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: While we aren’t as convinced as this piece that OPEC is soon to blow up, we like the discussion in here showing the cartel’s waning power to control oil prices (not that it was ever as effective as many thought). “The world has changed. OPEC is no longer relevant in the way it once was. Though the group has never had more members in its 58 years of existence, the volume of crude it produces represents just a third of all the oil extracted in the world — the smallest share it has commanded in almost three decades. … The group’s ability to influence oil prices by either boosting or cutting output has also waned. Spare capacity available to lift production at short notice has become increasingly concentrated in the hands of a dwindling band of Persian Gulf Arab countries.” Rising US and non-OPEC output have changed global oil market dynamics, particularly since American output has lots of spare capacity. That said, the cartel has survived some pretty big challenges before: multiple episodes of war between fellow members; mid-1980s threats from rising North Sea oil production and Mexican output; and 1990s internal strife and overproduction leading to a glut while Asian demand cooled. Hence, we aren’t so sure it can’t persist through the present stresses.
MarketMinder’s View: This long article meanders through a discussion of about 80 S&P 500 stocks that are down 20% or more from prior highs and have failed to rebound alongside the overall bounce back in US markets. The argument: This is mainly due to these companies’ large exposure to trade (and, hence, tariffs). Hey, maybe so! But is it really so surprising—so newsworthy—some stocks aren’t moving in lockstep with overall markets? We don’t think so. Further, what this also shows is how markets have priced in the long-standing and widely discussed tariff fears. In our view, stock prices baked in tariff fears to a rather extreme extent, teeing up a big positive surprise when the “trade war” so many investors fear amounts to a trade-negotiation ploy—and possibly one bringing freer trade overall. For more, see our 9/21/2018 commentary, “Tariffs’ Bark Remains Worse Than Their Bite.”
MarketMinder’s View: If you would like to help a young person who has earned some income get started with investing, consider pointing them to a Roth IRA for Kids. This article is a useful primer about the custodial account that works just like a Roth IRA. Part of what makes them so great: “Roth IRAs are funded with after-tax contributions [but] earnings on contributions grow tax-free.” There are some qualifying requirements and withdrawal restrictions, which are described in detail here. But for those wanting to impart a lifelong lesson on the long-term benefits of savings and compound growth, contributing to a Roth IRA for Kids is a great option to consider.
MarketMinder’s View: If you are looking for a succinct primer on Japanese Prime Minister Shinzo Abe’s accomplishments, give this a read. As a sign of Abe’s political resiliency, “Under him, the LDP has convincingly won three elections for the lower house and two for the upper house. With his coalition partners, he commands more than two-thirds of the Diet. Perhaps most impressively, he has quelled the factionalism that used to plague his party. Despite various scandals, he is firmly in charge, as he showed by engineering a change in party rules to allow himself to have a third term.” Though Abe has possessed more political capital than any of his predecessors, he hasn’t done much to enact meaningful economic and structural reform—despite his promising many as a part of his “Abenomics” economic revitalization program. As noted here, “In many areas, his reforms are too timid.” The slow Japanese growth this article alludes to has largely relied on external growth—domestic demand remains tepid overall. In our view, this isn’t likely to change, especially with Abe seemingly set on using his remaining political clout to revise Japan’s pacifist constitution. We don’t think investors should outright shun Japan—opportunities exist for firms with a global focus—but their rationale shouldn’t depend on sweeping political change, either.
MarketMinder’s View: Besides our qualms about some of the details—e.g., the cyclically adjusted price-to-earnings (CAPE) ratio is flawed, in our view, as is the practice of inflation-adjusting stock returns and earnings—we have a broader issue with this article’s thesis: Corporate earnings are inherently backward-looking. Stocks have already priced in that information and are focused on the next 12-18 months in particular. Thus, trying to decipher what recent past earnings are telling us about stocks today isn’t very helpful for investors. We mean, most of the swings in earnings this documents are driven by cyclical changes in the economy (expansion to recession). Stocks, widely considered a forward-looking economic indicator, typically move well ahead of that. Hence, sitting around and waiting for earnings to shift and reflect a change likely means you are much too late.
MarketMinder’s View: We see this one a bit differently. Rather than showing German businesses’ being late to the party in terms of Brexit prep, we think it is more a sign EU leaders have a mounting incentive to compromise. The more political pressure they receive from their own constituents, the more inclined they might be to bend and reach some sort of détente on trade and customs requirements with the UK. That could eventually make yesterday’s widely discussed stalemate a precursor to an accord, the sort of darkest before the dawn moment that preceded most compromises during the eurozone debt crisis. (Or we could have a couple more stalemates before then.) This is why we continue suggesting folks take Brexit talks one day at a time, remember negotiations usually fall apart before they succeed, and not overreact to seemingly negative developments—especially when they include politicians doing things. Like Gumby, politicians are usually bendy in the end.
MarketMinder’s View: Worried about September and October’s reputation as financial hurricane season? Let this piece set your mind at ease. As it shows, while September does have the lowest average return of any month, this stems largely from a few awful Septembers that occurred during longer-term bear markets. Happenstance, not calendar causality. Meanwhile, October averages positive over time, although the differences between monthly average returns aren’t all that significant. The second half of this article highlights research showing how shorter days and colder weather might affect investors’ moods, perhaps making them more prone to overreacting to signs of negativity in autumn—whether that’s the Northern Hemisphere’s autumn or Australia’s, which occurs when we’re enjoying spring. We wouldn’t go so far to say December’s high average returns are a reason to shake the blues, as we would consider that as flawed as reading into September’s seemingly weak history, but weather’s potential psychological impact on investor behavior is interesting, even if it is just trivia and unprovable.
MarketMinder’s View: IHS Markit’s Flash France Composite Purchasing Managers’ Index (PMI) slowed to 53.6 in September from August’s 54.9, missing expectations for 54.7. Readings over 50 indicate expansion, so overall, this shows France grew, as did new business. But most coverage reads into the supposed slowdown, arguing France is weakening and flirting with contraction. Perhaps, but you can’t know that from PMIs alone. They measure the percentage of companies reporting higher activity, but they don’t even try to estimate the magnitude of growth (or contraction). So they are just a rough snapshot of whether an economy expanded in a given month. We say “rough,” because they incorporate less timely items, including sentiment and hiring. So our take on a slowing French PMI is basically: Hey, look, growthy-ish, cool.
MarketMinder’s View: “Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services sectors that together account for more than two-thirds of the economy, fell to 55.3 from 55.6 the previous month. This undershot the consensus forecast in a Reuters poll of economists who had expected a slowdown to 55.4. Still, it was well above the 50 mark that separates growth from contraction.” You may apply the previous blurb here, swapping Germany for France, you’re welcome.
MarketMinder’s View: Here is some food for thought on estate planning and the potential benefits of leaving assets to heirs in a trust versus through your will. Whether this is right for you depends on your personal circumstances, so if you think it has potential, do a cannonball run over to your estate planner’s office to talk it over.
MarketMinder’s View: News you can use! “Starting Friday, a new federal law allows people to freeze and unfreeze their credit at the three major credit bureaus without being charged. Before, it cost consumers in almost half the states $3 to $12 per bureau to freeze or unfreeze their credit reports. A freeze prevents lenders from pulling a person's credit report – a key part of the approval process for a credit card or loan – essentially preventing fraudsters from opening a new account in that person's name or the name of someone in their family.”
MarketMinder’s View: Looking for a reason to be optimistic about the US economy? Take a looksee here: The Conference Board’s Leading Economic Index (LEI) for the US rose 0.4% m/m in August, following July’s 0.7% jump. Per Director of Business Cycles and Growth Research at The Conference Board Ataman Ozyildirim, “‘The leading indicators are consistent with a solid growth scenario in the second half of 2018 and at this stage of a maturing business cycle in the US, it doesn’t get much better than this.’” Sounds pretty grand! Seven of 10 LEI components contributed to growth, including the forward-looking interest rate spread and Leading Credit Index. Both signal banks have plenty of reason to continue lending, providing fuel for the US expansion to continue chugging ahead. Since LEI’s 1959 inception, no US recession has historically begun while the index is high and rising—like today.
MarketMinder’s View: How will the titular warning allegedly play out? “Users can filter and select the stories and opinions they want to see, becoming cut off from other news and so receiving no challenge to their views. … As a result mass groupthink could emerge with incorrect ideas about the strength of the economy, leading to bad spending and saving decisions, affecting jobs, the housing market, investment and the entire economy.” So, basically, people can get irrational and cause bubbles? As they have occasionally done since the dawn of markets? To us, this seems mostly like a statement about time-worn human behavior, which seems to be the gist of the BoE economist’s speech. Social media merely gives new ways for old habits to play out. Fake news may proliferate on social media, but it isn’t a new phenomenon or unique to that space. It goes all the way back to the days of Yellow Journalism in the 19th century—and beyond. Investors have always had to filter news from noise and avoid the temptations of irrational decision making. For more, see Michael Hanson’s analysis, “Fake News: Yellow Ain’t Mellow.”
MarketMinder’s View: To round out the last open Fed seat, President Trump has nominated economist Nellie Liang. “Liang is a senior fellow at the Brookings Institution and is no stranger to the Fed, having spent three decades there as a research economist and then director of the Fed’s Office of Financial Stability, which was created after the 2008-2009 financial crisis to help the central bank better monitor risks of another major crisis.” As with any policymaker, we caution investors against divining how Liang will influence monetary policy. Past experiences and history matter, but Liang’s voice will be but one of 7 Fed governors to go along with 12 regional Fed bank presidents. We think it is a bit of a fool’s errand to try deciphering how any one person will impact the decision-making of a broader board. However, we do think Liang’s nomination does provide a timely example against political bias. Consider: “But for all his bluster about the Fed, Trump continues to nominate people to the Fed who are widely viewed as competent centrists on monetary policy who won’t be swayed by politics. Liang had a long career at the Fed and is expected to safeguard the Fed’s independence.” For all the fearing/cheering over the changes Trump was supposed to bring to Washington, not a whole lot looks different. In our view, that is par for the course for politics.
MarketMinder’s View: Japanese Prime Minister Shinzo Abe easily won reelection as president of the Liberal Democratic Party (LDP), besting former LDP Secretary General Shigeru Ishiba. This puts Abe on track to become Japan’s longest-serving PM, and he has made no bones about where his priorities lie: amending the Constitution’s anti-war clause. Abe has pursued this lifelong ambition ever since he entered office (for a second time) in late 2012, and he has implied this is where he will focus most of his remaining political capital. Japan’s Grover Cleveland also said he wants to address demographic issues like a falling birthrate and aging population. A notable omission: any renewed efforts for economic reforms, including making labor markets more nimble. This isn’t a shock, as Abe’s much-heralded “Abenomics” revitalization program was big on promises but light on actual changes—and markets are well aware meaningful reform isn’t likely to come down the pike any time soon. The absence of a long-term positive isn’t a negative, though, and a growing global economy likely pulls Japan’s externally driven expansion along for the ride.
MarketMinder’s View: According to “two people familiar with the matter,” China is considering cutting tariffs on some imports as early as October in order to “lift economic growth by boosting imports and opening its economy.” Granted, this report comes with some big caveats: Claims from unnamed sources aren’t certain, and other important details are lacking. For example: Which tariffs will China reduce? How does this affect the tit-for-tat tariffs on US imports? Still, with tariff sabre-rattling between the US and China dominating headlines earlier this week, we think it is notable that not everything in the trade arena is bad news. If this tough trade talk eventually leads to freer global trade overall, we think that would be a net positive—and may even provide a positive surprise to investors who fret a prospective trade war between the world’s largest economies.
MarketMinder’s View: While stories about UK Prime Minister Theresa May tangling with EU leaders dominated today’s headlines, less-heralded economic data continue painting a positive picture: August retail sales ticked up 0.3% m/m, better than experts’ estimate of -0.2%. “The increase was led by household goods such as furniture and electrical items. Sales of food and clothing fell on the month after strong gains in July. Excluding auto fuel, sales also rose 0.3 percent.” As with all numbers, don’t read too much into a single month’s report—positive or negative. However, these figures are further evidence UK consumers are “keeping on” just fine amid all the Brexit noise and warnings about weaker growth to come.
MarketMinder’s View: Aside from it not officially being autumn yet, we take issue with this article’s very myopic look at September’s market returns so far. Supposedly “safer” Telecommunication Services, Consumer Staples and Utilities sectors are leading the S&P 500 this month, but two weeks of data don’t make a trend. September isn’t even over yet! (And when it is, Telecom won’t be a sector anymore!) Expand the timeframe a wee bit further out to include all of 2018 thus far, and those sectors are still well behind the broader S&P 500 index year to date. (Growth-oriented sectors like Consumer Discretionary, Information Technology and Health Care are outperforming both those “safer” sectors and the S&P 500 year to date as well.) Outside that myopic focus on September, this article does highlight some signs of sour sentiment: “Just 32% of individual investors believe the stock market will be higher in six months, down 10 percentage points from the prior week and below the historical average of 39%, according to data through Wednesday from the American Association of Individual Investors.” Just one data point, but combined with suggestions investors are seeking “safer” stocks now, this suggests sentiment overall remains far from giddy. This sets up an easier threshold for reality to surpass—a reason to be bullish, in our view.