-term negative volatility, it keeps on romping higher. In our view, this is all pretty bullish, since it suggests investor sentiment is still far from euphoric—a fair amount of skepticism persists.

By , EUbusiness, 11/09/2015

MarketMinder's View: We find one pundit’s opener in a Tweet about Greece’s latest issues very apt here: “Sigh.” After Greece failed to meet its most recent reform deadline—Prime Minister Alexis Tsipras insisted on protecting low-income homeowners—eurozone creditors were prepared to withhold €2 billion in aid. While some finance ministers are more optimistic about reaching a deal than others, there is a more important point to consider: Markets have well moved on from the Greek issue. A telling sign: “The renewed tensions hit the financial markets on Monday with Paris and Frankfurt stocks both down 0.20 percent amid worries about Greece’s banks.” If that is the market’s reaction to Greece missing another “important deadline,” sentiment must be improving overall indeed. For more, see our 11/6/2015 commentary, “Lack of Shrieking Signals Sunnier Sentiment.”

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

MarketMinder's View: While this piece focuses on Germany, the general issues highlighted can apply to any country participating in a broad free-trade agreement. Namely, vested interests are deeply entrenched, and their proponents will fight tooth and nail to protect them. From a global perspective, freer trade benefits all, as it aids the flow of goods and services. However, it also creates some losers, and according to prospect theory, those losers will feel the hurt much more than the beneficiaries enjoy the benefits. This explains why it is so difficult to make huge trade deals a reality, despite their abundant macro positives—something investors should note as they monitor both the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.   

By , The Washington Post, 11/06/2015

MarketMinder's View: This is more than just a Friday “feel good” story. It is also a strong counterpoint to widespread fears the world has stopped innovating. This and other medical breakthroughs have the potential to revolutionize our quality of life in the coming years and decades, and with them come all sorts of new opportunities for firms large and small (and opportunities for investors to capitalize). The creative and economic potential of the human race is near-limitless.

By , The New York Times, 11/06/2015

MarketMinder's View: A relief to pundits, that is. They’re also late-lagging data and probably don’t say much at all about the broader economy. Nor should they imply conditions improved dramatically in one month, as this piece nicely explains: “Of course there is no reason to think there was a radical yo-yo effect that caused the economy to add a mere 137,000 jobs in September but a whopping 271,000 in October. Similarly, there is no reason that the number of people who neither had a job nor were looking for one spiked and then fell, or that pay increases came to a halt around Labor Day only to begin soaring again in the run-up to Halloween. More likely the United States job market has been improving at the same relatively gradual pace the last couple of months and, frankly, all year.”

By , The Washington Post, 11/06/2015

MarketMinder's View: At this point, the Keystone XL pipeline is a purely sociological issue. Improving the global oil supply infrastructure would have made trade and price discovery more efficient, not to mention benefit would-be oil exporters. But at the same time, with oil prices ultra-low, the pipeline probably wouldn’t have had immediate benefits for Energy firms. As for what this says about the political backdrop for US stocks, the Obama administration didn’t tread new ground here, and it shouldn’t change firms’ views about the Executive branch’s way of doing things or significantly alter their willingness to take risk.

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

MarketMinder's View: This is all quite interesting, but none of it is actionable for investors. Trying to mimic the American Association of Individual Investors’ Shadow Stocks portfolio isn’t a viable or really even possible strategy—it is as futile as trying to play off newsletter or TV analyst recommendations. By the time you can hit “buy,” it’s all priced in. Consider these words of wisdom from AAII’s founder and chair, James Cloonan: “Unless you traded exactly when AAII does, you couldn’t have matched the astounding performance of the Shadow Stock portfolio. ‘Because we [trade] before we tell everyone what we did,’ says Mr. Cloonan, ‘the people trying to emulate us create an upward bias.’ The portfolio gets to buy earlier than most people who follow it, giving its holdings a boost as soon as hordes of eager investors mimic the latest trade. Much the same thing happens when Warren Buffett buys a stock, a newsletter editor touts a trade or the top managers of a company buy its own shares. Following them makes what they have already done even more profitable — for them. Those who follow, however, shouldn’t expect to match the returns they are seeking to copy.”

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

MarketMinder's View: There is a twisted, callous part of us that almost wants November’s jobs report to stink up the joint so we can see all these folks U-turn on their December rate hike predictions, because it would illustrate the fluidity of economic data and futility of trying to pin down the Fed’s next move. We’ve said it before and will say it again: It is as impossible to predict how a group of 10 humans will collectively interpret data as it is impossible to predict the data itself. The Fed will hike when they hike, and a wealth of historical evidence says the economy and stocks can take it.

By , MarketWatch, 11/06/2015

MarketMinder's View: Anyone who might be impacted by the changes to Social Security spousal benefits should talk to their planner or tax adviser, pronto. But here is a sneak peek at some of the nitty gritty. 

By , The Telegraph, 11/06/2015

MarketMinder's View: Portugal’s leftist parties and the center-left Socialist Party have apparently put the finishing touches on a “triple left” coalition and plan to topple the center-right minority government on Tuesday. This was already a foregone conclusion to most observers, but now all the players have confirmed it. But, this doesn’t mean Portugal suddenly gets a firebrand anti-austerity government on par with Greece’s (or Greece’s before their dramatic climbdown over the summer, at any rate). The power to pick the Prime Minister rests with President Aníbal Cavaco Silva, who has some misgivings about the leftists’ euroskepticism and might tap a caretaker administration instead, paving the way for new elections next Spring. Or the leftists could take power but squabble endlessly, as there is little policy overlap between all these groups. The Socialists are staunchly pro-euro and pledged to uphold the bailout’s terms, which goes against the leftists’ agenda. Restrictions from Brussels will also likely limit their ability to undo prior reforms. Meanwhile, while Portugal’s headline GDP growth might lag fellow bailout graduates Ireland, private spending and investment are quite strong. Overall, the country’s outlook remains brighter than many give it credit for.

By , The Telegraph, 11/06/2015

MarketMinder's View: The Bank of England has received a lot of grief for its ever-changing and often-wrong forecasts in recent years, not to mention the shifting forward guidance tied to those forecasts. This isn’t a sign of some broad lack of intelligence at the central bank, though—it speaks much, much more to the limitations of economic forecasting overall: “We all want to know what exactly will happen to the economy, interest rates and inflation over the next few years; but economies are complex, non-linear systems that cannot meaningfully be predicted by inputting a few variables into a computer. They are just too random for that - and in any case, the data and statistics at our disposal are too imprecise and subject to endless, drastic revisions. We don’t really know what is happening to the economy today, so how can we possibly know with any degree of precision what will happen in three years’ time? The best we can do is what Nobel prize-winning economist F.A. Hayek called ‘pattern predictions’ and scenario-based forecasts; attempts at spurious accuracy are scientistic rather than scientific, he argued.” For investing purposes, we think it makes more sense to take more of a qualitative approach, focusing on things that logically drive growth and investment, like bank lending and overall credit availability. This article goes on to highlight some potential warning signs in the latter, but we’d offer two mitigating factors in response. One, the potential tightening of credit standards in the US coincides with a slightly flatter yield curve, which is to be expected—and it’s also consistent with the tendency for the biggest firms with the healthiest balance sheets to have the greatest access to funding as bull markets mature. Two, Canada’s tightening coincides with a recession there, driven by its oil industry’s well-known struggles. Overall, credit markets are worth keeping an eye on, but as this article notes, it is far too premature to fret the expansion’s end.

By , EUbusiness, 11/06/2015

MarketMinder's View: Barring an eleventh-hour miracle, Greece probably won’t get its aid payment on Monday. Yet eurozone stocks are still rallying, and Greek yields haven’t skyrocketed, suggesting investors broadly aren’t freaking out. This is just one of many signs markets have largely moved on from the beleaguered nation’s troubles.

By , The Washington Post, 11/05/2015

MarketMinder's View: For all those who complained there wasn’t any visibility into the 12-nation strong Trans-Pacific Partnership, your day has arrived! The full text (at a scant 2,000 pages, no less!) of the deal is out, and here is a nice preview of the coming political fight. All 12 nations still need to ratify the deal, and we expect the political fights in the US, Canada and Japan to be particularly interesting.

By , USA Today, 11/05/2015

MarketMinder's View: While this perhaps overstates the US economy’s strength in this expansion a tad, we overall agree with the sentiment expressed: the economy is much healthier than popularly presumed—and vastly healthier than politicians will tell you. We especially like this take: “We often assume that the actions of the president drive the major metrics we have discussed. Consequently, some presidents, such as Jimmy Carter, tend to get poor grades based upon the economy, and others, such as Bill Clinton, garner praise. In reality, the connection between a sitting president and the economy is overstated. This isn’t to say the government does not greatly impact the U.S. economy. But causality between policy and results is nearly impossible to prove in the short term, unless a grave policy mistake has been made.”

By , The Wall Street Journal, 11/05/2015

MarketMinder's View: Another day, another deflation-doom article. Folks, the evidence inflation is a leading economic indicator that, when rising, causes folks to spend more money, is scant at best. Similarly, while many fear and theorize that deflation causes dastardly spirals, there is little evidence they actually exist. The funny thing is that back in the 1990s, we had low inflation and a growing economy and folks thought it was so dandy that they called it the “Goldilocks economy.” What’s more, calls for central banks to re-ramp up quantitative easing or, worse, announce they will permanently increase the money supply to finance budget deficits, misperceives the especially goldilocks-y cause of today’s low inflation: weak commodity prices. The fact most people still don’t see it this way and suggest low inflation is a risk to be wrangled is a sign skepticism still abounds.

By , Financial Times, 11/05/2015

MarketMinder's View: Yes, it is time to wonder why the Bank of England is so reluctant to hike rates, given unemployment is only at 5.4% and the economy has been near the forefront of developed-world growth for years. You could note virtually the same things about the Fed! Now, this isn’t to say we think these central banks have made an egregious and disastrous error by not hiking, but these two economies are strong enough to take a hike. In our view, the sooner they do so, the sooner the false fear of initial rate hikes is bullishly skewered by their benign reality.

By , The Wall Street Journal, 11/05/2015

MarketMinder's View: There is no doubt that lax lending standards, in part encouraged by the government itself, were a piece of the story of 2008’s financial crisis. However, they are not nearly so central as this article presumes, and actual loan losses (a couple hundred billion in total) pale in comparison to mark-to-market accounting’s destruction of trillions worth of banks’ capital. What’s more, while Dodd-Frank likely has had some impact on banking and Financial Services in general, we’d suggest former Fed head Ben Bernanke’s policy—quantitative easing (QE)—bears more blame for slow growth since 2010. With central banks’ purchases of long-term bonds, QE reduces long rates and flattens the yield curve. Since banks borrow short-term and lend long, lending is less profitable, and hence, less plentiful. A century of theory (the quantity theory of money) and evidence supports the notion this will dampen growth and inflation, not stimulate it.

By , Bloomberg, 11/05/2015

MarketMinder's View: We frankly aren’t sure why this is news. For one, there is already a public agreement involving the G-20 nations saying the same thing—that countries won’t attempt to gain an export edge by devaluing their currencies. But at a broader level, currency wars—when countries attempt to one up (one down?) each other by competing for the lowest valued currency—aren’t a real threat in the here and now. Even if they were, this very expansion is chock full of evidence a weak currency doesn’t bring you an export boom and growth, and full of evidence strong currencies aren’t terrible. Japan, with its persistently weak yen, is floundering economically as export volumes haven’t increased. The US and UK, with their strong currencies, are growing at healthy rates. Whatever benefit you think you might get from a weaker currency boosting exports will likely be watered down and possibly totally offset by rising input costs. It’s a globalized world, folks. And even export benefit is frequently overstated because there is ample evidence (again, Japan) firms aren’t adjusting pricing abroad, instead allowing the currency translation to inflate profits.

By , The Guardian, 11/04/2015

MarketMinder's View: As the Federal Reserve has pondered when to begin raising short term interest rates, we’ve heard a lot of silly things from people suggesting why the Fed should or shouldn’t hike rates, or when they should do so. But in our view, getting Congress involved in assessing the appropriate timing of rate hikes can lead to some rather bizarre advice, which is well documented herein. More importantly, though, should the Federal Open Market Committee (the cabal that sets US monetary policy) wait—based on Congress’ recommendation or no—they risk further dinging the Fed’s credibility, which is already a little bit tarnished given all the back and forth, waffling and alleged “guidance” they have issued over the last few years about future policy.

By , Bloomberg, 11/04/2015

MarketMinder's View: The allegation here is China’s leaders are fudging growth numbers because Chinese officials have an incentive to overinflate growth rates to prevent social unrest and capital flight and to encourage foreign direct investment. Look, we aren’t saying official growth rates in China are spot-on accurate, and it’s certainly possible China is actually growing at 5% or even 4% instead of the 7-ish% official figures claim. But we think the pessimism here is a tad overwrought. Many Chinese statistics that suggest growth has materially slowed (trade for example) are downwardly skewed by falling commodity prices. Commentary from Western private sector firms doing business with China doesn’t suggest China’s economy is in a sharp slowdown, and the International Monetary Fund’s own growth estimates jive pretty well with official Chinese data. The funny thing is very few pundits questioned official double-digit growth rates several years ago, when it fit their narrative that China’s economy was headed for a big fall because 10% - 11% growth is inherently unsustainable. In our view, current handwringing about China’s overstated growth rates is likely more a function of dour sentiment rather than rigorous analysis. For more, see our 10/20/2015 commentary, “How Real Is China’s GDP?”  

By , The Washington Post, 11/04/2015

MarketMinder's View: Here is a sensible look at the US Treasury’s roll out of myRA, basically a Roth IRA for workers whose employers don’t offer a retirement plan. Now, you might be wondering, “Don’t they already have access to Roth IRAs?” And the answer is yes, yes they do. But there are some tweaks that could be beneficial, like the fact contributions can be made directly from paychecks, promoting savings. And there are no minimum balances and no fees on the investments therein, an edge over most IRAs today, particularly for savers just starting out. And that is the intent: A starter plan, whereby workers can begin saving for retirement and later roll the account to a private-sector Roth IRA later. Account holders are actually required to roll out of the plan when their accounts reach $15,000 or after 30 years. The drawback, and it is a biggie, is account holders can invest only in low-yielding government bonds. But all in all, some folks will likely benefit by starting to save, and that is a plus.

By , Pragmatic Capitalism, 11/04/2015

MarketMinder's View: This is a sensible take on the fact markets don’t move on reality as some believe. Instead, they move on the difference between reality and expectations. When markets tumbled in August and September, stock prices reflected fears the global economy was sliding into the abyss. Those fears might re-emerge! But at this point, it sure looks like stocks sharply rebounded when investors realized reality wasn’t playing along with the fears a big slowdown or recession loomed. This piece also gets points for highlighting the fact flattish US profits this year are almost entirely due to cratering Energy earnings. Factoring this out, profits are growing quite nicely. One thing we do take a wee bit of an issue with is the  claim the US economy is pretty weak and that the recovery (actually, an expansion since 2011) has been “crummy.” Certainly we won’t argue this has been the fastest growth on record, but it is equally worth considering that GDP is an imperfect measure of output that could very well be drastically understating growth

By , Bloomberg, 11/04/2015

MarketMinder's View: This article’s title is technically true—analysts expect share-weighted S&P 500 profits to fall about 3% y/y in Q3, the worst showing since 2009. But the thing is, analysts have expected earnings to drop entering each quarter of 2015. They’ve been right once thus far (Q2). And, most of all, the headline declines don’t adjust for a huge drop in reported Energy sector earnings, down 54% y/y (on a share-weighted basis, again) in the quarter to date. This is the widely known result of sharply falling oil prices, which are actually good for consumers and energy-intensive businesses—Energy firms’ loss is others’ gain. Stripping out Energy’s huge drop reveals healthy growth elsewhere.

By , Real Clear Markets , 11/04/2015

MarketMinder's View: This piece suggests that Japan’s economy, overall weak for a long time despite huge quantitative easing (QE) bond buying, is on a fast track to socialism or communism, and since the Federal Reserve has employed “unconventional” policies (QE and near-zero interest rates) the US economy is headed for a similar fate. These claims, inherently subject to bias and long-term in nature, are a stretch in our view. For one, Japan’s economy isn’t troubled by magically faltering growth and creeping socialism: They have long had competitiveness issues like lifetime employment, which hampers productivity; a lack of openness to trade; a workforce that largely excludes women; an antiquated and protectionist agricultural system, which results in high costs and a lack of innovation; and cross-shareholding between major corporations, which prevents much-needed creative destruction. Those are the major reasons Japan’s economy has suffered for some time, and this is a stark contrast to the US’s high degree of economic freedom and creative destruction, the lifeblood of capitalism. Japan’s system isn’t exactly capitalism or socialism, though, it’s more mercantilism than anything. Also, there isn’t much real evidence the US economy is “slowing remarkably” or that the US is in a weak economic condition because it routinely runs trade deficits (ironically, a mercantilist way to view the global economy). US GDP growth may not be gangbusters on the surface, but there is ample evidence the US economy is on very firm footing these days. Look, we think QE is part of the problem too, but it’s because buying long bonds flattens the yield curve, making lending less profitable and less plentiful. Bad monetary policy that results in slower growth is entirely fixable—economic outcomes are all about decisions and choices, not destiny. Ultimately, we aren’t turning Japanese and Japan isn’t turning communist.

By , Reuters, 11/04/2015

MarketMinder's View: Amid widespread fears softening manufacturing activity is a sign the economy is on the rocks, the US service sector—comprising the lion’s share of the economy—is growing at a very healthy clip. The Institute for Supply Management’s non-manufacturing index—a survey that loosely measures the percentage of firms growing—rose to 59.1 in October from September’s 56.9, well ahead of analysts’ expectations of 56.5. Forward-looking new orders positively surged, from September’s 56.7 to 62.0. While many bemoan sluggish growth at US factories these days, many restaurants, hotels, Health Care providers, Financials firms and airlines are booming. And folks, consider: The non-manufacturing gauge includes mining and oil production—two industries that truly are experiencing a sharp slowdown.

By , Bloomberg, 11/04/2015

MarketMinder's View: All the things we just said about US non-manufacturing PMI apply here, too. Services are leading the eurozone’s expansion and new orders suggest this continues.

By , Bloomberg, 11/04/2015

MarketMinder's View: All around the developed world, same song.

By , The Wall Street Journal, 11/04/2015

MarketMinder's View: Here is a sensible (albeit imperfect, in our view) look at some often-overlooked potential positives of the Chinese yuan joining the IMF’s bailout accounting currency, the Special Drawing Right—like the fact it could encourage China to liberalize further, defanging anti-China protectionist rhetoric. In addition, this sensibly explains why this move wouldn’t pose a material “threat” to the dollar if it is added: “The yuan is not going to supplant the dollar anytime soon. In August it overtook the Japanese yen to become the world’s fourth most commonly used currency for trade settlement, according to the Society for Worldwide Interbank Financial Telecommunication. But it still only represented 2.79% of global trade. The dollar is used for 44% of trade transactions, and dollar assets account for more than 60% of reserves.” Now, we think the positives here are probably a wee bit overstated, as SDR membership is mostly symbolic, but this is a good take on it anyway.

By , The Wall Street Journal, 11/03/2015

MarketMinder's View: Seems about right to us. Having your portfolio in your pocket is convenient, but it also opens folks up to making behavioral errors, like selling just after a decline and missing the rebound. “When people are frequently told how their investments are doing—say, if they are given a daily update on their long-term investments, by smartphone or any other digital device—they are more likely to make poor financial decisions and possibly sell at the wrong time. To understand why, consider what you’re likely to find if you monitor the S&P 500 index at different intervals. If you check every single day, there’s a roughly 47% chance that the market will have gone down, based on its past movements. But what happens if you check once a month? The numbers will start to look a little better, as the market will only have gone down 41% of the time. Years are better still, as the S&P generates a positive return seven years out of every 10. And if you check once a decade, then you’re only going to get bad news about 15% of the time.” Now, once a decade is a little extreme, but you get the gist. The more you limit your opportunities to make ill-timed decisions, the better off you will likely be in the long run. And if you want to keep tabs on the market, you can always download an app that offers measured analysis and well-reasoned commentary. Might we suggest this one?

By , The Telegraph, 11/03/2015

MarketMinder's View: Global trade growth averaged 3.2% from 2012-2015, more or less in line with world GDP growth. But throughout the 1980s and 1990s trade grew at twice the rate of the broad economy, as trade barriers fell rapidly and Asian countries became industrial exporting powerhouses. This piece explores the possible reasons for the recent slowdown, and in that vein it’s an interesting thought piece. The discussion of restricted international financing post-2008 is especially interesting. But we’re a bit skeptical trade is as weak as this suggests. 2012-2015 is just a few years (and this year isn’t even over yet!), likely not a meaningful enough period to draw sweeping conclusions about global trade. And, this short period excludes the quick trade growth rates in the early expansion. Trade in goods has been under pressure, and that’s easy to tabulate, but trade in services is harder to measure, and anecdotal evidence suggests it is on the upswing. Ditto for intellectual property-related transactions. Hence why ongoing efforts to enable trade in services, whether through free-trade agreements or regional economic partnerships, are so key to future growth. Advancing technology is another driver, and as this piece highlights, it isn’t slowing down. As trade in services grows and evolves, we’re quite keen to see how statisticians create new ways to measure it.

By , Bloomberg, 11/03/2015

MarketMinder's View: Hands down, one of the most fun articles we’ve read in ages. While the market-related takeaways for stock investors are few and far between, the author’s hilarious quest to purchase physical crude oil illustrates just how much investors have benefited from futures contracts and other commodity derivatives. Owning physical commodities is all but impossible for all of us laypeople. We don’t have huge warehouses, storage tanks or industrial freezers (for our pork bellies, natch). Derivatives are our wonderful workaround, letting those with the proper logistics do the dirty work (and sparing oil investors from the risk of death by toxic fumes or exploding containers) while investors take the financial risks and reap the rewards. Three cheers for financial intermediation!

By , Agence France Presse, 11/03/2015

MarketMinder's View: China’s leaders have finally released the details of their next five-year plan for the economy, giving investors fresh insight into their views and priorities. The days of strict growth targets appear to be over, replaced by general statements that annual growth of 6.5% or so should be sufficient to create a “moderately prosperous society” that provides adequate employment by 2020 as officials continue transitioning China’s growth engines from investment and manufacturing to services and consumption. That means the modest economic slowdown probably continues. Financial reform also remains high on the agenda, which should encourage investors who questioned China’s haphazard intervention in the stock market over the summer.

By , The Telegraph, 11/03/2015

MarketMinder's View: On the one hand, this is a pretty spot-on, even-handed analysis of all October’s manufacturing Purchasing Managers’ Indexes. Growth abounds, and several nations improved from September and what some considered a summer soft patch. But it also seems to overstate the summer’s weakness. Headlines may have feared a recession, but the numbers never came close. Most PMIs remained over 50, signaling expansion, and most data showed continued growth, particularly in the developed world’s large service sector, which gets short shrift in this article. Services drove the bulk of China’s growth in Q3, which also makes us skeptical that an allegedly stimulus-driven manufacturing upturn is a) a thing or b) necessary. The slowdown there has not been out of line with that of the last several years as China transitions from a heavy industry- to a consumption and services-led economy. As for the outlook, we hesitate to draw sweeping conclusions from a single month’s worth of survey results. We’re bullish, but one month doeth not a trend make.

By , USA Today, 11/03/2015

MarketMinder's View: Since 1928, the S&P 500 has been slightly down in November, on average, when it rose at least 5% in October. Some suggest this means stocks may languish throughout the rest of the year after surging last month. But since 1975, stocks have been up in November seven of eight times when the S&P 500 climbed 5% or more in October. So what does this mean for where stocks likely go from here? Absolutely nothing. Seasonal patterns in historical data are pure coincidence, not causal. Stocks don’t care about calendars, and most of the data underpinning myths like the Santa Claus Rally, Sell in May or September Is the Worst Month stems from a handful of really great or really terrible years. But also, folks, trying to pinpoint where stocks go over any short period is a fool’s errand. If you’re investing for the next 10, 20 or 30 years, it doesn’t really matter if big returns come in October, November, December or any other month as long as you remain disciplined and your portfolio is positioned to capture bursts whenever they occur. As for this seasonal pattern stealing from another, that operates on the dubious notion that markets have some set return quota. That isn’t how markets work. Lastly, need we remind readers that stocks just endured a sharp correction, and October’s big gains were a rebound from late-September lows? Markets are volatile, and returns often come in clumps.

By , The Wall Street Journal, 11/03/2015

MarketMinder's View: The UK has a new regulator-in-chief and a new outlook on rulemaking: Out with knee-jerk reactions to the Global Financial Crisis, in with a cost/benefit analysis of all measures and a pro-growth mentality. That’s certainly encouraging, but as always, the real impact is in the details and implementation. UK investors, businesses and banks would benefit from rule changes that improve access to capital and financial services, but only time will tell how this pans out.

By , Marketwatch, 11/03/2015

MarketMinder's View: As stocks recover from recent lows, former darlings like small cap and Biotech haven’t quite joined the party, leading some to suggest the rally is for real only if these categories start zooming—particularly small cap, which this piece alleges are “the real engine of a healthy economy’s growth.” (We are assuming “legitimate” in this context means “will continue” and not that stocks’ recent surge did not conform to the law or some set of rules.)This thesis has some glaring flaws. First, leadership shifts regularly. All sectors, countries and styles have their day in the sun as well as the rain, and no industry’s participation (or lack thereof) in a rally makes it inherently more or less sustainable. Second, small-cap firms usually have their day in the sun early in bull markets. They typically outperform right out of the gates, rebounding fast as investors make up for overpunishing them late in the bear. Small caps also usually have their strongest earnings growth early on, as they have less flexibility than larger firms—raising production to meet demand usually requires raising costs, which can pressure margins. Large stocks usually do best in bull markets’ latter stages, when investors flock to their more stable earnings growth, diverse revenue streams, strong balance sheets and familiar names. So where this piece sees a potentially unsustainable rally if small cap lags, we see a maturing bull market where the biggest stocks thrive—just like the late 1990s. 

By , The Telegraph, 11/02/2015

MarketMinder's View: While investing in an ostrich farm or a storage pod may sound a bit silly, anyone—an investing novice or an experienced professional—can be tempted by the lure of “guaranteed” high returns from a “once-in-a-lifetime opportunity.” But if it sounds too good to be true, it usually is. We agree with the last sentence in this piece, a quote from one adviser: “The main features of toxic investments I have seen in the past are typically low liquidity, massive borrowing to invest, high and complex charges, and obscure underlying assets.” Now, not everything that sounds complex is problematic, as this piece quite correctly notes with structured products. However, the onus is on investors to do their due diligence on how exactly their money is being invested and the rules and protections that do (or don’t) apply.

By , Reuters, 11/02/2015

MarketMinder's View: We have many qualms with this piece, so we’ll start with the broad ones first and narrow them down from there. First, Purchasing Managers’ Indexes (PMIs) are surveys—a rough gauge of how many responding firms report growth or contraction for the month. However, PMIs don’t indicate the magnitude of growth—only how widespread it is—so a “contractionary” reading (under 50) isn’t necessarily an actual contraction if the companies that grew saw gangbusters expansion. Second, this piece focuses only on Manufacturing PMIs. Services PMIs, which are released a couple days later and represent a larger slice of developed countries’ economies, have largely exceeded manufacturing PMIs and topped 50 throughout the current global expansion. Now, more specifically, Markit’s final October eurozone manufacturing PMI was 52.3 (above 50), indicating growth! Sure, China’s October manufacturing PMIs—both the official and Caixin, which includes small- and mid-sized companies—were below 50, but those readings have fluctuated between expansion and contraction for years, while China has only gradually slowed. No one data report will tell you everything about the global economy, especially one as limited as a monthly manufacturing survey.

By , Financial Planning, 11/02/2015

MarketMinder's View: Here is some sound personal finance advice for investors to remember when negative volatility strikes again (along with some nifty definitions for commonly used terms like “recency bias” or “herding effect”). Specifically, though we humans believe we always apply logic to our decision-making, feelings play a big role, too. Not recognizing the power emotions (e.g., greed and fear) can have on our decisions can lead to some poor investment choices and put your long-term goals in jeopardy. Investing isn’t easy, and an investor’s worst enemy is often him or herself—knowing this before the next bubble inflates or market downturn strikes can help set appropriate expectations for how to act.     

By , CNN Money, 11/02/2015

MarketMinder's View: This piece displays a bunch of investing fallacies. Some contradict each other, like citing stocks’ good November historical performance while also suggesting stocks may be due for a breather after a great October (so much for financial hurricane season). Or that stocks have a little bit further to go before a decline, as if market levels determine future performance. Or that four companies are a bellwether for consumers or the economy. Folks, there is only one lesson to draw from stocks’ stellar October: Markets can move quickly, highlighting the futility in trying to time perfect exit and entry points. Staying disciplined and riding through that volatility will ensure declines don’t become real losses in your portfolio.  

By , Project Syndicate, 11/02/2015

MarketMinder's View: While we agree an interest rate hike wouldn’t be the big negative many folks fret—we’d prefer the Fed just gets on with it already to prove this fear false—this take also overstates the importance of the Fed’s communication efforts, particularly its “forward guidance”. Yellen risks the Fed’s credibility when getting too specific about a possible rate hike. Her latest example—that it will likely be appropriate to raise rates “later this year”—anchored expectations to sometime before year’s end. The Fed’s most recent policy statement reinforced them, specifically mentioning the possibility of raising rates at December’s meeting. If the Fed doesn’t hike by December 31, there goes a bit more of its credibility, one of a central bank’s most precious assets. In our view, Yellen would be better off taking a page out of former Fed chair Alan Greenspan’s book and practice her unintelligible “Fedspeak,” giving the Fed more flexibility to conduct monetary policy as conditions and the data warrant. For investors, remember that a central banker’s words, words, words matter much less than their actions—don’t get hung up the former, and weigh the latter.

By , The New York Times, 10/30/2015

MarketMinder's View: So fair warning, this “debate”—which imagines one’s hypothetical conversation with oneself about whether the US economy is doing ok—is sort of the ultimate exercise in on-the-one-hand-on-the-other-handing, and we reckon Harry Truman would deduct points. But we are inclined to award them, at least to the imaginary debater whose lines are in regular typeface (not italics), because about 85% of their points make darned good sense and present solid evidence for why folks should have more confidence in the economy (and stocks’ potential). It runs aground a tad when discussing the strong dollar (not a big headwind—see this for more) and whether central bankers are out of ammunition (more on that here), but the ending makes up for it: “I hope you’re right. But if the 2008 crisis taught us anything, it’s that trouble can spread in ways that are hard to predict, even if you think you know what’s going on. Yeah, but what happened in 2008 was a once-a-century kind of storm. If you always think that the big one is imminent, most of the time you’ll turn out to be wrong.”

By , The Wall Street Journal, 10/30/2015

MarketMinder's View: No no no. Sorry, but no. If you’re saving for a home, that money has a short time horizon and probably shouldn’t be in stocks—too much risk near-term market declines could upend your goal of buying a home. And if you own stocks, you’re theoretically investing for long-term growth while keeping your assets relatively liquid, so it probably doesn’t make sense to swap stocks for a house—at least not if you’re doing it purely as an investment. (We know, we know, you can’t live in your stock portfolio, but there are always tradeoffs to consider, even when you’re considering ditching renting for owning.) But borrowing against your stock portfolio to fund a down payment on a home is one of the most dangerous financial moves we’ve heard of. What happens if stocks plunge during a bear market, you get a margin call, and you have to try to offload your home smack in the middle of a downturn to satisfy your creditors? That happens to people. It is a financial tragedy and wholly unnecessary. Don’t take unnecessary risks, and think long and hard before you make a leveraged bet.

By , CBS MoneyWatch, 10/30/2015

MarketMinder's View: By now you’ve likely heard Social Security checks won’t get a cost-of-living increase in 2016, forcing retirees to stretch their benefits a bit further. Some folks might need to make adjustments, and trimming expenses can help. But most of this advice is at best useless and at worst harmful. For most folks, selling their home, buying an annuity and taking out a reverse mortgage amounts to hugely overreacting to a very temporary situation—and, in the case of the annuity and reverse mortgage, probably making themselves worse off over time. Both products are costly, restricted and usually better for the provider than the investor. Don’t make knee-jerk reactions. It’s a recipe for financial heartache.

By , The Wall Street Journal, 10/30/2015

MarketMinder's View: The Fed is closing in on “total loss absorbing capacity” (TLAC) mandates for the eight biggest banks, which set “a minimum combination of shareholder equity and debt” banks can “bail in” if they burn through their other capital during a crisis. Regulators consider this a necessary step to end “too big to fail.” We consider this a solution in search of a problem, as the ginormous megabanks weren’t the problem in 2008—specialized institutions like WaMu, Lehman Brothers and Bear Stearns went under then, and creating megabanks like Bank of America Merrill Lynch was regulators’ solution. Plus, the more you try to “fix” too big to fail by making big banks “safer,” the more their alleged safety attracts depositors, and the bigger they get. Chicken, egg, etc. We are also sort of confused by the mechanics of TLAC, as regulators have made it well-known that they prefer banks to fund themselves with deposits than debt, believing deposits less run-prone. By that logic, creditors would have fled long before capital ran out. So this is all just odd and not really necessary. Thankfully, though, it doesn’t present an outsized burden for banks. Most are already in compliance with mandated levels, and those with small shortfalls have six years to get there. So this shouldn’t crimp credit or force banks to dilute shareholders by issuing massive amounts of new shares.

By , Bloomberg, 10/30/2015

MarketMinder's View: Yeah, so, a fiscal deal passed. Huzzah! But hitting the debt ceiling never meant default, so this article propagates more mythology around the debt ceiling than it does inform you of the facts of the deal.

By , EUbusiness, 10/30/2015

MarketMinder's View: Once again, Greece is struggling to meet bailout commitments and haggling with lenders over what reforms they must implement to receive aid. This is the first test of July’s bailout, and at the moment it isn’t going well. Yet, where once markets would have freaked out, today, few outlets even bother reporting the news, and fear is nonexistent. This is a striking sign of how sentiment has evolved further toward optimism, as is fairly normal for a maturing bull market.

By , The Telegraph, 10/30/2015

MarketMinder's View: Portuguese politics are a mess, and the country might not have a stable government for months, depending how political horsetrading goes next week. For investors, the takeaways are twofold. One, Portugal is about 1% of the eurozone economy, smaller than even Greece, and its ability to impact the Continent is limited. (It is also enjoying a quite strong recovery, with fast-growing consumption and private investment.) Two, the fact markets aren’t hyperventilating—as they would have been even just one year ago—is another sign of how sentiment has evolved. Put this in the same category as the lack of freaking out over Greece.

By , Bloomberg, 10/30/2015

MarketMinder's View: Here is a rip-roaring fun look at how living standards have improved over the last half century as production and logistics have become more efficient—particularly in the food industry. Like this: “A lot of the ingredients we take for granted were expensive and hard to get. Off-season, fresh produce was elusive: The much-maligned iceberg lettuce was easy to ship, and kept for a long time, making it one of the few things you could reliably get year round. Spices were more expensive, especially relative to household incomes. You have a refrigerator full of good-looking fresh ingredients, and a cabinet overflowing with spices, not because you’re a better person with a more refined palate; you have those things because you live in 2015, when they are cheaply and ubiquitously available. Your average housewife in 1950 did not have the food budget to have 40 spices in her cabinets, or fresh green beans in the crisper drawer all winter.” You can trace similar trends throughout modern life—developments and innovations that have helped stocks flourish over time.

By , Bloomberg, 10/30/2015

MarketMinder's View: Here is some interesting historical perspective on oil prices’ big drop, which probably isn’t over yet.

By , Forbes, 10/30/2015

MarketMinder's View: We wouldn’t quite call the end of “file and suspend” for Social Security benefits a good thing—it’s more that it creates winners and losers. We suspect the losers will feel the pain of loss much more than folks appreciate the improvements to the long-term forecasts of Social Security’s sustainability. But this does show Social Security isn’t an unreformable third rail no politician will touch. It has been malleable from Day One and remains so.

By , The Washington Post, 10/30/2015

MarketMinder's View: Alright party people, what time is it? Time to set aside your opinions and biases about political parties and presidential candidates, and objectively consider whether turning post offices into banks would improve Americans’ access to financial services and make money markets work better. Postal bank boosters say it would add bank branches in underserved rural and inner-city areas, making “underbanked” people less likely to use price check-cashers or payday lenders. But actual experience says otherwise. The UK has postal banking and a huge payday lending industry. Japan’s experience adds another wrinkle: Their postal bank got so bloated it became the government’s main financing arm, distorting money markets so much The Wall Street Journal once dubbed it “the bank that ate Japan.” Plus, physical bank branches are increasingly redundant in the digital age. However well-intended, this strikes us as a solution in search of a problem.

By , The Telegraph, 10/29/2015

MarketMinder's View: The debate over Britain exiting the EU often revolves around trade, with the “out” camp claiming the UK could just negotiate new free-trade deals outside the existing ones the EU already has. The “in” crowd claims that will be difficult and absent the EU’s FTAs, British trade would suffer mightily. Here, the US trade representative lent ammunition to the “in” argument by claiming the US doesn’t do bilateral trade deals any more, only big blocs. Which is a) patently false, considering the most recently ratified trade deals were with Panama and South Korea in 2012 and both were bilateral and b) silly, considering the Brexit referendum isn’t remotely close to being on the docket now. By the time it is slated to arrive (before 2017 ends), it is likely there will be a new US president with new trade policy and a new trade representative. Perhaps that one signs a different song.

By , The Telegraph, 10/29/2015

MarketMinder's View: Here is a really cool counterpoint to those who think the developed world is in a period of “secular stagnation” in which major innovations aren’t happening. But also, if this technology catches on, you could see the costs of joint replacement surgery fall, recovery times dwindle and more. This would be a deflationary pressure, but a very good one indeed.

By , Financial Planning, 10/29/2015

MarketMinder's View: If you are planning to use a Social Security claiming strategy called, “file and suspend,” this is a must read for you, because it seems Congress included a crackdown on the practice in the two-year budget deal the House passed Wednesday. Here is a simple explanation of file and suspend: “Retired couples could choose to file for benefits at full retirement and then immediately suspend. Why do this? By filling for benefits, a spouse or even dependent children could become eligible for their benefits, and by suspending the primary worker could still not receive benefits and earn delayed retirement credits. [Thereby increasing their monthly payments.] This was far more appealing than the prior alternative, where if the primary worker wanted to earn delayed retirement credits by waiting until age 70, spousal and dependent benefits had to be put off as well.” Should the budget deal pass without amendment, this practice will go the way of the pig-footed bandicoot.

By , Bloomberg, 10/29/2015

MarketMinder's View: Despite prices falling nearly 60%, the world’s largest crude oil producing nation—Russia—is still ramping up output rather than cutting back. Here is an interesting quote illustrating why: “‘Russian oil companies are insulated from oil price corrections,’ said Artem Konchin, an oil and gas analyst at Otkritie Capital in Moscow. ‘Through the tax framework, the government took the brunt of the blow, just as it used to take most of the windfall profits. The rest of the story is in the ruble depreciation.’”

By , Bloomberg News, 10/29/2015

MarketMinder's View: This is arguably the most widely reported news story of the day—that, after the better part of four decades, China is going to change its one-child-per-urban-couple policy to two-children-per-couple. Many suggest the country’s aging workforce is tied to this, which potentially hampers economic growth. However, while demographics are a possible structural economic factor, they have little to no influence over economic cycles. Expansions and contractions come and go, no matter the demographics of the nation involved. Structural factors like population shifts are too widely known and move too slowly to materially impact stocks. So even if every Chinese couple of child-bearing age immediately ramps up their efforts to procreate, it likely doesn’t mean much for global stocks or the economy.

By , The Wall Street Journal, 10/29/2015

MarketMinder's View: If a major entity can conduct broad-based surveys and roundtables of Wall Street players on one single issue for almost all of 2015, then it is highly likely this is a widely known fear already discounted by markets. Because, you know, if you are surveyed and asked a series of questions about a fear, you are not likely to be surprised that some people fear that thing. For stocks, surprises tend to move markets most—not the subject of widely conducted industry surveys. For more, see Pete Michel’s column, "Why Bond Market Liquidity Fears Don't Hold Much Water."

By , The Economist, 10/29/2015

MarketMinder's View: This highlights an interesting side effect of slow eurozone bank lending during the region’s recovery. Though loan growth has been improving more recently, regulatory requirements and a relatively flat yield spread have weighed on lending over the past few years. However, just because banks aren’t as willing to lend doesn’t mean companies don’t need capital—some have tapped other sources, like investment firms, and are subject to much higher interest rates. As this piece notes, those tapping private markets are the minority—many of Europe’s businesses (e.g., smaller, family-owned operations) still rely on banks for credit to a much greater degree than American businesses. But this does give a hint to some of the reason why eurozone growth has crawled in this expansion and it also suggests, now that eurozone banks are better capitalized and lending is growing, that headwinds may be abating. ECB head Mario Draghi should take note of this.

By , CNN Money, 10/29/2015

MarketMinder's View: What do the Great Pumpkin and one-size-fits-all retirement saving rules have in common? They don’t exist! (Sorry, Linus.) Folks, we wish we could tell you, “If you save ‘Y’ amount for ‘X’ years, you will be set for retirement,” but unfortunately, the equation is much more complex. As this piece sensibly points out: “But the reality is that no percentage or formula can cover all situations. There are just too many variables that affect how much you need to save, including how much you already have in savings; the retirement lifestyle you envision; how much of your pre-retirement income you’ll need to replace once you retire; the age at which you call it a career; how you invest your savings prior to and during retirement; and how long you expect to live.” Said more simply, different investors have different life situations and goals—no rule of thumb could possibly cover everyone. However, retirement needn’t be a horror show, either. By taking the time to formulate a customized plan for yourself, you can put yourself in the best position possible to make your retirement goals a reality.     

By , Barron’s , 10/28/2015

MarketMinder's View: While we don’t agree with all of this, this is a valuable counterpoint to extant fears a fed-funds target rate slightly north of 0.0% - 0.25% would squash the US economy. We fully agree with the notion commodity prices are driving inflation measures presently and will eventually swing from detracting to either flattening out or spurring higher inflation, merely based on the base effect of year-over-year changes. We would add to this the following: The primary reason not to fret the economic impact of the Fed hiking is that short-term rates alone don’t much influence economic activity. The spread between short and long rates does, and that would still be positive—pointing to growth ahead—unless the Fed hikes by about two percentage points (historically massive). For stocks, initial rate hikes have no history of derailing bull markets. We would expect a rate hike to bullishly dispel false Fed fears.

By , The New York Times, 10/28/2015

MarketMinder's View: Well, we agree the Fed’s Quantitative Easing (QE) bond buying wasn’t likely to drive hot inflation, can’t both punish savers and enhance inequality, didn’t threaten the Fed’s credibility, and it likely hasn’t redirected funds from business investment to financial investment. However, we do not agree this policy was actually “accommodative” or “easy-money policy,” because QE bond buying depressed the long end of the yield curve. Since banks borrow short-term and lend long, QE made lending less profitable, and banks are less likely to lend when the reward is smaller. Moreover, the Fed monkeying around with long-term rates added uncertainty to their future direction, both of which weighed on loan growth throughout QE. Loan growth accelerated after the Fed tapered bond buying in 2013. Hence, it is a complete fallacy to consider QE “easy money” because money wasn’t easy to get—which stunted inflation and growth.

By , The Telegraph, 10/28/2015

MarketMinder's View: The principle of “ever-closer union” is one area of the EU British Prime Minister David Cameron is trying to secure an opt-out for as he tries to renegotiate the UK’s EU relationship. Many interpret it to mean ever-closer political union, with more and more sovereignty ceded to Brussels over time, but as many in EU leadership point out, that isn’t the exact intent, and they seem willing to put that in writing to satisfy Cameron and increase the chances the UK remains in the union. How that impacts the eventual referendum remains to be seen, but it is noteworthy that leaders have a strong willingness to keep the UK in the fold.

By , MarketWatch, 10/28/2015

MarketMinder's View: Folks, we kindly remind you to set aside your political preferences when it comes to assessing economic growth—ideological biases can blind, a danger to investors. No party is inherently good or bad for the economy or markets, as the US has expanded and contracted with both Democrats and Republicans in the White House. Attributing economic growth rates to the party in the White House—or even controlling Congress—gives government much too much credit (blame) for growth (contraction). We have a free market economy in which the private sector constitutes more than 80% of economic activity. So don’t overrate this stuff. That being said, politics is a key market driver and legislation—particularly extreme legislation—can impact the economy. Hence, what you really want is a largely inactive or gridlocked government that lets the private sector advance without major external disruptions, which the article notes we’ve had in “58 of 70 years since 1945.” For stocks, there is the added factor of investor sentiment to weigh. Even though Republicans are widely considered “business-friendly” and “pro-growth” compared to Democrats, they are all politicians—campaign promises get watered down and/or forgotten as they eventually settle in a middle ground that pleases few. Now, for markets, there is a situation known as “The Perverse Inverse,” in which markets rally when a Republican president gets elected based on the presumption his or her policies will be “market-friendly.” This scenario typically boosts investor sentiment in the short term, only to lead to disappointment later as the new president moderates—as politicians are wont to do.

By , Bloomberg, 10/28/2015

MarketMinder's View: So the theory here is an elevated ratio of US household financial assets' growth relative to GDP's trend growth rate shows the Fed's policy has inflated a bubble. However, this presumes a) GDP actually measures the economy accurately, b) financial assets like stocks move on the same drivers as GDP and c) financial assets were overvalued in 2007. None of those three assertions are accurate. GDP includes wacky quirks like counting imports as a negative, which they aren't for stocks—ask any retailer—and isn't a pure private sector metric. Stocks are. GDP is also a flow of economic activity, while stocks are a measure of wealth (accumulated activity over time). Finally, in 2007, stocks and bonds weren't particularly overvalued and the housing bubble burst in early 2006. The Financial Crisis, unlike most bear markets, didn't begin with euphoric investors.

By , CNN Money, 10/28/2015

MarketMinder's View: Well, to answer the title’s question, “Up,” since the US hasn’t been in recession since 2009. But also, the negative storyline—a strong dollar and weak global economy (as highlighted by China) are knocking US trade and manufacturing—is more ghost story than warning sign. First, the strong dollar isn’t the big bogeyman most experts make it out to be. Sure, it could raise US export prices, but it isn’t guaranteed to do so, as companies must pass along the higher costs, something experience shows isn’t happening lately. That does reduce US firms’ revenues associated with goods sold abroad, but their costs for imported raw materials and components also fall. For global businesses, the result is largely zero sum, and plenty of companies are doing just fine despite these “headwinds.” Second, as this article alludes to, services and consumption drive US growth and have for some time, a typical hallmark of a developed economy. Now, we wouldn’t use car or restaurant sales to tell the whole story—services spending comprises a much larger slice of total consumer spending—but this “second” economy looks plenty healthy, despite what the naysayers may say.      

By , Financial Times, 10/28/2015

MarketMinder's View: The package in question is the Targeted Long-Term Refinancing Operation—better-known as TLTRO—which aimed to boost eurozone lending by adding about €400 billion of liquidity to the banking system since September 2014. Over that same period, eurozone business lending is up by—drumroll, please—€4 billion as banks used the new funds to rebuild balance sheets. Banks are in a better capital position now, as evidenced by their diminishing enthusiasm for TLTRO funding,  but whether that translates to a big lending increase is another matter. Cheap funding is abundant, but funding costs haven’t been a headwind for years. Flattening yield curves are a much bigger issue and could continue pinching loan profitability, keeping loan growth modest at best.

By , The Wall Street Journal, 10/28/2015

MarketMinder's View: Here is a sensible piece highlighting an issue investors everywhere should be cognizant of: If the investment firm you work with creates and sells investment products, will they recommend their own issues—which may boost their profits and payouts—or those from third-party issuers? Now, if all is equal or the proprietary firm’s products are superior, then so be it, but the burden must be on the firm or broker selling a proprietary product to prove that is the case. As an investor, take the advice included in this piece: “When investors are offered a proprietary product, they shouldn’t be afraid to ask how much the broker or firm is going to earn on it, said Joseph Peiffer, a New Orleans lawyer and president of the Public Investors Arbitration Bar Association. ‘A broker that won’t answer that question or is offended by that question is a red flag,’ he said. Clients should also ask to see similar products from third-party firms, several industry and securities experts said.”

By , Research Magazine, 10/27/2015

MarketMinder's View: Here is an in-depth interview with our boss, Fisher Investments’ CEO Ken Fisher, discussing his view of the annuity industry and why these products are commonly misunderstood by investors. Here is a snippet, but we of course recommend reading the whole thing: “More recently, Fisher has been incensed over what he calls too-good-to-be-true promises made by annuity salespeople. They mislead customers to believe they’re buying a smooth, high return on a ‘safe’ investment, but what they in fact receive in income stream is a return of their capital, Fisher maintains. On top of that, folks fail to read their lengthy, complicated annuity contracts.”

By , CNN Money, 10/27/2015

MarketMinder's View: Stop us if you have heard this one before: America’s economy is amid the slowest expansion on record, the pundits keep expecting an acceleration and keep getting disappointed. Not to sound glib, but over the past five years we’ve probably read a few thousand articles with some variation of this thesis. However, stocks aren’t tied to statistics like GDP, which are flawed measures of any economy anywhere anytime based on the fact they count imports negatively and government spending growth as automatically positive. But they are probably even worse now, because they don’t capture much of the so-called “sharing economy” including Uber, Etsy and more. But all in all this article, and its many, many predecessors, are a sign sentiment is far removed from the euphoria typifying a market top.

By , The Wall Street Journal, 10/27/2015

MarketMinder's View: While most talk about the recent budget deal centers on the debt-ceiling increase forestalling a (fake) crisis, this is arguably the more meaningful news for retirement investors. When it was announced a few weeks ago Social Security beneficiaries wouldn’t receive any benefits bump in 2016, by law that meant Medicare premiums would be frozen for 70% of beneficiaries. This meant Medicare had to spread the expected increase in 2016 costs across only 30% of beneficiaries, or about 15 million people versus 50 million. The result? Those 15 million folks faced a 52% hike in 2016 Medicare Part B premiums (these cover doctors’ visits and outpatient care) from $104.90 monthly to $159.30. But, assuming the deal passes, an included provision would limit the hike to 15% and add a new $3 monthly charge assessed to those 15 million folks in an effort to spread the hit out over a period of years. Who knows if it the budget deal passes, but if it does, but if so, this is arguably the most tangible impact of it.

By , Financial Times, 10/27/2015

MarketMinder's View: It seems UK Chancellor of the Exchequer George Osborne's plan to slash tax credits for lower income Brits has hit the rocks after the House of Lords blocked the move Monday. This is a highly unusual move shooting down a plank in Osborne's budget. This is not how we really expected Parliament to remain gridlocked after the Conservatives took a small, 12-seat majority in May’s election, but it is an example of the general fundamental theme. While we doubt this particular proposal would have roiled markets much, it shares one common trait with market-roiling legislation: It is divisive, and those who are on the losing end feel the pain much more than those who would benefit appreciate the gain. Quotes like the following illustrate both prospect theory at work in politics and the fact the Tories aren’t one united bloc in Parliament today, which is what we expected to create that post-election gridlock. “At first came the dry reports of arithmetical doom from think-tank wonks, but they were eventually followed by tabloid opposition and the tears of a Conservative-voting working mother on the BBC’s Question Time. Tory MPs began to grumble—initially in private but then on the Commons benches.” (Now then, reversion to the mean may apply in politics, but it doesn't in economics and markets. So, you know, chuck that angle.) 

By , Bloomberg, 10/27/2015

MarketMinder's View: It seems Sweden’s Financial Supervisory Authority is breaking ranks with most global bank regulators and will require financial institutions to assign a risk weight to sovereign debt. Banks are required to set aside some portion of their assets to guard against losses on bonds and other securities they own, but until this point, sovereign bonds were the exception. However, this cuts against well-established history, considering sovereigns can, do and have defaulted, causing losses at banks. It will be interesting to see how many regulators (if any) follow Sweden’s lead. In our view, changing this rule could be a positive step toward breaking the link between sovereign finances and banks’ health, a lesson from both 2008 and the eurozone’s debt crisis.

By , Bloomberg, 10/27/2015

MarketMinder's View: As part of the budget deal Congress and the White House are presently discussing, the US would gradually sell off the oil held in the Strategic Petroleum Reserve over the period 2018 - 2023. Now, that's years from now and prices could rebound by then, but the fact they are considering enshrining this in legislation after a -60% drop in oil prices shows politicians, like most investors, are poor market timers. The rest of this is pretty sensible, though. The SPR is a vestige of 1970s-style thinking about the oil market and doing away with it is sensible enough.

By , The Telegraph, 10/27/2015

MarketMinder's View: The theory here is the combination of rate hikes and an aged expansion mean a US recession may be more likely than Wall Street thinks. But the age of an expansion isn’t really very relevant at all, and the level of short-term interest rates isn’t particularly important to economic growth. The spread between short- and long-term rates is! An inverted yield curve (when short rates are above long) is among the most accurate signs of an approaching recession. However, today, the yield curve is plenty positively sloped, so a rate hike likely won’t have much impact.

By , Real Clear Markets , 10/26/2015

MarketMinder's View: All right folks, guess what time it is! That’s right, it’s time to put aside your political biases and opinions about government spending so you can see the debt ceiling for what it really is: a political machination with little economic or market impact. While we agree with the title and introduction—the debt ceiling serves little purpose and has strayed far from its historical roots—this take also vastly overstates and misperceives what hitting the debt ceiling actually means. It doesn’t mean the US defaults or even comes close. Default means a specific thing: missing an interest or principal payment to bondholders. It does not mean reprioritizing or even delaying payments on “obligations,” which could range from entitlement benefits to pay for government contractors. Legally, technically and practically, the Treasury can make those bondholder payments, rendering legitimate default concerns null. This piece also overstates the negative fallout of the US “not paying its bills.” While Beltway bluster isn’t a good look—though we’d humbly suggest foreign legislatures aren’t great examples of civility, either—the US’s economic reputation hasn’t suffered. US bond yields remain among the world’s lowest, suggesting plenty of folks view America as one of the safest bets around. For more, see today’s commentary, “Defanging Debt-Ceiling Doom.”        

By , Barron’s, 10/26/2015

MarketMinder's View: While we mostly get the potential appeal of alternative investment vehicles, we recommend long-term investors do their due diligence when considering this space. There are a vast number of “liquid alt” products, including “bear-market,” “market neutral,” and “managed futures” funds, just to name a few. Many surely tout the “safety” they provide compared to more traditional equity and/or fixed income products, but remember folks, “safe” is a misnomer in investing. Some investments may experience lower volatility, but if they don’t provide sufficient growth and thus put your long-term goals in jeopardy, is that really “safe”? Many of these products also haven’t existed in a full market cycle—a bear and a bull—so how they’ll perform in reality remains to be seen. Now, we aren’t saying alternative investments are to be avoided entirely—some may make sense for some investors. However, they also aren’t guaranteed to be a magical investment solution replacing stocks in a well-diversified, growth-oriented portfolio, and even used alongside stocks over time, some could carry a big opportunity cost depending on your goals and needs.   

By , Vox, 10/26/2015

MarketMinder's View: No disrespect to the titular farmer, who made some keen observations about his own situation, but this piece largely misperceives the Fed’s responsibilities and the many balls policymakers juggle. Historically speaking, the Fed’s primary role is to serve as lender of last resort during a crisis. During the 1970s, the Fed was given a dual mandate to pursue maximum employment and price stability—it can influence the latter through setting interest rates, which impact the money supply—but that’s about it. The Fed isn’t responsible for spurring economic growth or promoting currency strength—two misperceptions posited by this article. Also, while the Fed is inevitably subject to some political pressures, limiting them is essential. Politicizing a central bank robs it of its independence and could lead to policy determined by the election cycle rather than the market cycle. While the Fed is far from perfect, the suggested alternatives seem like solutions in search of a problem.    

By , The Wall Street Journal, 10/26/2015

MarketMinder's View: Despite stocks’ climb in October, some experts fear that another market correction looms. Hey, maybe! Corrections are sentiment-driven and don’t run on any sort of schedule. The last correction was three years ago, and the next one could start three years, three months or three minutes from now. (Presuming markets are open for that last one.) However, what’s more important for investors is to not interpret short-term negative volatility as the start of a bear market, a prolonged market turndown caused by fundamental reasons and a legitimate reason to adjust your asset allocation. Currently, nothing suggests a bear market is forming or around the corner: Investors aren’t universally euphoric, economic fundamentals remain underappreciated and we don’t see evidence of a little-noticed large negative about to wallop markets. In our view, the bull looks likely to keep charging higher for the foreseeable future. Yes, this piece says the issues allegedly underlying the latest correction (soft global economy, weaker earnings and a looming Fed rate hike) are still present, but a) stocks don’t wait for all-clear signals, b) markets price in widely discussed issues and risks, and c) these were all false fears anyway, as discussed here, here and here.     

By , EUbusiness, 10/26/2015

MarketMinder's View: A trade deal between the US and the European Union—which would constitute the world’s largest free-trade area, if completed—set to conclude next year? Sounds grand! But talks for the Transatlantic Trade and Investment Partnership (TTIP) started back in 2013, are currently in their 11th round and face plenty of opposition—negotiations have already been delayed plenty. So we’re a bit skeptical that trade ministers will meet this deadline, especially with US presidential elections looming in 2016. Now, like the Trans-Pacific Partnership (TPP), a deal leading to freer trade across huge swaths of the global economy is a positive for markets. However, also like the TPP, we suggest investors temper their expectations a bit—the deal won’t get wrapped and ratified any time soon, and until concrete details start getting actual legislative approval, there is little to start pricing in at the moment.    

By , The Washington Post, 10/26/2015

MarketMinder's View: Well, we don’t know if the Fed will hike or not this week (we secretly hope they will simply to throw the pundits in a tizzy). Many experts have cited the reasons listed here—inflation, dollar strength, wages, global developments and an effort toward “transparency”—as the rationale for the Fed keeping rates near zero. However, interest rate activity is decided by committee, and specifically, the individuals in that committee—and we don’t know for certain what determines those individuals’ decision-making process. What’s more, those individuals usually base decisions on forecasts, not widely known data, so most of the charts in here are rather beside the point. But hey, here’s the good news: In our view, the US economy can take an initial rate hike today without issue. Thus, we’d prefer the Fed hike now so folks can move on from it and put this false fear to rest.      

By , CNN Money, 10/26/2015

MarketMinder's View: The dourness here typifies where investor sentiment currently is. Even though S&P 500 companies have defied experts’ earning expectations quarter after quarter during this economic expansion—and since the dollar began strengthening last year—skepticism persists. Fears of an “earnings recession” and slower future growth knocking stocks dominate the narrative, even though Corporate America’s weakness is largely relegated to the Energy sector and its well-known headwinds (e.g., falling oil prices). Folks, US companies are healthy and profitable—that many still don’t see it suggests plenty of wall of worry remains. For more, see our 10/13/2015 commentary, “Prophet Margins?” 

By , The Wall Street Journal , 10/23/2015

MarketMinder's View: So the first half of this piece is pretty darn sensible, in our view: Though manufacturing is slowing, China’s services sector, the biggest slice of its economy, is doing just fine. For a country transitioning from an export- and investment-driven model to a services- and consumption-based one, this is a positive development. We are a little less keen on the latter half, which highlights worries about how a slowing Chinese economy could potentially knock global markets. We aren’t dismissing China’s sizable impact on the global economy, but hard-landing fears are both long-running and overwrought. China has been slowing for a while now, and with the government providing targeted fiscal stimulus and accommodative monetary policy, growth isn’t going to fall off a cliff.    

By , Bloomberg, 10/23/2015

MarketMinder's View: The troubles here are many and varied. For one, even the article goes on to admit growth ticked up—you read that right, up—in October’s flash eurozone composite PMI report. Weakening is a projection based on one survey and one gauge showing rising inventories, a factor subject to interpretation. The same PMI gauge’s new orders index suggests growth should continue to be fine, and the data provider (Markit) expects growth at 0.4% q/q in Q3, which matches Q2. None of that really suggests “weakening,” so on the data, we award this article no points. But also, the notion more quantitative easing and/or negative rates would stimulate growth presumes these are actually stimulus. Yet evidence supporting this theory from Japan (twice—now and 2001 – 2006), the UK and the US is lacking. In all these cases, money supply and loan growth was sluggish, and GDP growth was weak. By buying long-term bonds, QE depresses long rates. Since banks borrow short-term and lend long, this makes lending less profitable and hence, less plentiful. Ultimately, eurozone GDP has grown for nine straight quarters now, preceding ECB QE by about 20 months. We’re going to have to subtract a couple of points for those misperceptions, too, leaving this article in the negative.

By , Project Syndicate, 10/23/2015

MarketMinder's View: This take offers some sound insight on concerns that “investor short-termism” is hurting businesses’ and economies’ long-term growth prospects. As this piece points out, neither US R&D nor overall investment is declining, and companies across all sectors and industries have to take the long view when growing their business: “For example, pharmaceutical companies cannot develop new products on a quarterly basis; they must operate with multi-year time horizons. The oil industry cannot open and close oil fields on a quarterly basis; companies must spend a decade or more investing in developing new fields.” In our view, any political proposals to “fix corporate short-termism” seem like solutions in search of a problem—the US private sector doesn’t need the government’s helping hand.          

By , The Wall Street Journal, 10/23/2015

MarketMinder's View: After a weak Q2, South Korean consumers return en masse in Q3, driving GDP growth of 5.0% annualized in the quarter, which runs pretty much exactly counter to widespread fears of Emerging Markets weakening and dragging the world down. It’s only one country, to be sure, but if you look at non-commodity heavy Emerging Markets—and the majority of them don’t rely on commodities—you’ll see the data don’t comport with gloomy theories.

By , Bloomberg , 10/23/2015

MarketMinder's View: According to the omniscient and ever-present “officials with knowledge of the matter,” the IMF has informed China the yuan will be included in its special drawing rights (SDR) basket of currencies soon, perhaps even before 2015 ends. Should this happen, expect a lot of bifurcated opinions on what it all means. Some will allege it is positive, a sign of China’s inclusion in the global economy. Some negative, as they claim it will cause the demise of the dollar as the world’s reserve currency. But here is what this news actually is: [Shrugs] Meh. Why meh? Because SDR inclusion is symbolic, with basically no fundamental impact. The US gets little-to-no benefit from the dollar being the world’s dominant reserve currency (comprising about half of the SDR). The government doesn’t collect a fee on transactions, and other central banks holding a slew of dollars doesn’t lower US Treasury rates materially. The same is true of British pounds, the euro and Japanese yen. In our view, this is much ado about nothing. Now then, one interesting point raised in this report is this, which suggests the IMF sees China’s new yuan-exchange-rate setting regime as more market oriented: “The People’s Bank of China’s move in August toward a more market-determined exchange rate was a ‘positive signal.’” But other than that, meh.

By , The Wall Street Journal, 10/22/2015

MarketMinder's View: This is a very interesting article, chock full of data, that comes to the correct conclusion that most of those 92 million folks are a) retired b) in school c) ill/disabled or d) taking care of a family member. Only 2.6 million Americans are not in the labor force but say they want a job. The lower labor force participation rate, despite what many say, is not a sign of deep-seated economic malaise.

By , Financial Times, 10/22/2015

MarketMinder's View: This strikes us mostly as a political ploy to goad Congress into raising the debt ceiling sooner rather than later. Hitting the debt ceiling doesn’t prevent the Treasury from rolling over maturing debt, and nothing changes about the US’s creditworthiness if Congress hasn’t acted by November 3. If the debt ceiling were the ginormous risk everyone warns it is, we reckon three-month T-bill yields would be somewhere north of 0.01%. The auction they canceled was for a two-year bond, and two-year yields have fallen over the last month, closing at 0.62% yesterday. Would any investor in their right mind accept 0.62% for a bond that had even a remote chance of defaulting in a week and a half? We didn’t think so.

By , The Wall Street Journal, 10/22/2015

MarketMinder's View: Here is a great look at why commodity cycles tend to be really, really long: While low prices are an incentive to cut production, they’re also a signal to cut production costs while maintaining output, which firms like to do because some revenues are better than no revenues. It can take years before price signals actually say “hey stop digging.” Until that happens, the supply glut likely continues, keeping prices low and Energy and Materials’ stocks’ long-running headwinds in place.

By , The Telegraph, 10/22/2015

MarketMinder's View: Since the late 1990s, Wales, Scotland and Northern Ireland have had varying degrees of autonomy, with powers over matters like education and health care devolved from the national Parliament to their own legislatures. But England has no devolved legislature, and the national Parliament votes on measures that impact England only. This chagrins many in England, frustrated that MPs from Scotland, Wales and Northern Ireland get say-so over English policy but it doesn’t go both ways. David Cameron’s government is now attempting to fix this with “English votes for English laws,” which (as the name implies) would exclude Welsh, Scottish and Northern Irish MPs from votes on measures that impact England only. Pols are understandably divided over whether this fixes or causes a constitutional crisis, and it will take time to see how UK common law adjusts and adapts to the new system. It may lead to the UK ultimately becoming a more federalized state, similar to the US. Or it may, as the Scottish National Party warns, fuel independence movements in Scotland and perhaps Wales or Northern Ireland, ending the union. Welsh voters have probably noticed it comes on the heels of a draft Welsh devolution bill that some believe would force Wales to get the UK government’s approval on certain new laws, something Scotland isn’t subject to. These are all very, very long-term questions, however, and the situation is likely to develop gradually over time, reducing surprise power over UK stocks.

By , Bloomberg, 10/22/2015

MarketMinder's View: After EU courts cracked down on some governments’ sweetheart tax deals with multinationals and ordered some firms to pay millions in retroactive taxes, some wondered whether the decision would weigh on competitiveness in Ireland, the Netherlands and elsewhere. After all, incentives matter, and retroactive tax grabs create uncertainty. As this piece shows, however, the countries in question have many other things going for them and should remain attractive to foreign firms even without these one-off arrangements. Overall, we doubt the rulings have much of an impact on EU economies over time.

By , Reuters, 10/22/2015

MarketMinder's View: Portugal’s center-right alliance, led by Prime Minister Pedro Passos Coelho, won the most seats in this month’s election but lost their majority, and they and the center-left Socialist Party have spent the past three weeks jockeying for the country’s leadership. Socialist leader Antonio Costa initially seemed warm on enabling Passos Coelho to form a minority government, but he also made overtures to leftist parties, and earlier this week he announced he had enough support to form a leftist majority government. But the onus remained on President Aníbal Cavaco Silva to name a Prime Minister, and today he tapped Passos Coelho, citing his plurality in the election. So after weeks of uncertainty, the status quo prevails, but it’s anyone’s guess how long the arrangement lasts. The opposition is already digging in, and minority governments are inherently unstable. Reform progress likely slows considerably, but Portugal has already made great strides and is enjoying an economic recovery, so politics’ economic impact should be minimal.

By , Financial Times, 10/22/2015

MarketMinder's View: Sung to the tune of Shirley Bassey’s “Goldfinger”: “Jaaaaaaawboniiiing!” Don’t read into this, it doesn’t automatically mean Mario Draghi will increase quantitative easing in December, despite what everyone says. This is the man whose doing “whatever it takes to save the euro” amounted to announcing a program he never used. You can’t predict central bankers’ actions based on their words—or based on anything else, really, because there are too many competing viewpoints, biases and opinions underpinning decisions made by a committee of irrational human beings.

By , The Wall Street Journal, 10/22/2015

MarketMinder's View: By one arbitrary definition, anyway—stocks still remain under May’s prior peak. But this is all a bunch of searching for meaning in recent bouncy times. Past performance doesn’t predict future returns.

By , Bloomberg, 10/22/2015

MarketMinder's View: Here is a lot of speculating about bond yields, which makes all sorts of assumptions about how markets and the economy will and won’t react to hypothetical Fed moves that may or may not happen. It also vastly underrates US economic growth and overstates the impact of Fed decisions on stock and long-term bond markets.

By , The Guardian, 10/22/2015

MarketMinder's View: Here is some evidence sentiment remains far from euphoric: Many analysts found ways to interpret good news (UK retail sales rising 1.9% m/m in September) as bad news. Some warned it stemmed from one-off factors like the Rugby World Cup and the timing of August’s bank holiday. Others credit discounts for the surge, warning it does retailers more harm than good. Seems like an awful lot of chatter for one great month in a data series that is in a long uptrend despite some big short-term fluctuations here and there. No, we don’t expect UK retail sales to jump 2% every month, that would be unrealistic. But the reactions strike us as overall too dour.

By , The Telegraph, 10/22/2015

MarketMinder's View: A lot of folks appear to be reading into this survey of small business owners, which shows only 46% expect sales to grow. This is the lowest figure on record, and some say it points to a recession in 2016, but we see two problems with this. One, it’s a survey measuring sentiment, and sentiment is usually based on the very recent past. Human nature makes people extrapolate the recent past forward, and it’s hard for us to envision something different. Two, the survey started last year, so we have absolutely no idea how its ups and downs square with the business cycle. There just aren’t any meaningful conclusions for investors to draw here.

By , The Yomiuri Shimbun, 10/21/2015

MarketMinder's View: Negotiators finished the Trans-Pacific Partnership (TPP)—a 12 country free trade agreement covering nearly 40% of global GDP—earlier this month, but as this piece highlights, it is likely still a long way from coming to fruition. Industries that were protected from foreign competition don’t want to lose this edge if import tariffs are eliminated, and they pressure politicians to carve out exemptions for them, or kill the deal altogether. Japan’s agricultural sector is a prime example, as “Opposition parties are trying to use the contents of the broad agreement to attack the government and the ruling parties.” With upper-house elections looming next year, there are high incentives to stall. The US, Canada, and other TPP nations face similar hurdles, and widespread political gridlock further reduces the chances all member countries ratify the deal. But TPP not ultimately passing isn’t a negative for the global economy. It’s just the absence of an additional (though potentially huge) positive.

By , Bloomberg, 10/21/2015

MarketMinder's View: High yield bonds have had tough sledding lately, as Energy and commodity-based firms—the source of much high yield debt—are suffering from a global commodities slump. One high-yield fund is closing its doors, and this piece posits this might be a sign a downturn looms because three funds froze redemptions in August 2007, presaging the Global Financial Crisis. Call us skeptical, but this reeks of coincidence without causation. One corporate bond fund trading below its net asset value is a far, far cry from three funds going hog-wild for mortgage-backed securities and other illiquid assets not being able to value their holdings. Especially considering banks were in the transition to mark-to-market accounting standards at the time. Sometimes a fund closure is just a fund closure.

By , Bloomberg, 10/21/2015

MarketMinder's View: High yield bonds have had tough sledding lately, as Energy and commodity-based firms—the source of much high yield debt—are suffering from a global commodities slump. One high-yield fund is closing its doors, and this piece posits this might be a sign a downturn looms because three funds froze redemptions in August 2007, presaging the Global Financial Crisis. Call us skeptical, but this reeks of coincidence without causation. One corporate bond fund trading below its net asset value is a far, far cry from three funds going hog-wild for mortgage-backed securities and other illiquid assets not being able to value their holdings. Especially considering banks were in the transition to mark-to-market accounting standards at the time. Sometimes a fund closure is just a fund closure.

By , Bloomberg, 10/21/2015

MarketMinder's View: High yield bonds have had tough sledding lately, as Energy and commodity-based firms—the source of much high yield debt—are suffering from a global commodities slump. One high-yield fund is closing its doors, and this piece posits this might be a sign a downturn looms because three funds froze redemptions in August 2007, presaging the Global Financial Crisis. Call us skeptical, but this reeks of coincidence without causation. One corporate bond fund trading below its net asset value is a far, far cry from three funds going hog-wild for mortgage-backed securities and other illiquid assets not being able to value their holdings. Especially considering banks were in the transition to mark-to-market accounting standards at the time. Sometimes a fund closure is just a fund closure.

By , Financial Times, 10/21/2015

MarketMinder's View: This is a mostly sensible take on why the recent market correction likely isn’t the beginning of a bear market. Valuations—whether measured by the past 10 years of earnings or the cost of replacing firms’ assets—aren’t predictive. Even if stocks are slightly above long-term average valuations, but markets don’t mean-revert, and valuations often expand as bull markets mature and investors gain confidence. The logic behind some valuations, like Tobin’s Q Ratio, is also sorely lacking: “Investors should consider whether these and other measures from the 19th and 20th centuries are applicable today. The cost of replacing existing factories and facilities is critical in an industrial/agricultural economy but considerably less so when the economy is based on services and technology.” Moving on, fewer stocks making new 52-week highs is also not the market peak indicator many believe. In the latter stages of bull markets—which can last several years—it’s common for larger cap companies to lead the way while smaller stocks lag. Because there are so much fewer huge stocks, the percentage of stocks making new highs declines. Finally, that investors are not piling into stocks in droves right now, as evidenced by net outward mutual fund flows over the last few months, is a classic sign we have not yet seen the bull market’s peak. Bull markets tend to die when investors are most exuberant, not when they fear another downturn.

By , Financial Times, 10/21/2015

MarketMinder's View: This is a mostly sensible take on why the recent market correction likely isn’t the beginning of a bear market. Valuations—whether measured by the past 10 years of earnings or the cost of replacing firms’ assets—aren’t predictive. Even if stocks are slightly above long-term average valuations, but markets don’t mean-revert, and valuations often expand as bull markets mature and investors gain confidence. The logic behind some valuations, like Tobin’s Q Ratio, is also sorely lacking: “Investors should consider whether these and other measures from the 19th and 20th centuries are applicable today. The cost of replacing existing factories and facilities is critical in an industrial/agricultural economy but considerably less so when the economy is based on services and technology.” Moving on, fewer stocks making new 52-week highs is also not the market peak indicator many believe. In the latter stages of bull markets—which can last several years—it’s common for larger cap companies to lead the way while smaller stocks lag. Because there are so much fewer huge stocks, the percentage of stocks making new highs declines. Finally, that investors are not piling into stocks in droves right now, as evidenced by net outward mutual fund flows over the last few months, is a classic sign we have not yet seen the bull market’s peak. Bull markets tend to die when investors are most exuberant, not when they fear another downturn.

By , CNN Money, 10/21/2015

MarketMinder's View: We give this piece points for recommending investors avoid two classic portfolio mistakes: Selecting funds simply based on past performance and chasing heat in an attempt to juice returns. Hot funds often turn cold, and buying funds that have performed well in the recent past risks underperforming when the tide changes. We also agree constructing a portfolio by first choosing the optimal long-term asset allocation instead of blindly picking funds (or stocks) is wise, as multiple studies have shown a portfolio’s mix of stocks, bonds and cash has a much greater impact on long-term returns than which types of stocks and bonds you own. But we do see a couple of the finer points differently. While this piece emphasizes risk tolerance as the primary consideration when picking an asset allocation, in our view, your long-term needs and time horizon should top the list. Risk tolerance matters, but failing to account for your needs and goals could lower the likelihood of meeting them, which is not a good tradeoff for feeling comfortable in the here and now.

By , Reuters, 10/21/2015

MarketMinder's View: It seems US Treasury Secretary Jack Lew is trying to goad Congress into raising the debt ceiling quickly by claiming failure to do so may result in an “accident,” whatever that means. Look, politicians often say things to get what they want, and for investors, it’s important to discern rhetoric from fact. As we’ve discussed many times, the Supreme Court ruled long ago that the 14th Amendment of the US Constitution obliges Uncle Sam to prioritize debt payments above all others, which means it must make debt payments as long as it has enough money to do so. And it absolutely does, as monthly revenues far exceed interest payments. So in the event Congress fails to raise the debt ceiling the US may forego funding some government operations, but closing national parks and monuments is not the same as defaulting on debt.

By , US News & World Report, 10/21/2015

MarketMinder's View: This piece handily compiles almost every currency-based investing myth into one place. Mainly, it suggests investors should avoid US companies that derive a lot of their revenue overseas, claiming revenues earned overseas in weaker currencies are diminished when converted back into dollars, and this will cause US multinationals to underperform. But this misses the fact a strong dollar also makes firms’ foreign-sourced input costs cheaper: labor, raw materials, components and transportation. Factoring this as well, the strong dollar’s net impact on US multinationals’ earnings is often zero sum or close to it. As evidence, analysts expected S&P 500 profits in both Q1 and Q2 to fall between 4% and 5% y/y, largely based on the strong dollar, but yearly profit growth instead ended up being virtually flat. Yet analysts’ revenue estimates were spot-on, suggesting they overestimated costs, likely failing to account for the strong dollar’s positive impact there. It appears analysts may still not have learned the lesson, as they also expect Q3 earnings to fall 5.5%y/y. For sure, factors other than the dollar affect profits, and it’s entirely possible year-over-year Q3 earnings end up falling as analysts expect. But continued gloomy expectations are a low hurdle for stocks to overcome should reality end up being better, even if not gangbusters on an absolute basis. As for the advice on foreign firms, it doesn’t fare better—it just reverses the same flawed logic, assuming weak currencies boost overseas revenues and forgetting they raise import costs—something Japan has proven in spades since 2013.

By , EUbusiness, 10/20/2015

MarketMinder's View: After years of tighter credit conditions across the eurozone—following the global financial and sovereign debt crises— banks are increasingly relaxing lending standards, according to a recent European Central Bank survey. This is a positive for the region, as more lending leads to more economic activity. It’s also a sign investor sentiment for the 19 country bloc remains too dour. Reality may not be overwhelmingly positive, but if it surpasses too-gloomy expectations that’s enough for eurozone stocks to rise.  

By , Vox, 10/20/2015

MarketMinder's View: Two economists have concluded the 2008/2009 recession would have been much worse had the government and Federal Reserve not provided economic and monetary stimulus—and they are probably right. When credit and demand are frozen, a jumpstart helps. But we have some big quibbles with their model, which assumes each post-crisis policy had a certain economic impact. Did 2009’s fiscal stimulus “cut unemployment by 1.4 points and increase GDP by 3.3 percent in 2010”? Maybe, but there is no way to quantify it. The impact could have been smaller or greater. As for quantitative easing (QE), we have a hard time believing it “added 1.1 percent to GDP and cut unemployment by 0.6 points in 2012,” by which time QE had flattened the yield curve, choking lending and shrinking the broad money supply (measured by M4) for 18 months. TARP and the stress tests “[cutting] unemployment in 2011 by 2.2 points and [increasing] GDP by 4.2%”? That seems odd considering many TARP recipients didn’t want or need the money and, by 2011, stress tests were more of an annoyance for banks than they were a confidence booster for the public. Folks: It is entirely possible growth would have been faster without some of these policy blunders, not slower. For investors, this is all academic, but it is a good reminder not to blindly accept conventional wisdom, which is often driven more by bias and myth than fact.

By , The Wall Street Journal , 10/20/2015

MarketMinder's View: This gets a couple things right, like investing in bonds for total return rather than chasing yield alone. That is a point too many folks miss. We also agree less liquid products like CDs, which usually have long lock-up periods, aren’t ideal for most folks. However, in our view, it oversimplifies bond market risks. US Treasurys might have the world’s lowest default risk, but they’re still vulnerable to other forms of risk, like interest rate risk, reinvestment risk and inflation. Corporate bonds might have higher default risk but are often less sensitive to changes in government interest rates. Owning higher credit quality bonds doesn’t minimize risk, it only mitigates certain risks. No one style is best for all time, and that goes for stocks as well as bonds.

By , The Wall Street Journal, 10/20/2015

MarketMinder's View: Earlier this year, after oil prices’ slide hit small Energy firms hard, some hedge funds loaded up on their debt, believing it will rebound along with oil prices as the year progressed. But oil prices have remained low, resulting in losses for the hedge funds that made these bets. Now, we don’t mean to pick on the funds highlighted in this piece, but the saga illustrates two timeless points. One, just because something has fallen far doesn’t necessarily mean it’s about to go back up. It can always fall further. Two, beware wildly popular moves like Energy bottom-fishing was earlier this year. Sometimes the crowd is right, but all too often, mass enthusiasm is a sign sentiment hasn’t yet turned. Usually, popular moves work out poorly, and unpopular moves are most rewarding.

By , The Los Angeles Times, 10/20/2015

MarketMinder's View: Though not perfect, this take on US debt is more sensible than not and dispels the widely held claim the US is over-indebted. Many who believe the US has a debt problem point to rising debt-to-GDP ratios, but this ignores the ease with which the US can service its debt, with revenues far outstripping interest payments. Also, many underappreciate debt-to-GDP ratios can go down not just by reducing debt, but by lifting GDP! This is what happened after net public debt-to-GDP climbed to over 100% in 1946, as the US borrowed heavily to fund World War II. Total debt more or less flat-lined over the next decade, but a booming post-war economy reduced debt-to-GDP down to just over 50% by the end of the 1950s. This shows that high debt-to-GDP isn’t the growth killer some presume. Instead, growth can be a high debt-to-GDP killer. Deliberately paying down debt, by contrast, would reduce the quantity of money in circulation and could thus be a growth killer.

By , Yahoo Finance, 10/20/2015

MarketMinder's View: Some have dubbed the forecast consecutive decline in S&P 500 earnings an “earnings recession,” and they suggest stocks will be stuck in neutral until earnings resume growing. But as this piece correctly notes, the slight dip in earnings is almost entirely due to cratering Energy sector profits, the result of a global oil supply glut, not a faltering economy. Analysts currently expect S&P 500 earnings to rise 0.2% y/y in 2015, but excluding Energy they are expected to grow 7.3%. Folks, we aren’t in an earnings recession, we’re in an energy recession, which isn’t a recession. That most still trumpet the headline numbers and fears of a strong dollar, without realizing the dollar is basically a zero-sum game for multinationals, suggests stocks should enjoy some positive surprise as reality beats expectations. The fear is baked in, but the positive reality probably isn’t.

By , The Fiscal Times, 10/20/2015

MarketMinder's View: The supposed cracks are rising credit downgrades, debt burdens and defaults, as well as falling junk bond prices, ostensibly signaling credit-driven growth is at an end and stocks are in danger. This all misperceives how markets work: One liquid market (bonds) can’t predict another (stocks). They receive and price in all widely known information simultaneously, and it is a fallacy that bond markets are more accurate than stocks. Though corporate bond and stock markets have some overlapping drivers, they aren’t identical. Interest rates, for example, have a direct impact on bond prices but hold far less sway (on their own) over stocks. Corporate bond markets are also skewed heavily by Energy firms’, where defaults are concentrated. Also, to say rising corporate debt enabled financial engineering and nothing else rewrites history. Yes, stock buybacks are up, but business investment—in R&D as well as software, equipment and facilities—is at all-time highs and rising. Corporate balance sheets actually remain quite healthy, too, with record levels of cash. And one firm reducing its earnings guidance for 2016 is simply not a barometer of forthcoming weakness. Particularly when its earnings are set to fall because it is investing more in human capital. But also,  some perspective is in order: default rates may be up for lower-rated US corporate bonds—to 2.5% in September from 1.4% last July—but the average default rate since 1983 is 4.9%.

By , The Telegraph, 10/19/2015

MarketMinder's View: The major reason, as we’ve noted many times, is that there isn’t any evidence suggesting the slowdown is moving markedly differently than it has for the past four-plus years. And that statement applies not just to published government economic data like GDP, but also to the commentary of Western business leaders transacting in China. This article does a fairly effective job of putting that engineered, intentional slowdown in proper perspective. But in addition, consider: China’s the world’s second-biggest economy these days. Even applying a healthy dose of skepticism to official data showing 6.9% y/y GDP growth suggests China is still adding mightily to global economic output.

By , CNBC, 10/19/2015

MarketMinder's View: In our view, the three potential triggers included here are pretty darn unlikely to cause a bear. They are: Firms slowing down buybacks and, since there haven’t been big inflows into mutual funds and ETFs, this is the only thing propping stocks; Folks running out of “cash to put to work” in stocks, because they already loaded up using margin and putting cash in; “ETFs causing market distortions” because they are passive products that mirror indexes and “won’t step up and buy amid a market crash.” We kind of figure the first two false fears cancel, because you can’t fear folks have already dove in deep into equities and fear they haven’t at all and won’t. But the bigger issue is this all seems a function of the question, “Who’s going to buy? Where’s the dry powder?” Stocks don’t need new buyers or cash to rise, all they need are two bidders to bid up the amount they are willing to pay for shares. That might be from selling one smaller cap stock and bidding up a bigger one. All else equal, that would have the effect of driving up a market-cap weighted index like the S&P 500. Finally, the ETF one is strange, because the value investors would be buying the ETF itself, in theory. It wouldn’t matter that the product was passive—the investor buying it isn’t.

By , CNBC, 10/19/2015

MarketMinder's View: Here US Treasury Secretary Jack Lew again argues the US must raise the debt ceiling or it risks default, claiming that despite the fact tax revenue covers interest payments more than 10 times over, the government cannot prioritize payments. Lew told reporters, “It's also not possible to pick and choose. We have about 80 million transactions a month. Our system wasn't set up not to pay.” Well, the 14th Amendment of the US Constitution’s Public Debt Clause, as interpreted by the Supreme Court, says they must prioritize payments. And, the Treasury itself blogged just last week that it could. A senior Treasury aide admitted as much when questioned under oath in front of Congress. And, ultimately, there is a difference between paying interest due bondholders and making other payments. The former is a debt default. The latter isn’t. Obligations aren’t the same as debt, folks.

By , The Wall Street Journal, 10/19/2015

MarketMinder's View: We frankly don’t understand why this theory—that low bond yields are causing a dearth of interest payments to investors—is news at all. Interest rates have been low since 2009, and we are pretty sure most investors know it. We are also thoroughly unconvinced investors buying bonds for total return (price movement and yield) is new. Nor is it a new risk, because no matter the levels they start from, rates can always move up and down. Besides, today’s US sovereign bond rates aren’t historically unprecedented. The highest 10-year rate seen since 2008 was 3.85%. In the 30 years between 1930 and 1960, US 10-year Treasury yields were below that rate 94% of the time (339 of 360 months) and below 3% in 260 of 360 months (72% of the time). Of course, rates took off in the 1960s and 1970s, but maybe it is equally as arguable that is the aberration as today’s low rates.

By , Rortybomb Blog, 10/19/2015

MarketMinder's View: Here is a four-pronged look at what’s known in economic circles as the “Too Big to Fail” subsidy—the theory the biggest banks can more easily and cheaply access credit markets and grow because investors believe there is implicit government backing of these institutions and not smaller ones—a popular theory post-2008, indeed. But while popular, it is far from proven. What if, instead of implicit government backing acting as subsidy, investors simply believed small banks with more regional ties and less diverse revenue streams were more imperiled than big ones with more diverse business models? What if they saw, as the government apparently did, judging from its actions during the S&L Crisis and 2008, that consolidation via big banks could mitigate risk? Moreover, if we presume there was implicit government backing in the run up to the crisis, wouldn’t the government’s haphazard behavior in allowing Lehman to fail after brokering a deal for Bear Stearns, then sort-of bailing out non-bank AIG (but wiping out shareholders) have destroyed that belief forever? Ultimately, we didn’t get a financial panic because a big bank failed. We got a financial panic because of the nonsensical, repeat firesales of illiquid assets caused by the unintended consequences of FAS 157 and the US government’s unintelligible behavior in trying to stanch the bleeding. Those actions threatened banks big and small. Bigger banks were simply better able to deal with it.

By , The Wall Street Journal, 10/19/2015

MarketMinder's View: This article presumes gold is usually a safe haven against geopolitical concerns, inflation and financial upheaval, but it isn’t now and is instead exclusively focused on the Fed. However, we’d suggest a less myopic and skewed view shows gold is a play on the supply and demand for … gold. That’s it. It is decidedly not a hedge against war, pestilence or any other financial plague you can think of. Here is gold’s story in the last 25 years: Mining went through a period of underinvestment in the 1990s, as firms reacted to low prices—restricting supply. In the early 2000s, gold producers created the gold ETF, increasing the ease of investment and stoking demand. Growth in Emerging Markets and elsewhere also increased demand for jewelry and such, driving prices up. Production followed. But! Since 2011 gold prices have been in a bear market. Also since 2011, folks have feared debt, inflation, the Syrian conflict, ISIS, Russia annexing Crimea and more. Which sound awfully similar to events this piece claims gold historically hedged, including Russia invading Afghanistan in 1980, the Iranian Revolution, inflation fears in 2009 and 2010 and more. As for the notion gold is now a play on the Fed, we also note that a rate hike was not widely feared in 2011, particularly as central banks were actively launching and expanding quantitative easing programs, yet gold fell precipitously. Oh and here is a chart of gold in the five equity bear markets in which it has been freely traded. Doesn’t look like a great hedge to us, particularly given that -46% drop coincident with stocks from 1980 – 1982. Don’t believe the hedge hype.

By , CNBC, 10/16/2015

MarketMinder's View: Maybe the Treasury International Capital report is new to some, but we’ve long been aware of both it and the false fear of China dumping US debt. China, folks, has been selling US debt for much of 2015. And where have US interest rates gone? Nowhere except slightly down. The US government simply doesn’t rely on foreigners to finance our debt and keep rates low. Demand from private investors, pensions, banks and more is plenty sufficient to keep rates low. For every bond sold, someone has to buy. Besides, US interest payments only amount to about 8% of US tax revenue—low by historical standards—and if rates rose, this wouldn’t impact debt payments immediately. The US pays rates determined at issue only, and because the average maturity of US debt is almost 70 months, current low rates are locked in for a spell. Oh, and finally: “Easing,” as in “Quantitative Easing” presumes Fed policy makes money simpler to come by. QE didn’t do that, as evidenced by low loan growth while bond buying was ongoing. The reason is QE flattened the yield curve, making lending less profitable for banks. Hence, slightly higher rates on the long end would not be “tightening,” quantitative or otherwise.

By , CNBC, 10/16/2015

MarketMinder's View: Here is yet more handwringing over headline earnings that doesn’t take into account the fact S&P 500 profits are downwardly skewed into negative territory by only one sector: Energy. In Q2, for example, headline earnings fell -0.7%, but strip out Energy earnings and profits rose 5.9%. That oil prices taking a 60-ish-percent dive hammers oil companies’ profits is widely known information, not a surprising new negative for stocks.

By , Bloomberg, 10/16/2015

MarketMinder's View: This article is ever so close to being a sensible look at the fact quantitative easing hasn't stimulated economic activity, but it misses a crucial point: Yes, QE lowered long-term interest rates, but that isn't necessarily stimulus. You see, when the Fed created new reserves and used them to buy bonds (lowering rates), it narrowed the spread between short- and long-term interest rates, a proxy for bank lending's profitability because banks tend to borrow short term and lend long term at higher rates. Less profitable lending likely means less plentiful lending, and if banks don't lend—as this article notes—QE can't stimulate anything.

By , The Wall Street Journal, 10/16/2015

MarketMinder's View: We warned weeks ago debt-ceiling default talk would start swirling the closer we get to the date Treasury has pinpointed as the expiration of its “extraordinary measures” used to fund government in lieu of issuing debt. That date, according to Treasury Secretary Jack Lew, is November 3. But folks, this article and the Treasury’s claims herein are faulty. Consider: default is a very specific thing—the failure to pay interest and principal to bondholders. It is not failing to send Social Security checks or other bills out. And, in that light, consider: “First, the Treasury and its fiscal agent, the Federal Reserve Bank of New York, did conclude during previous debt-limit standoffs that it would be technologically capable to pay principal and interest ahead of other government payments, though it had previously warned that such an approach ‘would be entirely experimental and create unacceptable risk to both domestic and global financial markets.’” So they can prioritize and in fact, the 14th Amendment’s Public Debt Clause (which this article correctly notes doesn’t allow the president to ignore the debt ceiling) requires them to. We fully disagree with the notion this would create risks—which is a government market forecast, something totally unproven to be accurate—because what it would actually do is prove the US government’s full faith and credit isn’t threatened by the debt ceiling, which would greatly defang this as a political leverage tool forever and ever. That is why they’ll likely raise the ceiling, probably at the alleged “last minute.”

By , The Wall Street Journal, 10/16/2015

MarketMinder's View: Want a few reasons not to go whole hog into newfangled crowdfunding fads? How do these strike you: “Costs are steep: Management fees and expenses can go up to 12%, meaning that you have to earn nearly 14% just to break even. You can’t sell your stake to anyone else and should expect to hold for several years. The claims of crowdfunding promoters aren’t subject to the same regulatory scrutiny as, for example, the performance numbers of mutual funds.” Not to mention, this industry has never been through a downturn, which has a tendency to shine a light on some previously dark areas. Our advice? Chances are you don’t need to swing for the fences to reach your investment goals. So why take the risk in an illiquid, high-fee approach with no history or oversight?

By , Bloomberg, 10/16/2015

MarketMinder's View: While this article correctly documents some of Brazil’s struggles, it misses the two major ones: 1) It is a commodity-heavy economy and 2) The government heavily interferes in domestic economic affairs, to little actual benefit. Yes, the political crisis engulfing Brazilian President Dilma Rousseff is an added headwind, but it pales in comparison to the other two. As for the credit-ratings downgrade, that was more an acknowledgement of long-standing issues than new news, which the fact this is a two-year old downturn illustrates—the two downgrades referred to herein took place in August and October of this year, meaning the recession predates them by 22 months.

By , The Wall Street Journal, 10/15/2015

MarketMinder's View: So conventional wisdom says hitting the debt ceiling makes the US a bigger credit risk and raises the likelihood of default, which should thus drive bond yields higher. Conventional wisdom is wrong, as it often is. Hitting the debt ceiling reduces the supply of US Treasurys, and demand is sky-high, so investors bid bond prices up and yields down. This would not happen if there were a snowball’s chance of defaulting. What does the market know? Well, it knows Congress has raised the debt ceiling 109 times before. It also knows the 14th Amendment and judicial precedent force the Treasury to continue servicing debt with cash on hand and incoming tax revenue, which far outstrip interest costs, so even if Congress dithers a few months, Uncle Sam will keep paying his creditors.

By , The Guardian, 10/15/2015

MarketMinder's View: Indeed, jobless claims don’t say much about the broader economy’s health, and they aren’t a forward-looking indicator—labor markets follow the broader economy at a hefty lag. But, you also won’t get that great a read from taking retail sales, productivity, inflation, Winnebago profits or Wal-Mart’s earnings guidance at face value. Retail sales are but a slice of consumer spending, and they’re skewed downward by falling gasoline prices—excluding gas stations, sales are cruising. Productivity is a lagging indicator, as you get it by dividing last quarter’s GDP by hours worked. It’s a rough gauge, doesn’t predict future growth, and misses a lot. Inflation is low because commodity prices plunged, which actually helps consumers. The profitability of one motorhome maker is basically meaningless. And companies lower earnings guidance all the time, often for reasons that have nothing to do with a faltering economy.

By , The New York Times, 10/15/2015

MarketMinder's View: Just when UK business lending was finally turning up, the BoE revealed the biggest banks might need to boost capital by $5 billion by 2019 to comply with new rules requiring banks to ring-fence their British retail banking units, firewalling them from their global and investment banking operations. Think of it as a Volcker Rule for Britain, except with more teeth, higher compliance costs and perhaps a bigger impact on lending. Now, $5 billion scattered across five or six banks isn’t huge, and they can probably get there simply by retaining earnings over the next three years—and it’s a positive that they’re finally getting clarity on all this. But it’s also a solution in search of a problem, considering ring-fencing wouldn’t have made much of a difference in 2008. The UK’s failed banks—Northern Rock and Bradford & Bingley—were basically thrifts.

By , The Washington Post, 10/15/2015

MarketMinder's View: Here is a pretty great look at the importance of accounting for inflation when you plan your retirement—and the importance of being more specific than just applying the Consumer Price Index’s (CPI) annual inflation rate to your personal expenses. The CPI is a basket of goods and services, and chances are it doesn’t represent most retirees’ cost of living, as folks usually gravitate towards certain expenses, like health care, which has historically increased at a faster rate than CPI. And because of how Social Security benefits are tabulated, many retirees might rely steadily more on their savings over time: “People receiving Social Security benefits have seen their buying power fall by 22 percent since 2000, according to an estimate from the Senior Citizens League. Average Social Security benefits have grown to $1,166.30 a month in 2015 from $816 in 2000, according to the report. But retirees would need a monthly benefit of $1,418 to have the same purchasing power they had when they first retired, the survey found.”

By , The Wall Street Journal, 10/15/2015

MarketMinder's View: Yes, Emerging Markets (EM) are a bigger player in the global economy now than in the late 1990s. And yes, the US economy is growing a bit slower. However, back then, many EMs had unsustainable currency pegs to the dollar, limited currency reserves and more closed off financial systems. When the currency pegs broke due to the strong dollar, EM economies cratered. Without the pegs, it is unlikely EM economies see a similar downturn. Commodity-dependent EMs will have trouble, but their currencies have already fallen significantly, and their interest rates have risen, signaling how well aware markets are of these issues. They’re country-specific, not global.

By , Bloomberg, 10/15/2015

MarketMinder's View: “China’s broadest measure of new credit exceeded estimates in September, suggesting the government’s efforts to boost lending are gaining traction. Aggregate financing rose to 1.3 trillion yuan ($205 billion), from an originally reported 1.08 trillion yuan in August, according to a report from the People’s Bank of China. That exceeded the median estimate for 1.2 trillion yuan in a survey of economists.” This is not what a hard landing looks like, folks.

By , Financial Times, 10/15/2015

MarketMinder's View: So, a couple things here. First, the UK Parliament passed a commitment to obliterate the budget deficit by 2019 and, from thereafter, run a surplus unless GDP grows less than 1% on a rolling one-year basis. This is … odd, and not exactly economic magic, as running a perpetual surplus and using it to pay down debt would shrink the money supply. The 1% growth threshold is also a bit arbitrary and could limit the government’s ability to address rapidly deteriorating economic conditions with fiscal stimulus. At the same time, prior UK governments have made and abandoned similar commitments, and this charter has plenty of get-out clauses, so it isn’t a huge risk. Second, and perhaps more meaningful in the here and now, the vote betrayed all of new Labour leader Jeremy Corbyn’s political weaknesses, highlighting the difficulty he will have in remaining party leader through the 2020 election. Many current and former shadow cabinet members rebelled, forcing him to U-turn on threats to fire them if they abstained or voted for the bill. This U-turn follows his Shadow Chancellor’s U-turn on whether to support the bill in the first place. Some shadow ministers are now plotting their resignations, which is usually step one in a party coup. Now, maybe Corbyn survives this, but the saga underscores the pointlessness of fearing or cheering the ascendance of politicians five years before an election. A lot can change, and markets move on probabilities, not possibilities.

By , Financial Times, 10/15/2015

MarketMinder's View: In this case, “rise” means “rise 10 basis points in two days to settle at a still-quite-low 2.5%,” and Portugal has financed itself through year-end already, so the debt crisis isn’t returning. Markets are just a bit skittery over coalition talks’ lack of progress after the October 4 election. Prime Minister Pedro Passos Coelho’s center-right coalition won the most votes but fell short of a majority, and talks to secure center-left support for a minority government are going nowhere. The center-left’s talks with the more radical left are going better, which seems to have raised fears about a Syriza 2.0 for Portugal, but that seems awfully far-fetched. This potential coalition calls itself anti-austerity, but it has also vowed to comply with all of Brussels’ budget demands and is very pro-euro. The risks of politics sending Portugal adrift appear awfully low.

By , The Telegraph, 10/15/2015

MarketMinder's View: UK regulators are writing new rules to crack down on financial sector wrongdoing, and the original proposal put the burden of proof on bank executives, not the enforcers—so a CEO would have to prove they were unaware of misdeeds in the lower ranks. Last night, the Treasury reversed this, putting the burden of proof on regulators and granting execs the presumption of innocence. Look, we hate wrongdoing and believe anyone breaking the law should be punished, but (and regardless of how you might feel about bank CEOs overall) this is a positive development for markets. Stocks do best, and businesses are most comfortable taking risk, when the rule of law is stable and predictable. Regulatory proceedings are part of this, and if their legal code were radically different from the UK’s statutes, it could introduce uncertainty and incentivize firms to hunker down and take less risk—and contribute less to the economy as a result.

By , The Telegraph, 10/15/2015

MarketMinder's View: Did the UK Office for National Statistics’ move from London to Welsh city Newport impact the accuracy of data released since 2007? Maybe, maybe not, it is impossible to isolate and quantify, and of course there is no counterfactual. London-based statisticians might have had difficulty managing the switch to a new method of collecting and estimating construction data, too, and Wales has many fine minds (and an awesome rugby squad). But the fact anyone is even asking this question shows the limitations of GDP and its ilk as a measure of the economy. Anything subject to human error, regardless of those humans’ postcode, can’t have airtight accuracy.  

By , EUbusiness, 10/15/2015

MarketMinder's View: Looks like we’re starting to get a timetable for the UK’s renegotiation of its relationship with the rest of the EU and eventual referendum on continued membership. Prime Minister David Cameron will present his official EU reform demands in early November, and fellow EU leaders will stew over them for a month before discussing at December’s summit. If they reach a deal then, the referendum could occur sometime in 2016. Though, if negotiations take longer, that could stretch things out, and the referendum isn’t due until year-end 2017. (And, as this awesome interactive graphic at The Telegraph shows, negotiations probably won’t be a cakewalk.) For investors, the important thing is this is all playing out in the public eye, with plenty of transparency, and not behind closed doors. That allows markets to discount eventual outcomes gradually, reducing surprise potential.

By , The Washington Post, 10/14/2015

MarketMinder's View: Disruptive technologies—technological innovations that unexpectedly displace established ones—raise our standard of living over time. Most are familiar with all the disruption in the tech world, but other, historical disruptions like home appliances deserve just as much admiration—and had big economic benefits. By automating housework, things such as washing machines, refrigerators and dishwashers freed folks from hours of manual labor around the house, boosting productivity and women’s participation in the labor force. We’re actually still seeing the fruits today, with the wave of stay-at-home parents turned kitchen-table entrepreneurs. When your snazzy washing machine does the laundry while your robo vacuum cleans the floors, that frees up time to make and sell jewelry, woodwork, hand-made clothes and the like; design spreadsheets; moonlight as a freelance writer; or so many other things. Many of these aren’t tallied in GDP, just as appliances’ impact on household labor didn’t, but they’re just as real and beneficial for all! This underscores both the limitless potential of growth and the limits of traditional economic statistics, two things all investors should keep in mind. We will likely see more big innovations in the years to come that further changes society for the better, whether it be autonomous vehicles or advancements in bio-technology, communications, energy and materials.

By , The New York Times , 10/14/2015

MarketMinder's View: In last night’s Democratic presidential debate, candidates mentioned Glass-Steagall eight times—a 1933 law that separated commercial and investment banking. The law was repealed in 1999, and some believe this caused (or intensified) the 2008 financial crisis. While this piece ignores the role mark-to-market accounting (FAS 157) and the government’s schizophrenic response to failing banks had in causing the crisis, it correctly points out that Glass-Steagall is an unfair scapegoat, as the banks that failed or were bailed out in 2008 were either pureplay investment banks or glorified savings & loans. Bank of America actually received money to assist with its purchase of Merrill Lynch (just as the feds helped JPMorgan Chase buy Bear Stearns)—the megabanks were the chosen solution, not the problem. Irony can be pretty ironic sometimes. So while you’re likely to hear candidates continue to suggest Glass-Steagall should be reinstated as the campaign picks up speed, overall, it would likely be a solution in search of a problem.  

By , Reuters, 10/14/2015

MarketMinder's View: US retail sales rose just 0.1% m/m in September, and growth for August was revised to flat from the previous estimate’s 0.2% jump. Separately, producer prices fell -0.5% m/m in September, the largest drop since January. This, along with economic data suggesting global growth has slowed lately, has caused some to push out expectations for a Fed rate hike. As we’ve said for some time, though, whether the Fed begins raising rates soon or months down the road doesn’t matter very much for investors. Initial Fed rate hikes have never ended bull markets. Overall, we’d prefer the Fed just get on with it so investors can finally get over this long-running false fear. Oh, and most of the retail sales report’s weakness came from gasoline sales, a byproduct of falling gasoline prices. Excluding gas station sales, retail sales rose 0.4% in September and 0.2% in August.

By , Financial Times, 10/14/2015

MarketMinder's View: Amid widespread concerns of slowing global growth, here is a potential positive getting very little attention these days: A China-Australia free trade agreement.  If ratified, it would eliminate tariffs on 95% of Australian exports to China, including agricultural products such as beef and dairy. Also, Australia would grant up to 5,000 work visas to Chinese nationals and reduce barriers to private Chinese companies making investments in Australia. Some obstacles to ratification remain, but should this agreement come to fruition it would be a positive not just for Asia, but for the world as well—markets love free trade, and economically, it is a net benefit for all participants.

By , CNN Money, 10/14/2015

MarketMinder's View: After years of foreign central banks being net buyers of US debt, they are now net sellers, as Emerging Market countries reduce foreign exchange reserves to support their currencies, which have weakened amid the global commodities slump. But instead of US debt falling in value, it has risen over the last year, as demand from private investors and financial institutions has more than offset central bank selling.  With its large, diverse, resource-rich economy, strong property rights, deep markets and low interest payments as a percentage of revenues, the US remains one of the world’s lowest credit risks. Also, that whole “global savings glut” thing is a myth. It implies money piled up in bonds and just sat there with nowhere to go, but that isn’t true. Money saved is money lent to governments, businesses and individuals, which in turn gets spent and circulates many times over. The notion of idle capital just isn’t true.

By , CNN Money, 10/14/2015

MarketMinder's View: After years of foreign central banks being net buyers of US debt, they are now net sellers, as Emerging Market countries reduce foreign exchange reserves to support their currencies, which have weakened amid the global commodities slump. But instead of US debt falling in value, it has risen over the last year, as demand from private investors and financial institutions has more than offset central bank selling. With its large, diverse, resource-rich economy, strong property rights, deep markets and low interest payments as a percentage of revenues, the US remains one of the world’s lowest credit risks. Also, that whole “global savings glut” thing is a myth. It implies money piled up in bonds and just sat there with nowhere to go, but that isn’t true. Money saved is money lent to governments, businesses and individuals, which in turn gets spent and circulates many times over. The notion of idle capital just isn’t true.

By , CNN Money, 10/14/2015

MarketMinder's View: Yes, but 6.7% growth—current estimates for China’s Q3 GDP growth—is still one of the highest rates in the world for a country as big as China. At this rate, Chinese growth will add about a half trillion dollars to global output this year—roughly another Taiwan, Norway, or Belgium—about as much as it added years ago when it grew at double-digit rates.  Look, we get that people don’t fear Chinese growth is too low in absolute terms. Instead, they fear it’s slowing and that the deceleration may pick up speed. But the recent slowdown is not out of line with that of the last few years, and Chinese officials are employing fiscal and monetary stimulus to help prevent a more rapid slowdown. For more, see our 9/15/2015 commentary, “China’s Growth: Slower, But Not Slumping.”

By , CNBC, 10/14/2015

MarketMinder's View: Alternative investments—asset classes other than stocks and bonds or strategies that mix long and short stock and bond positions—have gained in popularity since 2008, as investors seek growth but with less correlation to traditional investments, to mitigate risk. They are typically less liquid than stocks and bonds, and include real estate, commodities, futures, private equity and venture capital, historically making it difficult for retail investors to own them. Until now, that is, thanks to the proliferation of alternatives funds. As this piece correctly notes, not all funds labeled “alternative” are created equally. A long-short stock fund is wildly different from a multicurrency strategy, which is different from a managed futures fund. You should always understand what you’re buying, what its risk/return tradeoffs are, and how its returns correlate to the rest of your portfolio. However, we disagree with the statement that all investors should allocate a portion of their portfolios to alternatives to maximize diversification. They might be useful for some investors in certain circumstances, but they aren’t right for everyone. Whether they’re right for you depends on your long-term needs, time horizon, cash flow needs and overall financial situation. If you need long-term growth to fund your retirement, for example, plopping a big chunk of your savings in a vehicle that doesn’t capture bull market returns and likely has high costs might not be so wise.

By , CNN Money, 10/14/2015

MarketMinder's View: After years of foreign central banks being net buyers of US debt, they are now net sellers, as Emerging Market countries reduce foreign exchange reserves to support their currencies, which have weakened amid the global commodities slump. But instead of US debt falling in value, it has risen over the last year, as demand from private investors and financial institutions has more than offset central bank selling.  With its large, diverse, resource-rich economy, strong property rights, deep markets and low interest payments as a percentage of revenues, the US remains one of the world’s lowest credit risks. Also, that whole “global savings glut” thing is a myth. It implies money piled up in bonds and just sat there with nowhere to go, but that isn’t true. Money saved is money lent to governments, businesses and individuals, which in turn gets spent and circulates many times over. The notion of idle capital just isn’t true.

By , CNN Money, 10/14/2015

MarketMinder's View: After years of foreign central banks being net buyers of US debt, they are now net sellers, as Emerging Market countries reduce foreign exchange reserves to support their currencies, which have weakened amid the global commodities slump. But instead of US debt falling in value, it has risen over the last year, as demand from private investors and financial institutions has more than offset central bank selling.  With its large, diverse, resource-rich economy, strong property rights, deep markets and low interest payments as a percentage of revenues, the US remains one of the world’s lowest credit risks. Also, that whole “global savings glut” thing is a myth. It implies money piled up in bonds and just sat there with nowhere to go, but that isn’t true. Money saved is money lent to governments, businesses and individuals, which in turn gets spent and circulates many times over. The notion of idle capital just isn’t true.

By , The Guardian, 10/13/2015

MarketMinder's View: We don’t love the entire discussion herein, which incorrectly blames greedy bankers for 2008’s global financial crisis, among other logical errors. However, there is a lot of good sense if you can look past that. For example: “The problem is not so much that there is a Nobel prize in economics, but that there are no equivalent prizes in psychology, sociology, anthropology. Economics, this seems to say, is not a social science but an exact one, like physics or chemistry – a distinction that not only encourages hubris among economists but also changes the way we think about the economy. A Nobel prize in economics implies that the human world operates much like the physical world: that it can be described and understood in neutral terms, and that it lends itself to modelling, like chemical reactions or the movement of the stars. It creates the impression that economists are not in the business of constructing inherently imperfect theories, but of discovering timeless truths.” The points about the ideological nature of how various econometrics were designed is also a spot-on criticism.

By , The Guardian, 10/13/2015

MarketMinder's View: We don’t love the entire discussion herein, which incorrectly blames greedy bankers for 2008’s global financial crisis, among other logical errors. However, there is a lot of good sense if you can look past that. For example: “The problem is not so much that there is a Nobel prize in economics, but that there are no equivalent prizes in psychology, sociology, anthropology. Economics, this seems to say, is not a social science but an exact one, like physics or chemistry – a distinction that not only encourages hubris among economists but also changes the way we think about the economy. A Nobel prize in economics implies that the human world operates much like the physical world: that it can be described and understood in neutral terms, and that it lends itself to modelling, like chemical reactions or the movement of the stars. It creates the impression that economists are not in the business of constructing inherently imperfect theories, but of discovering timeless truths.” The points about the ideological nature of how various econometrics were designed is also a spot-on criticism.

By , Financial Times, 10/13/2015

MarketMinder's View: It’s premature to handicap the likelihood of Britain leaving the EU, but we expect the papers will be chock full of articles fearfully parsing every development along the course of the next year or so. This article perhaps does a bit too much forecasting of what may happen for our tastes, but it offers up some very interesting insights along the way, too. “If we vote to leave, we will not really leave. A bargain will be brokered that preserves some British access to the European market in exchange for some duty to observe European laws — a version of the Swiss and Norwegian compromises. Over time, this diminished form of membership will start thickening out again as exporters ask for access to new sectors of the single market and regulations are borne as the price. Meanwhile, European Court of Justice rulings on Britain’s status will pile up, and they will tend to bind us in to the club making it harder for us to stand apart. One day, we will wake up and realise we have something tantamount to EU membership. Then we will get on with our lives.”

By , The New York Times, 10/13/2015

MarketMinder's View: Merger and acquisition (M&A) activity is heating up, with nearly $3.5 trillion of deals occurring so far this year. It’s true mergers and acquisitions, especially big ones, tend to happen more in maturing bull markets than in early stage ones—the executive suite happens to be more risk averse (and possibly have less resources at their disposal) when they’ve just dealt with a recession and downturn. But this piece takes this a step further, suggesting the recent M&A surge is a signal the bull market is nearing its end, citing the allegedly weak economy and poor fundamentals of the merging companies. And in certain cases, that might be true! But that evidence is anecdotal, and the lion’s share of deals seem to us to hinge on firms trying to take advantage of opportunities. Besides, a company merging to cut costs isn’t a sign of euphoria—that would be deals that make little to no business sense, like the one involving a certain media firm and a certain internet access provider back in 2000. Besides, even the titular assertion that this signals the “beginning of the end” of the bull market isn’t exactly a telling call. After all, how long is that final up stage?

By , The New York Times, 10/13/2015

MarketMinder's View: Merger and acquisition (M&A) activity is heating up, with nearly $3.5 trillion of deals occurring so far this year. It’s true mergers and acquisitions, especially big ones, tend to happen more in maturing bull markets than in early stage ones—the executive suite happens to be more risk averse (and possibly have less resources at their disposal) when they’ve just dealt with a recession and downturn. But this piece takes this a step further, suggesting the recent M&A surge is a signal the bull market is nearing its end, citing the allegedly weak economy and poor fundamentals of the merging companies. And in certain cases, that might be true! But that evidence is anecdotal, and the lion’s share of deals seem to us to hinge on firms trying to take advantage of opportunities. Besides, a company merging to cut costs isn’t a sign of euphoria—that would be deals that make little to no business sense, like the one involving a certain media firm and a certain internet access provider back in 2000. Besides, even the titular assertion that this signals the “beginning of the end” of the bull market isn’t exactly a telling call. After all, how long is that final up stage?

By , Marketwatch, 10/13/2015

MarketMinder's View: The debate here centers on the fact Materials, Energy and Industrials were the weakest sectors in 2015 before the correction began in earnest but have outperformed the broad market since September 29, when the current rally began. One side argues this is historically normal, as stocks that fall the most typically bounce back the quickest—which is generally true of bear markets, but not necessarily corrections (the chart included here is a pretty skewed look at that, too, considering it is only 15 years of data and extremely skewed by the two big bear market bouncebacks in 2003 and 2009). The other side, however, argues recent strength in previously lagging sectors is evidence we’re in a bear market—which is a theory without historical precedent. Folks, this debate may be interesting, but it means absolutely nothing for stocks’ future direction. A sector’s outperformance over very short periods—regardless of how it performed in the recent past—offers no mystical revelations regarding where the broader market is headed. This is yet another example of people searching for meaning bouncy times. Or, in this case, we guess “searching for meaning in bounce backs.”

By , The New York Times, 10/13/2015

MarketMinder's View: High-Frequency Trading (HFT)—using sophisticated computer algorithms to rapidly trade securities—has gotten a bad rap over the last few years. Many believe high frequency traders take unfair advantage of others, enriching practioners by essentially skimming fractions of a penny off of billions of transactions, a la Superman 3 or Office Space by using computers to front run slower traders. But that narrative is too biased and isn’t a full accounting of the industry. This piece offers a sensible counterpoint on why HFT is not the scourge many claim: by increasing market liquidity, HFT lowers bid/ask spreads—the difference in price to buy and sell a security at any given moment. What’s more, consider: “The most commonly cited statistics suggest that high-frequency traders are making, at most, a few billion dollars a year in the stock markets. That take has been shrinking steadily in recent years, according to research from the Tabb Group, and is much smaller than what was captured by the old middlemen in the stock markets whom the high-speed traders largely replaced: the bank and brokerage employees on the floor of the New York Stock Exchange.” Ironically, there are few HFT firms in the bond markets, and investors pay more to trade with less liquidity. Now, none of this is to say all players and strategies in the HFT industry are a net positive—we’re sure some aren’t—but that doesn’t mean painting the industry with a broad brushstroke of “Bad!” is correct, either.

By , The New York Times, 10/13/2015

MarketMinder's View: High-Frequency Trading (HFT)—using sophisticated computer algorithms to rapidly trade securities—has gotten a bad rap over the last few years. Many believe high frequency traders take unfair advantage of others, enriching practioners by essentially skimming fractions of a penny off of billions of transactions, a la Superman 3 or Office Space by using computers to front run slower traders. But that narrative is too biased and isn’t a full accounting of the industry. This piece offers a sensible counterpoint on why HFT is not the scourge many claim: by increasing market liquidity, HFT lowers bid/ask spreads—the difference in price to buy and sell a security at any given moment. What’s more, consider: “The most commonly cited statistics suggest that high-frequency traders are making, at most, a few billion dollars a year in the stock markets. That take has been shrinking steadily in recent years, according to research from the Tabb Group, and is much smaller than what was captured by the old middlemen in the stock markets whom the high-speed traders largely replaced: the bank and brokerage employees on the floor of the New York Stock Exchange.” Ironically, there are few HFT firms in the bond markets, and investors pay more to trade with less liquidity. Now, none of this is to say all players and strategies in the HFT industry are a net positive—we’re sure some aren’t—but that doesn’t mean painting the industry with a broad brushstroke of “Bad!” is correct, either.

By , Bloomberg, 10/13/2015

MarketMinder's View: In September, Chinese imports slumped -17.7% y/y while exports slid -1.1% y/y (priced in yuan), re-enforcing fears the world’s second-biggest economy is sputtering. But these trade numbers aren’t the negative they might appear to be: “The drop in import values may be more of a reflection of lower commodity prices than a weaker economy because growth in volumes was comparable to the same time last year.” Consider: “Iron ore imports increased to the highest level this year to near a record.” (This is also a point echoed by exports from Australia, a key trading partner of China’s.) In amount-of-stuff terms, China’s trade with the rest of the world isn’t falling off a cliff, it’s more or less stable. The values are down because raw materials prices have fallen dramatically over the last year, resulting from supply growth outstripping demand. That isn’t great news for firms selling commodities, but for firms that consume raw materials to produce products, it’s a cost savings—a plus.  

By , Project Syndicate , 10/12/2015

MarketMinder's View: Now here is a sensible take countering the many dour interpretations of China’s economic growth. Folks, nothing about China’s slowing growth rate is surprising or especially troubling. As this piece notes, “Simple arithmetic shows that $10.3 trillion growing at 6% or 7% produces much bigger numbers than 10% growth starting from a base that is almost five times smaller.” Said another way, China adds more to the global economy today than it did 10 years ago despite expanding more slowly—a more meaningful economic factoid compared to one month’s manufacturing survey falling into contractionary territory. We also quite liked this observation about the widespread disbelief in China’s official GDP stats: “Why do the skeptics accept the truth of dismal government figures for construction and steel output – down 15% and 4%, respectively, in the year to August – and then dismiss official data showing 10.8% retail-sales growth?“ Even if China isn’t growing quite as fast as the officially reported figures, this is not what a hard landing looks like.

By , The Wall Street Journal, 10/12/2015

MarketMinder's View: We found parts of this sensible, but the underlying theme—that a Fed rate hike will knock Emerging Markets (EM)—is one big false fear and misperception. First, the sensible: Plenty of central bankers, both from EM and developed markets, want the Fed to get on with it already and hike rates. From Singapore to Germany, the perception is that the US economy can easily handle a rate hike, and doing so would remove some uncertainty—a positive. However, EM is pretty well positioned, too. Many EMs today are adequately prepared to exist in a world where US rates are slightly above 0-0.25%, and much of the impact on EM debt is already priced in—rates have already risen and currencies already fallen (vs. the dollar), particularly in commodity-reliant nations, as rate-hike talk swirled. Yet we haven’t seen this widely feared wave of dollar-denominated defaults throughout the developing world. We aren’t saying all are in great shape, and companies in Brazil and Russia, to name a couple, will probably face tough sledding. But don’t lump the strong in with the weak.

By , The Street, 10/12/2015

MarketMinder's View: While this piece is chock-full of misperceptions, we present it as an opportunity to review the difference between a correction (a short, sentiment-driven decline of -10% or more) and bear markets—extended market declines of -20% or more, driven by fundamental and identifiable causes. In our view, the decline starting in the summer fits the bill of a correction, which is normal during bull markets. A bear market, on the other hand, happens for one of two reasons: too-high investor expectations euphorically overlook reality or a huge, widely unnoticed negative that could shave trillions off global GDP wallops markets. Bear markets also often start with a rolling top, with much of the downside happening towards the end. For investors who can correctly identify a bear market forming, it makes sense to readjust your portfolio accordingly (and you have time to do so). However, corrections can end as quickly as they begin, and those trying to time a correction’s ideal exit and reentry points (or using stop-losses) risk getting whipsawed and losing potential gains—a damaging blow to those who require portfolio growth to meet long-term goals.   

By , Bloomberg, 10/12/2015

MarketMinder's View: In September, the Organization of Petroleum Exporting Countries’ (OPEC) members pumped the most oil in a month since 2012, anticipating supply will contract in other parts of the world (e.g., the US) as persistently low prices prompt producers to cancel future extraction projects. However, while US producers are cutting costs, technological innovations and efficiency gains have kept production steady. While it is certainly possible US production contracts more in the future, the global picture doesn’t look radically different: Global supply growth is outpacing demand, and it’s too early to say whether that reverses in 2016. In our view, the Energy sector’s headwinds look likely to linger for the time being.             

By , InvestmentNews, 10/12/2015

MarketMinder's View: As taxpayers and citizens, we understand the frustration with Congress: Dithering, bluster and can-kicking aren’t hallmark signs of an efficient organization. But as investors, look past that bickering and consider the actual implications of a government shutdown. “Non-essential” services stop for several days (the longest shutdown lasted 21 days)—a big annoyance if you planned a trip to the Smithsonian or national park, but not a market negative. And the difficulties our fine legislators have in agreeing to anything is an underappreciated positive in a competitive, developed economy like the US since the likelihood potential market-moving rules become reality rounds to zero. So if government shutdown, highway funding bills and/or debt ceiling chatter causes you angst, we recommend turning off the TV and enjoy a nice brisk autumn walk instead—the market impact of Congressional dilly-dallying is nil.  (Also, public service announcement, hitting the debt ceiling does not mean we “default.” For more, see our 10/8/2013 commentary, “Defaulty Logic.”)

By , CNBC, 10/12/2015

MarketMinder's View: While this piece isn’t perfect, it does highlight a theme we’ve championed for a while now: Europe’s economic reality—particularly in the 19-member eurozone—isn’t as dour as folks make it out to be. Though bumpy, growth is increasingly broad-based. Purchasing managers’ indexes indicate more businesses expanding than contracting. Inflation remains benign and credit conditions continue improving—a positive for businesses and individuals. And The Conference Board’s Leading Economic Index (LEI) has risen for 10 straight months, signaling growth likely continues. So while we aren’t going to say Europe’s “best” is yet to come—we don’t even know what “best” means in this context—“better than expected” is good enough to beat low expectations.

By , Financial Times, 10/09/2015

MarketMinder's View: This fun rundown of what Back to the Future II did and didn’t get right about 2015 actually has implications for investors, believe it or not. Back in 1989, the filmmakers guessed that in 2015 we’d have flying cars, self-tying shoes, hoverboards, video conferencing, mobile devices, and the Cubs beating Miami in the World Series. They mostly whiffed on the first three, sort of nailed the next two, and might get a 50% grade on the final one (the Cubs are in the playoffs and Miami does have a team, but they had a dismal season and are in the National League with Chicago). But they flat out missed the Internet, and they thought clunky fax machines with dot-matrix printing would be super high tech today. Oops! As the late great Yogi Berra said, “it’s tough to make predictions, especially about the future.” Remember that whenever you see long-term doom-and-gloom forecasts of weak growth, secular stagnation and below-average stock returns. Technological evolution is a huge, unknown variable, and it can shift the world’s course radically in not much time.

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

MarketMinder's View: Here is your obligatory recap of the Fed’s latest meeting minutes, released Thursday. Apparently the Fed likes most of what it sees but is a little worried a potential slowdown abroad could impact trade, so they want more data before making a move. At least that was the case two weeks ago—some are jawboning that things are already looking up. None of this tells you when they’ll hike, though. It’s all just noise. We’d prefer it if they just got on with it so the world can finally see the false fear of rate hikes for what it is.

By , The Wall Street Journal, 10/09/2015

MarketMinder's View: Whatever you think of the sociology behind the OECD’s proposals to curb legal tax avoidance, as this piece shows, the measures would carry costly compliance burdens, making businesses’ lives harder and probably crimping economic activity as they’re forced to channel energy from productive uses to administrative hassle. That is a rather counterproductive unintended consequence. However, these measures aren’t likely to go anywhere. Even though G-20 finance ministers blessed them, the chances national legislatures pass wholesale tax code amendments seem fairly close to zero.

By , The Telegraph, 10/09/2015

MarketMinder's View: Just an interesting look at recent developments in the natural gas market, which has fallen under the radar while oil hogs all the attention. There is a huge supply glut in this market, too, which has reduced prices globally and eliminated much of the spread between prices in the US, Europe and Japan. This is great for consumers and businesses worldwide, not so great for Energy producers. And with production still going strong—and Iran likely about to ramp up—prices (and profits) likely stay low in this segment of the Energy market for the foreseeable future.

By , The Wall Street Journal, 10/09/2015

MarketMinder's View: Ok party people, what time is it? Time to set aside ideological leanings and take an objective look at the Democratic Presidential front-runner’s bank regulation proposals! Fun time! Overall, we think they look like a solution in search of a problem, as they increase costs without addressing the issues that actually led to the Financial Crisis. (Don’t worry, those were addressed six and a half years ago, when regulators changed their stance on mark-to-market accounting.) There might also be some unintended consequences, like lower liquidity and higher costs for individual investors. But, it is also way too early to fear (or cheer, if you’re so inclined) this all becoming a thing. We haven’t even had the first primary contest yet, and there is no way to know today who will win the Presidency, House or Senate. So whether you think this is terrible or the greatest innovation since the bagel slicer, don’t get too excited.

By , The Yomiuri Shimbun, 10/09/2015

MarketMinder's View: Japan’s government is trying to improve the chances of the Trans-Pacific Partnership (TPP) passing in Parliament by helping local farmers deal with the new competition it will bring—not just with subsidies and procurement policies, but with technological and administrative assistance to boost efficiency and export capabilities. This might give TPP an incremental push toward implementation, though Japan is just one country, and 11 others must also ratify it. Also, as the nifty graphic shows, it will be years before many of TPP’s benefits materialize. So great as the deal would be for the US and global economy in the long run, it really won’t do much to boost growth in the foreseeable future.

By , Bloomberg, 10/09/2015

MarketMinder's View: No it didn’t. Some economists think it did, raising their estimate of the probability of near-term recession from 10% to 15%, but that is (a) low and (b) exactly what they said throughout 2013. Growth accelerated in 2013. Just because a bunch of people agree on something doesn’t make it true.

By , Reuters, 10/09/2015

MarketMinder's View: Here is more evidence all is not well in Japan’s economy, which contracted in Q2 and struggled mightily in Q3, based on data released thus far. We’ve long thought investors’ optimism for the island nation was unwarranted, and reality looks increasingly unlikely to meet folks’ lofty expectations.

By , The Wall Street Journal, 10/08/2015

MarketMinder's View: While it’s true analysts expect Q3 will post negative headline earnings growth for the second straight quarter after Q2’s -0.7% y/y dip, this article wisely councils caution before you draw big conclusions. You see, there are some asterisks worth noting here. Namely, if you strip out Energy earnings, Q2 earnings flip from a tiny dip to 5.9% y/y growth. Oh, and as for the Q3 forecast: Analysts forecast a more than -4% y/y drop in Q1 2015 earnings. They grew. And Q2 earnings were forecast to fall over -4% initially, too. Don’t take these forecasts to the bank.

By , The Wall Street Journal, 10/08/2015

MarketMinder's View: Ahead of Congress’s approval hearings and vote, Jeff Zients, director of the Obama Administration’s National Economic Council, is pitching the Trans-Pacific Partnership (TPP) thusly: “At its core, TPP is a massive tax cut for American businesses.” And guess what? He’s sort of right! Tariffs are merely taxes on imported goods. Businesses typically pass those costs on to consumers rather than eating them, which artificially boosts the price of foreign-made goods. Now the President, also quoted herein, correctly notes “If we eliminate those taxes, now U.S. goods and services are more competitive.” Which seemingly suggests he gets that consumers ultimately pay that tax, which makes us wonder why there are any American tariffs on foreign-produced goods and services. But hey, we digress. Ultimately, removing an external influence and making the global market more level and even is a plus. Tariff elimination is a step in the right direction on that.

By , Bloomberg, 10/08/2015

MarketMinder's View: If you are caught up in reading the articles and reviews of former Fed head Ben Bernanke’s new memoir on his days at the helm, you might have seen media repeat (time and again) the notion the Fed couldn’t have saved Lehman. Folks, that is revisionist history, and this article does an excellent job explaining why. Here is a tidbit, but read the whole thing: “The feds underwrote the bailout of Bear Stearns, then let Lehman Brothers become the biggest bankruptcy in U.S. history, and the very next day rescued American International Group, and leaving the world of finance bewildered and confused. After reading the latest memoir on the period, I'm still not convinced the principal actors in the drama are being entirely frank about what happened behind the scenes of the real Lehman moment.” Besides, the Fed transcripts released last year show the Fed described their role in Lehman’s failure as a “decision” or “choice” intended to limit the potential “moral hazard” of repeat bailouts.  

By , Bloomberg, 10/08/2015

MarketMinder's View: So this starts from a fallacious place—forecasting volatility, an impossibility—and then layer on some internally contradictory advice. How exactly can you dollar cost average (periodically deploy a portion of your cash by buying stocks at regular intervals) yet take advantage of especially tasty buying opportunities like when stocks hit an alleged “air pocket” where liquidity vanishes and prices temporarily fall? (Hint: You can’t. Don’t overthink it.) How can you move “up in quality” while bottom fishing in “Areas destabilized by fundamental demand and supply shocks”? That isn’t quality, it’s called value investing. All in all, this contradictory and slightly confusing commentary seems to us like bad advice. The better, wiser, time-tested advice is for long-term investors to invest in an allocation commensurate with their objectives and tune out the short-term noise.

By , Institutional Investor, 10/08/2015

MarketMinder's View: This very smart article puts structural changes in bond market trading in proper context and dispels the myth that regulatory changes evaporated bond market liquidity. Here is a particularly good snippet: “Although there is a shrill chorus today about the lack of liquidity, the bond markets never worked all that smoothly, because there is no central exchange for them. Companies issue bonds constantly, all of them unique. The investment banks that helped companies bring the bonds to the market in the first place also control secondary trading. …Bond dealers are often compared to market makers, or specialists, on the New York Stock Exchange, who simultaneously offer to buy and sell a particular stock and are required to step in during times of stress. ‘People imagine that these corporate-bond dealers have an obligation to stabilize the market,’ Fridson explains. ‘That’s never been the case in fixed income. There is a mistaken notion that in some past era dealers lost money to prevent the market from going under.” For more, please see Pete Michel’s recent analysis, “Why Bond Market Liquidity Fears Don’t Hold Much Water.”

By , The Telegraph, 10/08/2015

MarketMinder's View: In August, when China modestly devalued its currency and announced it would allow “more market forces” to determine the yuan’s exchange rate, many presumed this was the tip of the iceberg and a Beijing desperate to prop its economy was actually planning a major devaluation to boost exports. A shot in a currency war, many claimed. But the reality is quite different. The yuan has fallen by less than 3% against the US dollar since then, largely because China’s central bank is supporting it! We never really got how someone could see a 3% devaluation as major move boosting exports—too tiny. This move seems to suggest the theory this was a currency war move was wrong.

By , Bloomberg, 10/07/2015

MarketMinder's View: Coal producers are suffering not just from the global commodities downturn, but also from many electricity plants switching to natural gas power as gas prices plummeted, largely due to increased output from hydraulic fracturing. New rules imposed by the Environmental Protection Agency further dented coal usage, and as a result natural gas has surpassed coal as the top US power source for the first time in decades. This may be bad news for coal companies, but cheaper energy costs are good news for consumers and energy-intensive businesses and a still-underappreciated economic positive.

By , Bloomberg, 10/07/2015

MarketMinder's View: Coal producers are suffering not just from the global commodities downturn, but also from many electricity plants switching to natural gas power as gas prices plummeted, largely due to increased output from hydraulic fracturing. New rules imposed by the Environmental Protection Agency further dented coal usage, and as a result natural gas has surpassed coal as the top US power source for the first time in decades. This may be bad news for coal companies, but cheaper energy costs are good news for consumers and energy-intensive businesses and a still-underappreciated economic positive.

By , The Wall Street Journal, 10/07/2015

MarketMinder's View: The impossible trinity refers to flexible monetary policy, free flowing capital and a fixed exchange rate, which no country can maintain simultaneously for any length of time. History is littered with examples of countries that tried but were eventually forced to abandon their currency pegs when they depleted their foreign reserves, allowing their currencies to devalue in the open market, sometimes by a lot. China is getting a lot of attention these days after they devalued the yuan by 3% in August and have dipped into their reserves ever since to support the yuan from falling further.  But with over $3.5 trillion of reserves remaining, China has ample firepower to forestall a devaluation on par with Mexico (and itself) in 1994, Thailand in 1997 or Brazil in 1999. The need for monetary stimulus is probably also overstated, considering firms’ primary financing roadblocks are administrative. Measures to target loan growth in small private firms, which are overall more profitable than the large state-owned firms, could probably jolt economic activity just fine without a rate cut. There is also no guarantee the yuan would crater if allowed to float. So we are skeptical China faces significant risks on this front in the foreseeable future. This seems more like something to keep an eye on for the long term.

By , Financial Times, 10/07/2015

MarketMinder's View: Only 26 S&P 500 companies issued guidance for the upcoming earnings season last month, well below the average of 125 and the fewest since 2000. Meanwhile, analyst estimates have clustered much more tightly than usual, and analysts have ratcheted down their expectations en masse. This piece argues they are all flying blind, and warns that when earnings are reported stocks could swing a lot, with big surprises in either direction. Maybe that’s true, but this puts altogether too much emphasis on formal expectations and completely ignores investors’ informal expectations, which happen to be quite dreary, based on all the issues and false fears discussed in this article. The strong dollar, for example, is not the earnings killer many believe. Most expected Q2 earnings to fall a few percent, based mostly on the dollar, but in the end they fell just -0.7% y/y, and excluding Energy, they rose 5.9%. Turns out everyone failed to account for the fact a strong dollar makes imported raw material, component and labor costs cheaper too, offsetting the negative effects on sales of finished goods. That few see the positive aspects of a stronger currency is actually pretty bullish.

By , The Telegraph, 10/07/2015

MarketMinder's View: UK industrial production jumped 1.0% m/m in August, surpassing analysts’ expectations for a 0.3% rise. But on balance manufacturing growth has been tepid for some time, and some fret Q3 GDP growth will slow from Q2’s 0.7% q/q pace. Maybe it will, but if so it doesn’t mean the UK economy is in danger of weakening significantly. Services account for the lion’s share of output, and growth there has been stronger than manufacturing for years, leading GDP steadily higher since 2009. Services growth has slowed a bit, too, but growth rates routinely wobble throughout economic expansions, and with bank lending picking up and the money supply growing, the UK economy has a solid foundation for more growth.

By , The Wall Street Journal, 10/07/2015

MarketMinder's View: Commodity-based junk bond yields are up in the last year, and rightfully so given these firms’ declining profits and smaller producers’ increasing reliance on debt. But now yields in other sectors are up, which has some worried about corporate balance sheets throughout the economy. We think that’s awfully premature, though, as the move occurred during stocks’ correction. Junk bond prices (which move inversely to yields) and stocks tend to be highly correlated much of the time, as they have overlapping drivers. Sentiment swings would therefore logically overlap. Just as stock corrections don’t reflect broader economic fundamentals, we don’t believe a blip in junk bond yields is very telling.

By , Marketwatch, 10/07/2015

MarketMinder's View: The thinking here is that bond market investors are the smartest in the world, and the fact yields stayed low even as stocks zoomed higher over the last week suggests those wicked-smart bond investors see something all those stock-loving yokels don’t, so trouble must lurk ahead for stocks. Folks, there are two big fallacies here. One, all similarly liquid markets digest widely known information simultaneously, so it is highly unlikely bonds know something stocks don’t. Bond investors aren’t locked inside a Faraday cage. All information they have is available to equity investors—as are their opinions, theories and analyses, which have been parroted all over the Internet. Stocks have already discounted everything bond investors may or may not have traded on. Two, there is no such thing as smart money. Bond investors don’t have infinite wisdom the rest of the investing world lacks. People are people, people.

By , The Wall Street Journal, 10/07/2015

MarketMinder's View: It isn’t just China. Foreign central banks overall—especially in resource-dependent Emerging Markets—were net sellers of US Treasurys to the tune of $123 billion in the year ending in July, the most since record keeping began in 1978. Their economies have weakened amid the global commodities slump, and after years of accumulating US debt, they are now selling to support their own currencies. But bond yields have fallen lately as demand from others—pension funds, banks, insurance companies and private investors—more than offsets central bank selling. Despite fears foreigners are losing faith in the US’ financial situation, the US remains the world’s lowest credit risk. As evidence: “In the 12 months to July, foreign private investors bought long-term Treasury debt at the fastest pace in more than three years.” For more, see our recent 9/18/2015 commentary, “Fisher Investments Research on China and US Debt.”

By , Los Angeles Times, 10/06/2015

MarketMinder's View: We’ve discussed the alleged risks highlighted in this article numerous times in recent months, so we’ll spare you the repetition and zero in on the personal finance advice here. By encouraging investors to consider only how much money they can afford to lose, it takes too narrow and myopic a view. Risk tolerance is important, but we think long-term goals and time horizon—the length of time your money must be invested to reach your goals—are the best starting point. If your goals require enough compound growth to sustain cash flows over the next couple decades, then you might feel differently about the concept of keeping three to five years’ worth of expenses in cash just in case stocks fall. You might decide it makes more sense to keep a smaller buffer, knowing bear markets historically last 16 months on average, and allocate more to stocks (and maybe bonds, depending) so you can have more of your wealth working toward your goals. There are always tradeoffs, but going heavy into cash now could reduce your returns over time, making your goals harder to reach.

By , Los Angeles Times, 10/06/2015

MarketMinder's View: We’ve discussed the alleged risks highlighted in this article numerous times in recent months, so we’ll spare you the repetition and zero in on the personal finance advice here. By encouraging investors to consider only how much money they can afford to lose, it takes too narrow and myopic a view. Risk tolerance is important, but we think long-term goals and time horizon—the length of time your money must be invested to reach your goals—are the best starting point. If your goals require enough compound growth to sustain cash flows over the next couple decades, then you might feel differently about the concept of keeping three to five years’ worth of expenses in cash just in case stocks fall. You might decide it makes more sense to keep a smaller buffer, knowing bear markets historically last 16 months on average, and allocate more to stocks (and maybe bonds, depending) so you can have more of your wealth working toward your goals. There are always tradeoffs, but going heavy into cash now could reduce your returns over time, making your goals harder to reach.

By , CNN Money, 10/06/2015

MarketMinder's View: As in “crashing on the,” not “Scotch on the.” In our view, Abenomics—Japan Prime Minister Abe Shinzo’s plan to boost the economy with a mix of monetary and fiscal stimulus and economic reforms—was always a rocky endeavor. The Bank of Japan’s quantitative easing program doesn’t stimulate the economy; instead it limits growth by lowering long-term rates and flattening the yield curve, discouraging banks from extending more loans. Fiscal stimulus—public investment projects—provide a quick jolt out of recession but not a lasting boost. Economic reforms to address Japan’s uncompetitive economy were the kicker. But as this points out, reforms passed to date only scratch at the surface of what really ails Japan, where labor markets are only mildly more modernized than the Meiji Era. Now, with Abe a lame duck and members of his own party starting to distance their agenda from his, jockeying for the eventual leadership contest, Abe likely lacks the political capital to pass additional reforms. And with growth now sagging, it looks like the sky-high sentiment that boosted Japanese returns earlier this year is starting to fall to Earth.

By , CNBC, 10/06/2015

MarketMinder's View: Smart beta funds attempt to achieve the best of both worlds: combining the low cost aspect of index funds with market-beating returns one can only get from active management. They do this by tracking an index whose constituents are weighted according to things other than market capitalization, like momentum, book value or sales or profits. Look, we aren’t married to any one investment style but there are two glaring problems with these newfangled funds. One, they’re all based on flawed assumptions that one style works for all time. Not true! Growth and value, big and small, foreign and domestic, high valuations and low valuations—all swap leadership periodically. Two, most of these funds have no performance history to speak of. Their allure is all based on back-tested hypothetical returns, which is frankly no Bueno. Survivorship bias, the arbitrary timing of hypothetical rebalances and other factors can skew returns dramatically from what they would have been in the real world. So tread with caution, friends. And for more, see Elisabeth Dellinger’s commentary, “Monkeying About.”

By , Reuters, 10/06/2015

MarketMinder's View: The International Monetary Fund (IMF) now expects the global economy will grow 3.1% this year and 3.6% in 2016, the second downward revision this year. But this isn’t a negative for markets, which have watched the IMF ratchet down its forecasts for years now. Nor did the IMF say anything new—they just cited widely discussed issues like the global commodity slump and slower Chinese growth. On the bright side, tepid forecasts from the IMF and other supranationals help keep expectations low, extending the wall of worry for stocks to climb. When expectations are dreary, even modest growth can be a big happy surprise.

By , Reuters, 10/06/2015

MarketMinder's View: The International Monetary Fund (IMF) now expects the global economy will grow 3.1% this year and 3.6% in 2016, the second downward revision this year. But this isn’t a negative for markets, which have watched the IMF ratchet down its forecasts for years now. Nor did the IMF say anything new—they just cited widely discussed issues like the global commodity slump and slower Chinese growth. On the bright side, tepid forecasts from the IMF and other supranationals help keep expectations low, extending the wall of worry for stocks to climb. When expectations are dreary, even modest growth can be a big happy surprise.

By , Reuters, 10/06/2015

MarketMinder's View: The International Monetary Fund (IMF) now expects the global economy will grow 3.1% this year and 3.6% in 2016, the second downward revision this year. But this isn’t a negative for markets, which have watched the IMF ratchet down its forecasts for years now. Nor did the IMF say anything new—they just cited widely discussed issues like the global commodity slump and slower Chinese growth. On the bright side, tepid forecasts from the IMF and other supranationals help keep expectations low, extending the wall of worry for stocks to climb. When expectations are dreary, even modest growth can be a big happy surprise.

By , Reuters, 10/06/2015

MarketMinder's View: “Five years in the making, it would reduce or eliminate tariffs on almost 18,000 categories of goods.” Great! The Trans-Pacific Partnership (TPP) finally coming to fruition would be a big plus for the global economy. But as this article mentions, there are several hurdles for it actually becoming a reality—like ratification by the US Congress and other participant countries’ governments. Fast-track trade authority, which Congress renewed earlier this year, means the President can submit trade legislation to Congress for a quick up-or-down vote, no amendments, but that doesn’t guarantee passage.  That said, even if TPP never becomes a reality, it wouldn’t be a negative for markets—just the absence of a longer-term positive. For more, see our 10/05/2015 commentary Pacific-Rim Politicians Play ‘Let’s Make a Deal’.  

By , The Washington Post, 10/05/2015

MarketMinder's View: This is a fun and fascinating look at how folks from 1900 thought life (or more specifically, France) would be 100 years later. Some seem pretty close to the mark, like helicopters as military scouts. Others were once nearly accurate but have since faded, like airships. And still others are well wide of the mark. (Unless someone has mastered riding giant seahorses, in which case, please reach out to us.) But the interesting thing is nearly all of them extrapolate forward then-existing technology—note the designs of the barber machine or the airplanes, which seem structurally similar to mechanisms existing at or around the turn of the century. In actuality, the year 2000 had computers, digital technology, jet engines, space craft and more. Free markets allow for innovation to create things we can’t possibly fathom today. For more on this topic, see our 4/21/2015 commentary, “Happy Birthday, Moore’s Law—Pearls of Wisdom for Investors.”

By , Reuters, 10/05/2015

MarketMinder's View: First, the positive about the Trans-Pacific Partnership (TPP): A deal seven years in the making has finally been reached after trade ministers banged out compromises on sticking points like biotech protections and dairy access in the talks’ final hours. But before you “huzzah,” the title here alludes to the TPP’s real challenge: the “fight for approval” that follows. The 12 participating countries’ governments must now ok the deal, and that is far from certain. In the US, lawmakers on both sides of the aisle voiced their opposition to the deal, and prominent presidential candidates have publicly criticized it. Legislators have 90 days to review the TPP, and it is near-impossible to game what Congress and 11 other legislatures will do. We hope a free-trade agreement encompassing almost 40% of global GDP becomes reality—the freer movement of goods and services is a long-term positive for stocks—but we aren’t holding our breath while waiting for the TPP to cross the finish line.

By , The Telegraph, 10/05/2015

MarketMinder's View: Well, the first thing we should make of the “commodity price meltdown” is that it isn’t exactly breaking news. As this article notes, oil prices have fallen off sharply since the middle of last year, and prices for other commodities (e.g., iron ore, copper and nickel) have been falling since 2011. However, this article does do a fairly effective job of laying out the winners and losers from weak commodities prices, concluding (correctly, in our view): “I remain of the view that we have yet to see the full beneficial impact of low commodity prices, which will be a boon to umpteen countries. Where they occur, these beneficial effects will be proportionately less dramatic than the corresponding losses, and less observable, but just as substantial. They will already be filtering through the finances of individuals and companies, thereby improving spending prospects.”

By , The Wall Street Journal, 10/05/2015

MarketMinder's View: This tells you less of what you need to know as an investor—the rule proposal is now in the open comment period, so nothing is final yet—and instead adds to the mutual fund rule list the SEC first alluded to last December. The newest rules require funds to identify “liquidity risks” for their trading positions to go along with May’s proposals of making fund firms disclose more data on their holdings and last month’s “stress test” requirements. In our view, these are a bunch of solutions in search of a problem—mutual funds don’t fill the same role as banks in the financial system, so hitting them with similar rules seems unnecessary. As one industry group notes here, “mutual funds have successfully done this for ’75 years.’"

By , The New York Times, 10/05/2015

MarketMinder's View: We share the titular skepticism. While some worry whether the Fed’s “macroprudential regulation” (or more colloquially, bubble hunting) is sufficient to keep financial bubbles in check, this overstates the Fed’s ability to spot trouble in the first place. Current Fed chair Janet Yellen didn’t see the trouble wrought by mark-to-market accounting in 2008’s Financial Crisis. Former Fed head Alan Greenspan questioned whether there wasn’t “irrational exuberance” in markets in December 1996—yet the bull market charged on until March 2000. Heck, Fed errors drove the bank panics in the period 1930 – 1932 and the 1937 recession, and that’s before we even bring up the 1970s. We aren’t trying to pick on the Fed in particular here, as plenty of professional forecasters make wrong calls too. But to think central bankers possess special insight into markets that others lack overstates their powers—and could lead to problems when the next crisis happens. For more, see Elisabeth Dellinger’s column, “Macroprudential regulation: A New Way the Fed Can Fail.”      

By , The Telegraph, 10/05/2015

MarketMinder's View: Incorrect. Portugal’s election results in a minority government with incumbent Prime Minister Pedro Passos Coelho remaining at the helm. This likely requires a broader coalition than the outgoing Parliament, which seems to be the root of the concern here—that the government won’t be able to enact reform. However, many reforms were already passed and implemented, so in all likelihood, the election likely brings gridlock, preventing any party from rolling back the reforms already made. Economically, Portugal is in fine shape and has been growing fairly nicely—particularly in terms of domestic demand—in recent quarters. This isn’t Greece.

By , The New York Times, 10/02/2015

MarketMinder's View: Please, for the love of all that is good and right in this world, can we all stop calling hitting the debt ceiling a “default”? Default means one thing and one thing only: Failing to pay interest or principal on our outstanding bonded debt. Default does not mean having to delay pension contributions or other non-essential accounts payable. Hitting the debt ceiling does not mean we default. It means the Treasury must operate with cash on hand and incoming tax revenue. The 14th Amendment, as interpreted by the Supreme Court decades ago, says the Treasury’s first priority with those incoming revenues is to service debt. Other services get the leftovers, and this is always how it has been. Interest payments are currently less than 8% of tax revenue. There will be no default, regardless of when Congress ultimately knuckles down and raises the debt ceiling for the 110th time.

By , Bank for International Settlements, 10/02/2015

MarketMinder's View: Yes, this is a whitepaper, and whitepapers are usually longish and joke-free. (Sad face.) But please, just go with it, because this study does a great job of illustrating (and supporting with over 20 pages of data) a point we’ve long made: The bigger the spread between short- and long-term interest rates, the more profitable bank lending becomes. (And the slimmer the spread, the less profitable.) This matters because profitability influences loan supply—bigger profits make banks more eager to lend, which boosts the quantity of money and, by extension, economic growth. Interestingly, these researchers found that the interest rate spread’s influence is particularly strong when the spread shrinks, which as we’ve written many times, explains why economic growth crawled the more the Fed and Bank of England engaged in quantitative easing, which shrank the spread by reducing long-term rates. Now, none of this is new, and literature dating back over 100 years discusses and shows the interest rate spread’s importance. But central bankers have ignored the spread in recent years, much to the world economy’s detriment, and it’s nice to see the fine folks at the BIS (known as the central bank for central banks) help it make a comeback.

By , Bloomberg, 10/02/2015

MarketMinder's View: Here is yet another example of why GDP is not a perfect measure of an economy’s size: It doesn’t capture the “informal” sector, also known as the shadow economy, under-the-table commerce or whatever euphemism you prefer. Employment and transactions happen off the ledger all the time, particularly in countries where the rule of law is weak and regulations are complex and onerous (and might require a bribe or two to comply with). As this piece notes, Romania’s underground economy is nearly 30% of GDP. Roughly one-third of Mexican workers were under the table before labor market reforms took effect a couple years ago. GDP doesn’t include this hidden growth, making it difficult to compare growth across nations, particularly in the developing world.

By , The Wall Street Journal, 10/02/2015

MarketMinder's View: Not very, if you base your verdict on valuations, but that doesn’t really mean anything. Valuations aren’t predictive. In addition to all the math wonkery noted here, valuations are also backward-looking—they measure past performance, and past performance doesn’t predict future returns. Valuations are a handy, albeit loose, measure of sentiment, but that is about it. Right now, they point to mild optimism. Not because of their relationship to the long-term average, but because we’ve only recently started seeing a steady uptick during this bull market. We haven’t seen the long rise that usually signifies investors’ gaining confidence and bidding stocks far higher.

By , Calafia Beach Pundit, 10/02/2015

MarketMinder's View: While employment numbers aren’t really a reason to be (or not to be) bullish, the rest of these charts show the US economy is actually in pretty darned good shape, contrary to what you’ve likely read elsewhere. As chart 1 notes, “stocks climb walls of worry,” and there is a pretty sizable wall right now.

By , The Wall Street Journal, 10/02/2015

MarketMinder's View: We award a point for at least using data to support an argument that the Fed won’t hike rates next month, rather than basing it on something silly like the fact there is no scheduled press conference with October’s meeting. As Fed head Janet Yellen noted last month, if she wants to call a press conference, she can call a press conference. People will rearrange schedules to get there because the Fed is like a big deal. But the fact remains no one data point can tell you what the Fed will or won’t do or when they will or won’t do or not do it. The Fed is a group of humans who decide things by committee after discussing all their competing views, interpretations and opinions, which are influenced by their biases and worldview. Even one human’s subjective views are impossible to predict. Why would 10 be any easier?

By , Bloomberg, 10/02/2015

MarketMinder's View: Actually, it follows supply and demand, which is what this article is all about. People fear Russia’s adventurism in Syria will cause prices to spike, but the likelihood of material market impact is next to nil. “Geopolitical upheaval, from the chaos of the 1970s right through the Iraq War, can stoke fears of supply shortages. But Syria’s oil output is close to nil already. … Ironically, even as Russia’s military was supposedly doing its bit to raise oil prices, new numbers came out showing that the motherland’s producers back home were still working in the opposite direction: Russian oil output hit a post-Soviet record high in September.” US output, though down a bit lately, is still running well above last year’s pace. Booming supply should pressure prices a while longer.

By , The New York Times, 10/02/2015

MarketMinder's View: Ugh, no, it couldn’t. Look, our beef has nothing to do with which politician proposed it, the ideology behind it or the suggested uses for the revenue—that’s all sociology, and political bias is a deadly sin in investing. So let’s set all that aside and consider the mechanics here. This article suggests taxing stock trades would inspire folks to trade less, saving them from ill-timed decisions and boosting returns. Here is the trouble with that theory: Most hasty stock trades are driven by emotion. They are called behavioral errors for a reason. Investors driven by fear or greed in the heat of the moment, by definition, are not in a mental place where they will consider things like the cost of a trade (taxes plus commissions). Reason usually doesn’t factor in here. Also, as this notes, deliberately curbing activity among institutional investors and high-frequency traders could reduce liquidity, making the implicit costs of trading higher and, probably, reducing returns over time. Yes, we realize many other nations have similar taxes and have managed to perform fine over time. But that’s no reason to surrender a competitive edge.

By , The Wall Street Journal, 10/02/2015

MarketMinder's View: So this doesn’t have any overt market relationship, but we have often seen headlines warning the Millennial Generation is not buying houses or cars or having babies at a fast enough clip to keep the economy growing nicely in the long run or contribute adequately to Social Security. This has always struck us like the proverbial “kids today” argument, and this piece nicely underscores that. It centers on the car angle, pointing out that Millennials are now buying cars at a faster rate than the other generations. (It also makes some nifty observations about how self-driving cars can improve quality of life, particularly for the elderly, which is a totally overlooked positive.) And we just adore the conclusion: “For all their iconoclasm, the baby boomers eventually got married, moved to the suburbs and bought houses, SUVs and minivans for their double-car garages. Generation Y is going down the same road. The forecasts of peak car look to be about as accurate as those of peak oil.”

By , The Yomiuri Shimbun, 10/02/2015

MarketMinder's View: But there are still big gaps on three key issues, and we highlight this piece mostly for its spiffy graphic illustrating these. As we’ve long said, big free-trade deals like the Trans-Pacific Partnership, which would cover about 40% of global GDP, are extraordinarily tough to get done. It would be a big long-term positive if the deal happened, but even with talks in the “final” stage, we wouldn’t get too jazzed just yet. The deal could still collapse or get watered down severely.

By , The Washington Post, 10/02/2015

MarketMinder's View: One sentence in here sums up why folks feel dreary about September’s job growth: “The memory of the pain of the Great Recession is still fresh, and investors are on edge over any sign that the progress so far might be slipping away.” Hence all the handwringing over an uptick in layoffs, slower payroll gains and wage growth supposedly stuck around 2% y/y. Yet nothing here signals future economic weakness. Employment is a late-lagging indicator. It is usually the last to fall in a recession and the last to recover afterward. For instance, layoffs in Q3 were the highest since Q3 2009—the first quarter of this expansion. Job losses, though terrible for those impacted, don’t predict the economy.

By , The New York Times, 10/01/2015

MarketMinder's View: This article deals with sociological topics throughout and is not directly market-related. However, the thesis and subject matter—that “good news” isn’t news and doesn’t sell—has vast application in markets, particularly during a correction. As the author notes, “We journalists are a bit like vultures, feasting on war, scandal and disaster. Turn on the news, and you see Syrian refugees, Volkswagen corruption, dysfunctional government. Yet that reflects a selection bias in how we report the news: We cover planes that crash, not planes that take off. Indeed, maybe the most important thing happening in the world today is something that we almost never cover: a stunning decline in poverty, illiteracy and disease.” Here is another really good article from The Columbia Journalism Review on that subject. It’s a few years old, but the topic is timelessly timely. In it, TheStreet.com’s Chao Deng argues that markets reporters pick and choose causal factors for daily market gyrations, even when there is no realistic way to prove causality. Connect the two and you’ll see why it’s nearly impossible to find “good news” in the press during a correction.

By , Reuters , 10/01/2015

MarketMinder's View: Well, ISM’s US Manufacturing Purchasing Managers’ Index (PMI) did slow, but both the overall gauge and forward-looking new orders subcomponent still show more companies are reporting expansion than contraction, even if it is slight. However, it’s worth keeping in mind PMI gauges don’t report the magnitude of growth, just the breadth. Hence, actual economic activity could be expansionary or contractionary, and this gauge won’t tell you which. The most significant point, to us, is that manufacturing hasn’t led this expansion for some time anyway, which the stark divergence between the US Manufacturing PMI and Non-Manufacturing PMI shows. Non-manufacturing is by far the larger slice of the US economy, so this suggests growth is on fine footing.

By , Bloomberg, 10/01/2015

MarketMinder's View: Like its American cousin, the Bank of England is the source of much speculation as to the timing of its first short-term rate hike since 2007. But also like its American cousin, it’s needless speculation as BoE rate hikes aren’t bearish. Here is a table showing returns before and after the last eight. And it is also useless, because the BoE has been just as wishy-washy as the Fed in recent years. Pat McFadden, a member of the UK’s Treasury Select Committee, likened current BoE Governor Mark Carney to an “unreliable boyfriend” after flip-flopping forward guidance multiple times in mid-2014, asserting Carney was “one day hot, one day cold, and the people on the other side of the message are left not really knowing where they stand.”

By , The Wall Street Journal , 10/01/2015

MarketMinder's View: We’ll admit to being a bit confused by this article. The headline—and much of the body text—suggests deflation could threaten growth by triggering a vicious cycle of falling prices causing consumers to hold off on spending, driving prices lower and so on. But the charts featured in the middle actually show that while prices have fallen across the eurozone, spending is up—which has been the case repeatedly in recent months and years. How many times must the same, wrongheaded theory positing deflation signals future trouble be disproven before headlines like this go away?

By , The New York Times, 10/01/2015

MarketMinder's View: This all goes to a crucial behavioral investing point: Humans have a tendency to disassociate themselves from negative investor behaviors like selling out of fear during a correction. Why? Your brain shuns errors because it’s painful to recall them. While the article here mostly addresses the issue of writing down your expenses and saving receipts to document your actual saving and spending behaviors, it could easily be applied to investing. How? Keep a journal. In it, write down when you thought it made sense to sell out of stocks or buy in. Take a note of the ticker of that hot firm you thought you should buy or that dog you thought you should sell. Put the date on it. Then, you’ll have a record of your own investment behavior to consult in the future. 

By , CNBC, 10/01/2015

MarketMinder's View: This starts out sensibly enough by noting the sage advice that you shouldn’t expect a lofty return from your emergency fund, but then it veers sharply into financial advice we’d lightly label “dangerous.” Folks, investing your savings account—money earmarked to meet a near-term liquidity need—in a mix of up to 50% stocks and 50% bonds is a poor idea. Now, you do have to be careful not to build up too much cash in an emergency fund, but that is a separate matter. The point of having a savings account is that you won’t need to tap your investments during periods of volatility and your non-investment related goals (down payment on home, etc.) are met without liquidating. Again, this is dangerous advice that we would suggest you ignore.

By , The Telegraph, 10/01/2015

MarketMinder's View: We categorically disagree with this article, which argues that eurozone manufacturing PMI’s slightly lower read in September shows that more ECB quantitative easing (QE) may be necessary because the earlier effort was insufficient to stimulate growth and inflation. For one, Markit’s eurozone manufacturing PMI registered a 52 reading, which is expansionary. Two, eurozone manufacturing PMI has been positive for most of the last two years, which precedes ECB QE by a long shot. Three, manufacturing isn’t the biggest slice of the eurozone economy—services is, and it is growing faster. Four, deflation isn’t a threat, as the experience of the last two years has shown. And finally, there is ample evidence from Japan, the US and the UK that quantitative easing isn’t stimulative. By flattening the yield curve, QE bond buying makes lending less profitable and, hence, less plentiful.  But hey, other than those quibbles we are on board with the take here.

By , The Wall Street Journal, 10/01/2015

MarketMinder's View: While quite a few leaders engaged in the 12-nation Trans-Pacific Partnership free-trade talks have confidently asserted a deal is close at hand, this article points out that the lifespan of pharmaceutical patents still hasn’t been resolved. It has been two months and two rounds of elections, folks, and the issues seem unchanged. As we get closer to Canada’s election and 2016’s US Presidential vote, it won’t be easier to hammer out and pass a deal that could become a political football. We’d be pleased if we were wrong and a free-trade zone covering 40% of world GDP happened soon, but we warn you against holding your breath.

By , CNBC, 10/01/2015

MarketMinder's View: Jobs are a late-lagging indicator. They do not predict future economic conditions, they confirm past economic conditions. And this applies to planned layoffs, unemployment rates and hiring. Simply put: Businesses are slow to make staffing decisions because it is hard to hire and train people and it can be jarring to a business to let experienced workers go. Besides, the ADP payroll report—released yesterday—showed US employers overall added roughly 200,000 workers in September. Point being, the four or five headline-grabbing moves cited herein are anecdotal evidence at best. Data don’t show a weak job market, though it wouldn’t be relevant to forecasting recession or expansion anyway.

By , Financial Times, 09/30/2015

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

By , The Telegraph, 09/30/2015

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

By , The Telegraph, 09/30/2015

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

By , The Guardian, 09/30/2015

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

By , The Guardian, 09/30/2015

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

By , CNBC, 09/30/2015

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

By , CNBC, 09/30/2015

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

By , CNBC, 09/30/2015

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

By , Bloomberg, 09/30/2015

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

By , Bloomberg, 09/30/2015

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

By , The Telegraph, 09/30/2015

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

By , Bloomberg, 09/30/2015

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

By , CNN Money, 09/30/2015

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

By , CNN Money, 09/30/2015

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

By , Financial Times, 09/29/2015

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

By , The Telegraph, 09/29/2015

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

By , CNN Money, 09/29/2015

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

By , CNBC, 09/29/2015

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

By , CNBC, 09/29/2015

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

By , CNN Money, 09/28/2015

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

By , Bloomberg, 09/28/2015

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

By , Reuters, 09/28/2015

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

By , Bloomberg, 09/28/2015

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

By , Bloomberg, 09/28/2015

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

By , Bloomberg, 09/25/2015

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

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

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

By , The Telegraph, 09/25/2015

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

By , American Banker, 09/25/2015

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

By , The Washington Post, 09/25/2015

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

By , Bloomberg, 09/25/2015

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

By , Bloomberg, 09/25/2015

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

By , Financial Times, 09/25/2015

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

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

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

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

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

By , MarketWatch , 09/24/2015

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

By , Bloomberg, 09/24/2015

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

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

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

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

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

By , Bloomberg, 09/24/2015

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

By , AEI Ideas, 09/24/2015

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

By , Bloomberg, 09/24/2015

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

By , Bloomberg, 09/23/2015

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

By , Bloomberg, 09/23/2015

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

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

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

By , Bloomberg, 09/23/2015

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

By , Barron’s, 09/23/2015

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

By , Bloomberg, 09/23/2015

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

By , Bloomberg, 09/23/2015

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

By , The Guardian, 09/23/2015

MarketMinder's View: Whatever you think of the politics in here, this piece hits the nail on the head that politicizing monetary policy is a bad idea, something history has frequently shown. Under Corbyn’s “People’s Quantitative Easing” plan (PQE), the government would instruct the Bank of England to create new reserves and buy bonds issued by a state investment bank, which would invest the funds in housing, transportation and other infrastructure projects. The problem is: Politics would likely muddy the waters of what should be a purely economic consideration (to the extent that is actually possibl