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.
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.
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’."
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.
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.
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.”
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?”
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.”
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.
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.
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.
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.