MarketMinder

Headlines

Here we analyze a selection of third-party news articles—both those we agree and disagree with.

Please note: Though we make every effort to source articles from freely available sites, we will also regularly include articles on sites that have limited content for non-subscribers. Doing so is increasingly unavoidable, as more and more financial media is published behind paywalls.


ECB Shows QE Helped Lending Even as Inflation Remains Elusive

MarketMinder’s View: The ECB studied the impact of the €2.6 trillion it spent buying up long-term bonds from banks under its quantitative easing (QE) asset purchase program and, shocker, concluded it was beneficial to lending. Most of the data in the study surround the quantity of assets purchased and a look at interest rates and loan growth during a select period of time. Neither of which qualifies QE as a success or failure, in our view. That being said, we would argue actual data and evidence suggest QE was a drag. Both the UK and US saw lending accelerate after ending their programs in 2012 and 2014, respectively. Ditto for the eurozone, as loan growth accelerated after the ECB slowed asset purchases in 2017. The same held in Japan in the 2001 – 2006 timeframe, after the BoJ invented QE. Further, nowadays Japan has the largest QE program relative to GDP in the world and is the only central bank actively buying assets. Yet its lending, inflation and economic growth all lag the world. Why? Banks borrow short term to fund long-term loans. Central banks buying long-term bonds lowers long rates. With short term rates pegged low (or slightly negative, as in the ECB’s case), QE compresses the spread between long and short rates, discouraging lending. That directly dings banks’ loan profits, discouraging them from lending. Hence, we would argue lending in the eurozone grew in spite of QE, the ECB’s study results notwithstanding.

CBOE to Stop Listing Bitcoin Futures as Interest in Crypto Trading Cools

MarketMinder’s View: Remember when bitcoin was poised to dominate the financial world, with the CBOE’s announcement of futures trading the first step to drawing in institutional investors and securitizing the product? That wasn’t even two years ago, when bitcoin was surging towards $20,000 per coin. Well, flash forward to today and bitcoin is down about 80% from those levels, interest in the currency has fallen off a cliff and now CBOE is dropping futures trading. The takeaway here isn’t about bitcoin or crypto currencies per se. It is more that bitcoin’s wild ride in recent years provides a classic lesson applicable to any investment where euphoria and emotion take hold. When prices are surging ever higher and folks are convinced the asset in question is a paradigm-shifter, we think you had better ask some hard questions about how real those gains actually are.

Japan's Exports Slump Again on Weak External Demand, Puts BOJ on Notice

MarketMinder’s View: “Ministry of Finance data showed on Monday [Japanese] exports fell 1.2 percent year-on-year in February, more than a 0.9 percent decrease expected by economists in a Reuters poll. It followed a sharp 8.4 percent year-on-year drop in January, marking a third straight month of falls due to drops in shipments of cars, steel and semiconductor production equipment.” While that may not seem great—and the beginning of this article approaches it with a glass-half-empty angle, repeatedly blaming China’s slowdown—consider this, from the back half of the same article: “Monday’s trade data showed exports to China, Japan’s biggest trading partner, rose 5.5 percent year-on-year… Now, as this notes, part of the volatility here seems tied to the Lunar New Year,  when Asian—and Chinese in particular—demand typically cools, roiling data. It is too soon to say whether demand is on an uptick, but in our view, the Chinese government’s economic stimulus likely suggests a rebound before long.


How Unretirement Affects Your Social Security

MarketMinder’s View: With folks living longer, healthier lives and work increasingly service-based (less physically demanding), “unretiring” is becoming more common. “More than half of retirees over age 50 say they would work again if the right opportunity came along, according to RAND’s American Working Conditions Survey, and 39% of workers age 65 and older, who are employed today, had previously retired.” Now, a common fear among those considering unretiring: the notion working again could hurt their Social Security benefits. However, this insightful piece digs into your options, finding you may actually come out with even better benefits. It is possible to stop receiving benefits if you started them less than 12 months ago. The drawback: You’ll have to repay what you received to the government. If you are at full retirement age, you can also pause benefits, which can improve your payout amount if you do it long enough. If you are considering unretiring and are wondering about the impact on your Social Security, give this a read.

Fed Officials Wrestle With a 'Dot Plot' Dilemma

MarketMinder’s View: “Every quarter, the central bank produces a chart of 19 officials’ individual projections for interest rates, with a dot representing each person’s expected value of the Fed’s benchmark rate in coming years. Most of them see this so-called dot plot as a valuable communications tool, but it has increasingly contributed to investor confusion.” Yep. In our view, the dot plot exemplifies the fact more communication doesn’t necessarily breed clarity. Lots of folks assume the dot plot means a certain number of hikes are set to occur in a period of time. But Fed officials have no greater forecasting ability than anybody else. They respond to data, and the dot plots are really just the median of different folks’ biased interpretations of the data they choose to review. So, in our view, whatever the Fed decides to do with the dot plot is pretty irrelevant to investors. We think you are better off tuning out Fedspeak—the dot plot being just its most artistic form—and focusing on what central bankers actually do rather than what they say.

UK Bankers on Standby as City Readies No-Deal Contingency Plans

MarketMinder’s View: Two key takeaways from this article, which we think largely overstates Brexit's impact on the UK’s huge financial services sector: One, banks have crafted Brexit plans applicable to anything from a hard to soft Brexit and stand ready to implement them. Banks have had years to prepare plans for a variety of outcomes. As Brexit unfolds, it is mostly a matter of knowing which plan to implement. Two, this inadvertently shows Brexit’s impact is likely far less than once feared. While it dubs the potential shift in bankers from London to points on the Continent an “exodus,” the data it shares make it seem like anything but. The firms it documents employ 276,300 workers in the UK and have announced 3,068 jobs will shift from the UK, or 1.1% UK-based staffing. As the article even notes, “The latest Brexit tracker report by [Ernst & Young] estimates that London is on track to lose about 7,000 jobs to the EU ‘in the near future’, while about 2,000 roles are being created on the continent and Ireland in response to Brexit.” That may not be great for the workers affected, but as the referendum approached many feared much worse, with some forecasting up to 100,000 financial services jobs lost. While no one knows how Brexit will unfold, this seems like an example of how reality is set to clear extremely dour sentiment toward the UK, positively surprising investors.

US Industrial Production Inches Up Much Less Than Expected in February

MarketMinder’s View: “The Fed said industrial production inched up by 0.1 percent [m/m] in February after falling by a revised 0.4 percent in January. Economists had expected production to climb by 0.4 percent compared to the 0.6 percent drop originally reported for the previous month.” While both utilities and mining output positively contributed (rising 3.7% m/m and 0.3% m/m, respectively), manufacturing (-0.4% m/m) drove the weaker-than-expected rise. Overall, this US report is consistent with recent industrial slowdowns globally. However, though many blame global trade tensions and tighter monetary policy, we think the primary culprit is China—namely, its crackdown on its shadow banking industry that knocked domestic private sector demand. That had a ripple effect globally, though in our view, this looks temporary—especially after Chinese officials’ recent stimulus efforts. Moreover, even though volatile industrial production tracks just a small slice of total US GDP—it isn’t as impactful as services industries—it still registered growth in February. Persistent global growth slowdown fears are a sign sentiment remains more dour than warranted, in our view. For more, see our 2/21/2019 commentary, “Some Perspective on the Alleged ‘Industrial Recession’."

How to Avoid the Next Real Estate Downturn

MarketMinder’s View: This article highlights some sensible consideration points for those thinking about real estate as an investment. Namely, it notes one of the major risks: a lack of liquidity. “An investment can become illiquid when the market drops as the number of buyers dries up, and sellers have to learn to be patient to avoid taking a loss.” Plus, real estate can bring unexpected costs that could eat into your return. “Residential or commercial, properties have carrying costs, like debt on the property and associated taxes, which are known up front. But there are also variables like maintenance and insurance costs.” We aren’t automatically anti-real estate or other alternative investments, but we do think it is critical investors know exactly what they are buying and whether owning that type of asset aligns with their specific investment goals, objectives, time horizon and personal circumstances.

European Car Sales in February Offer Hope for a Turnaround

MarketMinder’s View: The tide may be turning for Europe’s auto industry! According to the European Automobile Manufacturers Association, European passenger car registrations dropped 0.9% y/y in February—the smallest decline since September 2018. That is right around the time new EU auto emissions standards start impacting the auto sector—a lingering headwind. As noted here, “the effects of the [auto emissions] changes have lingered into 2019, and nearly caused a technical recession in Germany at the end of last year because of the importance of the car industry to that country’s economy.” However, this industry report shows German, French and UK auto sales rose for the first time since September. Now, one month of data isn’t all-telling, but the small year-over-year dip—which is up from far deeper declines months ago—suggests the industry is getting over the rules’ impact. We thought it would be only a matter of time before automakers adjusted to the new rules and worked through their backlog—providing the eurozone’s auto and manufacturing industry some relief. Seems like that matter of time may be coming soon, if it isn’t already here now.

China’s Premier Acknowledges Economic Slowdown, Promising Tax Cuts

MarketMinder’s View: On Friday, China’s premier Li Keqiang held his annual news conference, addressing topics from slowing economic growth to intellectual property controversies with other global powers. As is the case with any politician, take what the premier said with an appropriate number of grains of salt—this political display is more marketing and pageantry than piercing insight into the government’s thinking. In terms of relevant market topics, the fact officials have openly addressed the growth slowdown gives China the opportunity to set expectations, too. The government recently signaled a GDP growth target range between 6.0% and 6.5% for 2019, a tacit acknowledgment of the economy’s deceleration. Lowering the bar for expectations gives more room for reality to surprise to the upside—not hard given how fears surrounding tariffs still dominate. For more, please see our 3/4/3019 commentary, “China's Gangbusters Loan Growth.”

MPs Vote by Majority of 211 to Extend Article 50 and Delay Brexit

MarketMinder’s View: In your latest Critical Fortnight for Brexit™ update, Parliament passed the Government’s motion to request a short extension from the EU if Prime Minister Theresa May’s Brexit deal passed by March 20. If May’s deal doesn’t pass by then, the Government will request a longer extension. Practically speaking, the UK is asking the EU to kick the can to at least June 30, which the EU is likely to agree to. That sets up another “meaningful vote” in Parliament next week—likely with little change to May’s deal—where we do some version of this dance again. In reaction to the news, many media outlets have been warning a “no-deal” Brexit still looms. We agree a no-deal Brexit is still a possibility—though its negative repercussions are vastly overstated, in our view. However, it seems like a fairly remote possibility, with a couple months’ delay much more likely. The upshot: The fog of uncertainty will remain with us for a while longer, which isn’t great—businesses and investors remain in limbo. However, UK GDP has still managed to eke out growth despite lingering uncertainty, so the delay likely isn’t a major headwind. However, we believe markets and businesses will be greatly relieved whenever we move on from this long-running saga. For more, see our 3/12/2019 commentary, “What Now for Brexit?

Job Slowdown Isn't Imaginary

MarketMinder’s View: The four-week average of initial jobless claims has ticked up from 206,000 in September to 223,750 on Thursday, which this argues is a sign that “less job growth … suggests that the slowdown in the economy won’t be an entirely temporary thing. The fading of last year’s tax-cut and government-spending boosts, the cumulative effects of the Federal Reserve’s interest-rate increases and weakness overseas are having an effect. The U.S. has lost a little oomph.” Call us skeptical. For one, looking at this small uptick lacks perspective. That 206,000 figure was the lowest since 1969. The uptick is a rounding error in a series this piece itself admits is volatile. Further, jobs lag economic growth, which lags the stock market in turn. Seems speculative, in our view, to suggest a small wiggle from historically low levels in a bouncy, lagging indicator says much about the future trajectory of the economy, much less stocks.

Why Larger Tax Bills This Year Could Make This Investment Even More Popular

MarketMinder’s View: This article argues the $10,000 cap on state and local tax (SALT) deductions will boost wealthy investors’ tax bills in high-tax states like New York, New Jersey and California, increasing demand for tax-advantaged investments. Namely, according to this, municipal bonds. There is probably some truth to this, considering select taxpayers will see their overall tax bill rise. (Note: This isn’t equivalent to getting a smaller refund or paying when you file.) But we have a few problems with this notion. For one, cuts to federal tax brackets will offset SALT limitations in many investors’ cases. Second, the limitation of SALT deductions is maybe the most widely discussed wrinkle in last year’s tax reform. Hard to see this sneaking up on folks, especially wealthy investors, who often have tax planners. So, to the extent folks seek munis as a SALT shelter, they likely already have—and other muni investors, expecting this, likely front ran them. Markets pre-price widely known factors. Now, if you are considering switching, a word of caution: Munis aren’t risk-free. We know you probably know that already, but these can be very illiquid (hard to sell), as there are a slew of different issues from any one locality or state, splintering demand. Also, avoiding state and local tax may motivate you to buy only your home state’s issues. The trouble: That means you may not be sufficiently diverse, increasing risk. We get that paying taxes isn’t super pleasant, but weighting them heavily in an investment decision can be a huge error.

China Blames Lunar New Year for Underwhelming Economic Data

MarketMinder’s View: China’s National Bureau of Statistics released a spate of economic data covering the first two months of the year, with slowdowns in industrial output garnering the most attention. Specifically: January-February industrial production rose 5.3% y/y, slowing from December’s 5.7%. (Less heralded: January-February retail sales were up 8.2% y/y, matching December’s rate.) However, as this piece notes, the Lunar New Year holiday tends to heavily skew Chinese data, impacting several months’ worth of figures. “The Lunar New Year -- around which many factories and companies shut down -- usually hurts industrial output in the four days ahead of it and 15 to 20 days after it, according to Mao Shengyong, spokesman of the National Bureau of Statistics. The festival was on Feb. 5 this year and thus the effect was concentrated in February, he said. That compares with the later holiday in 2018, which caused the effect to spill over into March, he argued.” Now, the statistics agency also released some “holiday adjusted” numbers, which were higher across the board (e.g., “The 5.3 percent growth of industrial output would actually have been 6.1 percent once you exclude holiday effects.”) While interesting, we also don’t think investors should get too caught up in nailing growth so precisely—no dataset is perfectly accurate. As for concerns about the efficacy of the government’s stimulus efforts, that effect tends to show up in the economic data at a lag—perhaps even several months from now. Overall, the most recent numbers indicate Chinese growth isn’t showing signs of screeching to a halt any time soon.

Don't Worry About the Size of Your Tax Refund

MarketMinder’s View: With Tax Day about a month away, you will likely see the number of tax-related stories increase. As headlines share different stats (e.g., the average tax refund), taking the titular advice seems wise to us. As noted here, “The key metric when evaluating your tax situation is the total amount of taxes paid for the year, not the refund received. … The key to a ‘good’ tax refund is setting expectations. … The important thing is being intentional with your money and using it the way you want to use it.” Yup. Everyone’s tax situation is different and depends on myriad individual factors that won’t be reflected in any national average. Be sure to consult with your tax advisor if you have any questions.

Eurozone Industrial Production Rebounds in January

MarketMinder’s View: In the eurozone, January’s “Industrial production rose 1.4 percent from December, when it fell 0.9 percent, figures from the statistical office showed on Wednesday. Economists had forecast a 1 percent increase. Growth was driven by a 2.4 percent surge in energy production, followed by a 2 percent climb in the output of non-durable consumer goods. Capital goods output rose 0.9 percent, durable goods production grew 1.1 percent and manufacture of intermediate goods was 0.2 percent higher.” Broad-based industrial growth to start the year is nice, and the lift in durable goods (like cars) suggests production bottlenecks—stemming from the EU’s new emissions testing standards—may be easing. It also shows how one country—even mighty Germany, whose industrial output declined in January—doesn’t dictate overall eurozone trends. That said, one month’s read isn’t super telling, especially for a volatile series like industrial production, which is a minor part of overall GDP anyway. Plus, it is backward looking. For a more forward-looking view at factors affecting the Continent’s economy and stocks, please see our 3/12/2019 commentary, “A Tale of Two Eurozones.”

U.S. Durable Goods Orders Unexpectedly Increase In January

MarketMinder’s View: In America, “durable goods orders climbed by 0.4 percent [m/m] in January after spiking by an upwardly revised 1.3 percent in December. Economists had expected durable goods orders to drop by 0.5 percent compared to the 1.2 percent jump originally reported for the previous month. ... Meanwhile, the Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched indicator of business spending, climbed by 0.8 percent in January after slumping by 0.9 percent in December.” Today’s orders are tomorrow’s production, but these shutdown-delayed data are a tad stale and represent only a narrow slice of America’s predominantly services-based economy. They are also volatile. The headline figure was boosted by a 15.9% m/m increase in commercial aircraft. Stripping out lumpy aircraft orders and defense spending attempts to smooth volatility, but it also makes the series even less representative. So while it is nice heavy equipment orders are up to start the year, markets are probably looking ahead. On that front, leading indicators suggest all is well.

Check Out This Graphic and Sleep Tight on Your Retirement Account

MarketMinder’s View: We quibble with the charts depicted here—returns prior to 1926 aren’t too reliable and inflation adjustments don’t make sense when stock prices are based on corporate earnings that already include inflation. But we agree with the overall thrust: “Long-term investors can see that as long as their time horizon is measured in the decades, you can take the odds of making money in the stock market to the bank.” The idea here is sound. Over shorter time horizons—less than a decade, roughly—stocks’ return variability is typically high. Returns could be low or even negative at the end of ten years. But as this shows, for longer time horizons—20 years or more—stocks returns historically have never been negative, despite bear markets (prolonged, fundamentally driven declines over -20%) along the way. This doesn’t mean a 20-year point-to-point drop is impossible, but we think history is a good guide and suggests the longer your investment time horizon, the likelier you are to achieve your financial goals.

The Battle Over Broker Rules Goes Local

MarketMinder’s View: After a federal push for a new broker standard bogged down, it seems some states are taking up the mantle. As this article describes, Nevada and New Jersey are drafting legislation to hold brokers to a higher standard. Currently, the SEC holds broker-dealers—regulated under the Securities Exchange Act of 1934—to a “suitability” standard, requiring them to sell only products they think are appropriate for their clients. In contrast, the SEC holds financial advisers—regulated under the Investment Advisers Act of 1940—to a “fiduciary” standard, which adds that the adviser must put clients’ interests before their own, disclose all conflicts of interest and explain procedures in place to help mitigate said conflicts. But many investment professionals are “dual-registered,” which makes it hard to tell the difference. How do you know which hat your broker is wearing, especially when they call themselves a “financial advisor,” with an o instead of an e? Efforts to raise broker standards may be laudable, but from what we have seen in practice, they mostly confuse the issue—state initiatives included. As an investment adviser here laments, “If a client spends part of the year in New Jersey and part of it in Florida, what law applies? ... It’s hard to be compliant with two different agencies writing rules that may be in opposition to each other.” For investors, in our view, doing your own due diligence on a broker or adviser remains paramount regardless of rules. Our recent article on the Fisher Investments Insight page at Reuters may help cut through the confusion.

Turkey Enters Recession a Blow for Erdogan as Elections Near

MarketMinder’s View: The titular recession may seem like a case of a developed-world slowdown leaching into Emerging Markets—and indeed, Europe’s late-2018 troubles likely weighed. But Turkey-specific problems seem the main culprit: “Economists had been warning of a recession for months as foreign investment in Turkey dried up over growing concerns about the rule of law as well as about its economic policies.” Massive government spending and business borrowing created big debt piles, much of it denominated in foreign currencies. The lira’s 2018 plunge rendered repayment extra expensive, spurring a rash of bankruptcies. Meanwhile, President Recep Tayyip Erdoğan centralized power at the expense of the country’s already fragile institutions. This is a pretty reliable recipe for a downturn even without an assist from softer foreign demand. In our view, Turkey’s woes reflect the need to consider each EM independently and don’t reflect a nascent EM-wide economic decline.