Daily Commentary

Providing succinct, entertaining and savvy thinking on global capital markets. Our goal is to provide discerning investors the most essential information and commentary to stay in tune with what's happening in the markets, while providing unique perspectives on essential financial issues. And just as important, Fisher Investments MarketMinder aims to help investors discern between useful information and potentially misleading hype.

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Retiring in the Next 5 Years? Avoid These Financial Mistake

By Cheryl Winokur Munk, The Wall Street Journal, 4/12/2024

MarketMinder’s View: Lots of good nuggets here, along with a few quibbles we think investors would benefit from some clarification on. Shall we dive in to the six titular mistakes? One: “Failing to maximize retirement contributions.” This is a biggie! To the extent you are able, the more you can take advantage of higher annual contribution limits for folks age 55 and up, the more money you will have to reap the market’s compound returns over time. Two: “Not analyzing Social Security options.” Yep, another key thing. Taking benefits as soon as you are eligible sets you on course for lower monthly payments for life, while delaying until age 70 will increase your monthly take. Which is right for you depends on your personal situation, other sources of cash flow, life expectancy and others. It is important to think through, especially knowing late-life medical and care costs can be exorbitant. Three: “Taking on unnecessary debt.” Indeed, whatever debt you take on, it is vital to consider whether you can still make payments without your salary. Four: “Investing like you’re still 25.” We are mixed on this one. It points out the risks of failing to consider liquidity (in this case, with an anecdote about an investor who bought multiple rental properties just before 2008, which didn’t work out), which is wise. But the advice to load up on “dividend-paying stocks and bonds” puts too much emphasis on portfolio income, in our view. We think it is better to invest for total return, with an asset allocation based on your goals, cash flow needs, time horizon and comfort with volatility. Cash flow needn’t just come from interest and dividends. It can also come from paring stock holdings and other portfolio maintenance tools. Lastly, for five (“overspending on children”) and six (“neglecting to plan for your desired retirement lifestyle”), both speak to the need to accurately map out your spending needs in retirement so that you know how much flexibility you have—and how much cash flow you will need.


What Eight Centuries of Data Tell Us About Interest Rates

By Gillian Tett, Financial Times, 4/12/2024

MarketMinder’s View: Most of this piece focuses on a recently published study of long-term interest rates from 1311 onward, “five decades after Venice started to issue so-called ‘consols,’ arguably the first example of long-term sovereign debt.” The findings? Rates declined gradually and irregularly over time, and the reason boils down to money becoming “more abundant and fluid, thus cutting its cost” as the financial system evolved, institutions became stronger and risk analysis moved from superstition to actual measurement. The observation that rates don’t correlate meaningfully with economic conditions also makes sense, given the supply of and demand for money doesn’t always adhere to pre-set economic backdrops. So, cool analysis! Where we quibble is with the assertion that because rates have always appeared to revert to a historical mean within a couple decades of an outlying movement higher or lower, thus they will probably always continue doing so. Thing is, averages are made up of extremes, and even if the mean does reassert itself, that doesn’t mean actual rates will settle at the mean. They might hit the average at times, or they might continue hitting higher or lower levels that may or may not average out over time—mean reversion is an observation of past trends, not a gravitational force on a forward-looking basis. But even with that difference of opinion, we find the conclusion here spot on and something investors should keep in mind: “Adopting an eight-century timeframe suggests that the ultra-low rates we saw in the early 21st century were a slightly excessive deviation from the trend. It should thus be no surprise that long-term rates have corrected upwards, particularly given that the short-term neutral rate has probably risen. But this long sweep also indicates that what is happening now is not remotely unusual.” Yep, rates today aren’t actually high. Recency bias just makes people think they are.


‘Significant Shortcomings’ in Bank of England’s Forecasting, Finds Review

By Szu Ping Chan and Tim Wallace, The Telegraph, 4/12/2024

MarketMinder’s View: A while back, the Bank of England (BoE) commissioned former Fed head Ben Bernanke to lead a review of its forecasting methodology and overall administrative practices in order to identify why its inflation and economic forecasts were so wide of the mark in recent years—and recommend changes to rectify it. That report is now out, and among its findings: Staff spend too much time on administrative tasks and not enough on analysis; pay and promotional incentives appear to reward staff who develop breadth rather than depth and expertise; baseline models rely too much on recent data that are stale by the time the forecasts hit the wires; and the bank has a “‘tendency to predict over-rapid returns of the economy to its steady-state equilibrium.’” That is a lot, but we think the takeaways for investors are pretty simple. One, it highlights the problems with presuming any central bank’s forecast is a blueprint for what will happen, as all suffer these drawbacks to varying degrees—all are based on recent data, presumptions that conditions will return to the mean and whatever biases are baked into the model. Two, this gives investors something to watch, as the BoE plans to introduce reforms based on these findings, and it isn’t yet clear what those are. They could improve things, or they could invite unintended consequences. That creates uncertainty. Now, as we have seen in Australia, which is going through a similar process, this uncertainty isn’t a massive headwind. But it is worth watching, and getting clarity will probably be beneficial.


Retiring in the Next 5 Years? Avoid These Financial Mistake

By Cheryl Winokur Munk, The Wall Street Journal, 4/12/2024

MarketMinder’s View: Lots of good nuggets here, along with a few quibbles we think investors would benefit from some clarification on. Shall we dive in to the six titular mistakes? One: “Failing to maximize retirement contributions.” This is a biggie! To the extent you are able, the more you can take advantage of higher annual contribution limits for folks age 55 and up, the more money you will have to reap the market’s compound returns over time. Two: “Not analyzing Social Security options.” Yep, another key thing. Taking benefits as soon as you are eligible sets you on course for lower monthly payments for life, while delaying until age 70 will increase your monthly take. Which is right for you depends on your personal situation, other sources of cash flow, life expectancy and others. It is important to think through, especially knowing late-life medical and care costs can be exorbitant. Three: “Taking on unnecessary debt.” Indeed, whatever debt you take on, it is vital to consider whether you can still make payments without your salary. Four: “Investing like you’re still 25.” We are mixed on this one. It points out the risks of failing to consider liquidity (in this case, with an anecdote about an investor who bought multiple rental properties just before 2008, which didn’t work out), which is wise. But the advice to load up on “dividend-paying stocks and bonds” puts too much emphasis on portfolio income, in our view. We think it is better to invest for total return, with an asset allocation based on your goals, cash flow needs, time horizon and comfort with volatility. Cash flow needn’t just come from interest and dividends. It can also come from paring stock holdings and other portfolio maintenance tools. Lastly, for five (“overspending on children”) and six (“neglecting to plan for your desired retirement lifestyle”), both speak to the need to accurately map out your spending needs in retirement so that you know how much flexibility you have—and how much cash flow you will need.


What Eight Centuries of Data Tell Us About Interest Rates

By Gillian Tett, Financial Times, 4/12/2024

MarketMinder’s View: Most of this piece focuses on a recently published study of long-term interest rates from 1311 onward, “five decades after Venice started to issue so-called ‘consols,’ arguably the first example of long-term sovereign debt.” The findings? Rates declined gradually and irregularly over time, and the reason boils down to money becoming “more abundant and fluid, thus cutting its cost” as the financial system evolved, institutions became stronger and risk analysis moved from superstition to actual measurement. The observation that rates don’t correlate meaningfully with economic conditions also makes sense, given the supply of and demand for money doesn’t always adhere to pre-set economic backdrops. So, cool analysis! Where we quibble is with the assertion that because rates have always appeared to revert to a historical mean within a couple decades of an outlying movement higher or lower, thus they will probably always continue doing so. Thing is, averages are made up of extremes, and even if the mean does reassert itself, that doesn’t mean actual rates will settle at the mean. They might hit the average at times, or they might continue hitting higher or lower levels that may or may not average out over time—mean reversion is an observation of past trends, not a gravitational force on a forward-looking basis. But even with that difference of opinion, we find the conclusion here spot on and something investors should keep in mind: “Adopting an eight-century timeframe suggests that the ultra-low rates we saw in the early 21st century were a slightly excessive deviation from the trend. It should thus be no surprise that long-term rates have corrected upwards, particularly given that the short-term neutral rate has probably risen. But this long sweep also indicates that what is happening now is not remotely unusual.” Yep, rates today aren’t actually high. Recency bias just makes people think they are.


‘Significant Shortcomings’ in Bank of England’s Forecasting, Finds Review

By Szu Ping Chan and Tim Wallace, The Telegraph, 4/12/2024

MarketMinder’s View: A while back, the Bank of England (BoE) commissioned former Fed head Ben Bernanke to lead a review of its forecasting methodology and overall administrative practices in order to identify why its inflation and economic forecasts were so wide of the mark in recent years—and recommend changes to rectify it. That report is now out, and among its findings: Staff spend too much time on administrative tasks and not enough on analysis; pay and promotional incentives appear to reward staff who develop breadth rather than depth and expertise; baseline models rely too much on recent data that are stale by the time the forecasts hit the wires; and the bank has a “‘tendency to predict over-rapid returns of the economy to its steady-state equilibrium.’” That is a lot, but we think the takeaways for investors are pretty simple. One, it highlights the problems with presuming any central bank’s forecast is a blueprint for what will happen, as all suffer these drawbacks to varying degrees—all are based on recent data, presumptions that conditions will return to the mean and whatever biases are baked into the model. Two, this gives investors something to watch, as the BoE plans to introduce reforms based on these findings, and it isn’t yet clear what those are. They could improve things, or they could invite unintended consequences. That creates uncertainty. Now, as we have seen in Australia, which is going through a similar process, this uncertainty isn’t a massive headwind. But it is worth watching, and getting clarity will probably be beneficial.