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: The Treasury’s semi-annual report naming and shaming alleged currency manipulators is out this morning, and like its predecessors, it is a tour de force in humorous illogic. On the bright side, it takes Vietnam and Switzerland off the Treasury’s official naughty list, reversing the Trump administration’s assertion that their central banks were manipulating their currencies. But they remain on the watch list and, along with Taiwan, will undergo “enhanced negotiations” with the Treasury over their currency policies. The real fun here comes from their bedfellows on that watch list: Germany, Italy and now Ireland, none of which have a national currency to manipulate. That tells you everything you need to know about the usefulness of this list, which is mostly a political exercise. Theoretically, receiving the currency manipulator designation exposes a country to US tariffs and non-tariff trade barriers, but the Trump administration didn’t even pursue that for the previous violators. Besides, the whole exercise rests on outdated mercantilist thinking and the misperception that a weak currency is an advantage—something reality has disproven time and again.
MarketMinder’s View: Peru is a relatively small Emerging Market, but its political discord has hogged headlines for several months due to its potential impact on global copper production. Since the 1980s, it has been a free-market beacon in South America, but protests last autumn sought to change that. Then came the departures of two presidents within weeks of each other, paving the way for this spring’s contentious election. The top finisher in the first round, Pedro Castillo, represents the Free Peru Party, which advocates nationalizing natural resources—sparking fears that Peru could embark on the shining path to Marxism and upend the multinational Materials firms’ operations there. Now, however, the party appears to be moderating from that rhetoric: “Pedro Castillo isn’t looking to nationalize mining, and welcomes private investment, the party’s legal representative Ana Maria Cordova said by telephone. Castillo, who will announce some ‘adjustments’ to his platform, wants a bigger share of company profits to benefit Peruvians. ‘Not to expropriate them, not to nationalize or anything, but so that the conditions in some way also favor populations where these industries or mining operations are involved,’ she said. ‘It is simply renegotiating conditions so that they somehow improve in favor of the population.’” She went on to say ‘private capital ‘won’t be touched.’” Now, taking politicians at their word is always risky, but this does seem to lower the likelihood of Peru going the way of Argentina or Venezuela if Castillo wins the second round in June, helping reduce uncertainty surrounding big Metals & Mining firms. It is also worth noting that the Peruvian Congress is fractured among many parties, with none coming near a majority, suggesting it could be hard for either candidate to deliver on extreme promises.
MarketMinder’s View: Here is a heaping helping of high-frequency data on UK retail activity, which we highlight not to hype the post-lockdown boom, but to show how fleeting these data’s usefulness to investors was. Last year, when lockdowns first took hold, it was a couple of months before official economic data captured the impact. But high-frequency data like restaurant bookings, TSA checkpoint crossings, road traffic and retail footfall helped investors sketch out the situation and set expectations. That was a benefit, in our view. However, these indicators soon received heaps of attention, and while they remained helpful, we think they became priced in quickly. Plus, after we all lived through the first lockdown and recovery, it became easy to create a mental model, however subconsciously, of what successive rounds of lockdown would look like. This, in our view, is what helped UK stocks be among the developed world’s best-performing early this year even as the country endured a third lockdown. Investors had already priced the potential impact and moved on. Therefore, while all of the data here show a very nice recovery shaping up, we don’t think it is news to markets—and we tip our cap to this piece for being one of the rare articles not trying to argue people’s enthusiastic return to the shops will be a lasting boom.
MarketMinder’s View: Known more formally as special purpose acquisition companies, SPACs are an increasingly popular, alternative way for companies to go public without going through the formal IPO process and its red tape. As SPACs’ popularity mushroomed and speculation took root, it was only a matter of time before regulators applied more scrutiny, and, well, here we go: “Over the past two weeks, the Securities and Exchange Commission, which was largely silent about SPACs through most of last year, questioned the optimistic revenue projections used by startups that are merging with SPACs. An SEC warning that could require SPACs to restate their financial results put the brakes on some new offerings.” The issues here are twofold. One, unlike traditional IPOs, private companies merging with SPACs are allowed to release financial projections, and the SEC has reportedly begun scrutinizing some of the rosier outlooks circulating. Two, many SPACs entice early investors with warrants, which give the right to buy shares later. Most SPACs have entered these as equity on their balance sheets, but one firm reportedly asked regulators whether they ought to be liabilities instead, leading to a reclassification as such. Now legal analysts estimate hundreds of SPACs will have to review their books and do the same. This one-two punch appears to be scaring off investors and cooling SPACs’ popularity, making this a shining example of the risks of piling into an untested fad. We aren’t inherently against SPACs any more than we are traditional IPOs, but we do think investors were underestimating potential regulatory risks. Let that be a lesson.
MarketMinder’s View: The US released a host of positive economic data today, with March retail sales hogging the spotlight. They surged 9.8% m/m, trouncing expectations and erasing February’s -2.7% decline. Retail sales’ strength was broad-based. Spending on cars (15.1% m/m), clothing (18.3%) and food service (13.4%) all grew at double-digit rates. Many credited COVID relief checks with arming consumers with more dollars to spend, though this assessment seems premature to us—the retail sales report just shares where money was spent, not the money’s source. What was likely a bigger contributor to March’s number: More states have begun reopening, allowing many businesses—including the hard-hit restaurant industry—to start getting back to normal. Spring’s arrival probably helped there, considering how much dining out has gone al fresco. As for clothing, more people have been going back to work and school and, well, we hear anecdotally that the “quarantine 15” caused a lot of folks to need to expand their non-sweatpants wardrobes. Coupled with February industrial production rising 1.4% m/m (with the manufacturing subsector up 2.8%) and initial jobless claims’ ongoing decline, these data provide a snapshot of what forward-looking stocks pre-priced months ago: an ongoing US economic recovery as society started moving on from the pandemic. However, for investors, keep these growthy numbers in perspective: They tell you what already happened—they aren’t a roadmap for where stocks are headed next. For more, see our 4/6/2021 commentary, “Economic Data Are Springing Higher, but Stay Level-Headed.”
MarketMinder’s View: Please note, MarketMinder’s analysis is politically agnostic. We don’t prefer any politician or political party over another, we don’t take a position for or against any political initiatives, and we focus solely on political developments’ potential economic or market impact. With Scotland’s parliamentary election three weeks away and polls indicating some form of a nationalist majority is plausible, First Minister Nicola Sturgeon shared the Scottish National Party’s (SNP) manifesto today. While the SNP’s plans included the usual campaign trail goodies (e.g., abolishing the National Health Service’s dentistry charges and providing free bikes for kids), most focused on Sturgeon’s “demand” that UK Prime Minister Boris Johnson approve an independence referendum should a nationalist majority prevail on May 6. If the UK government doesn’t approve, the SNP plans to move forward with a so-called wildcat Independence Referendum—and will defend it if UK courts challenge its legitimacy. As expected, this prompted a torrent of dire warnings and critiques (with political preferences coloring much of it). We won’t debate the merits of a political party’s campaign platform, but we did find it interesting the SNP wants an independence vote within two and a half years. That is an eternity in politics, and a lot can change between now and the end of 2023—so we caution investors against planning for potential UK political chaos. It is possible discussions of another Scottish independence referendum stirs uncertainty and weighs on investor sentiment, particularly if the wildcat option gains steam. However, given how long and drawn out this potential process would be, this story is more likely to fade into the longer-term political backdrop than pose an immediate headwind to UK markets, in our view. For more, please see Research Analyst Brent Hankins’ analysis, “Scotland’s Election and the ‘Risk’ of IndyRef2."
MarketMinder’s View: This article dives into a widely overlooked reason why Congress isn’t likely to push through major, sweeping legislation this year: looming redistricting. The Census Bureau will soon release its first round of data, giving both parties a better idea of which states will add or lose seats this year. However, most observers already project a significant GOP advantage based on the estimates from last year, which showed Texas gaining three seats, Florida gaining two and several heavily Democratic states each losing a seat. Plus: “Republicans will be in charge of drawing new maps in 188 congressional districts this year, compared to 73 for Democrats, down from the GOP’s 219-44 advantage a decade ago, according to the nonpartisan Cook Political Report.” Now, a lot of political calculus goes into redistricting, and as always, that isn’t our focus. MarketMinder is nonpartisan, and our analysis solely weighs potential market impact. However, given the uncertainty surrounding new congressional district maps, a representative unsure of their new district’s party alignment isn’t likely to push hard for extreme legislation either way—lest they alienate their new constituents or the people who have the power to draw their district away. As some Democratic lawmakers realize, they “…should think of themselves as entering this cycle as the party in the minority, given the slimness of their House majority and the historical trend of midterms favoring the party out of power.” This is another little-noticed factor contributing to the gridlock in Washington this year—an underappreciated bullish positive, in our view.
MarketMinder’s View: In the wake of fraudster Bernie Madoff’s death, we have read a number of heartbreaking stories about his victims, many of whom are still recovering. While some were high-profile celebrities—and these cases get the most press—many were ordinary folks who dutifully saved for years. That is a humbling reminder that anyone can be duped, and in that spirit, we thought the nugget in this article was worth highlighting: “He [Madoff] understood that conservative people can be conned by the right kind of trickster, and not just the greedy hoping to make a fast buck. Madoff’s victims weren’t in many cases wildly greedy, or star struck by some improbable way to make money in a hurry. They saw investing with Madoff as a trustworthy and conservative way to ensure that their savings would gain steadily.” That said, we think it is worth remembering equity-like returns (low double-digits) like Madoff claimed to have achieved, comes with equity-like risk and occasional down years. If you are truly hoping to reduce volatility risk, you must accept a lower return. There is no free lunch. For more tips on protecting yourself, see today’s commentary, “Madoff Is Dead, but Schemes Like His Are Alive.”
MarketMinder’s View: With vaccine distribution becoming more widespread, the travel industry has noted an uptick in prices for summertime flights. “Because airfare is typically purchased weeks or months in advance, it can be a barometer of how the public is feeling about the pace of recovery. The prices in the Hopper data, which includes fares displayed over three years of searches (representing billions of flight queries), now suggest a travel recovery that could be in full effect as early as this summer.” Now, we caution readers against reading too much into this very narrow dataset—taking several weeks’ worth of airline ticket prices as proof a full travel rebound by summer seems like a big stretch to us. Rather, we think this story raises a telling high-level point: Experts, analysts and pundits widely anticipate a travel rebound as folks get vaccinated and COVID restrictions ease. That means forward-looking markets have already pre-priced the upswing. What moves markets isn’t what everyone knows about. Acting on widely watched information and headlines won’t likely provide you with an investing edge—that depends more on thinking differently than the consensus. One point to consider: How does reality align with prevailing expectations? For more, see last week’s commentary, “Why Stocks Don’t Mind Widely Watched Forecasts.”
MarketMinder’s View: This wide-ranging analysis is far from perfect, and it ventures into some sociological topics (e.g., income inequality) that we suggest investors put aside. While important, sociology is generally removed from the economic and political factors stocks care about over the next 3 – 30 months. That said, while some of the arguments raised here are off base—e.g., we think the feared fiscal reckoning seems overwrought, and the recovery doesn’t depend on the Fed’s monetary “stimulus”—we found some sensible points here, too. For example, we agree economic growth is more likely to slow than accelerate after a short-term pop this year. Many project a long boom supported by record-high savings levels, but as the cited research from the New York Federal Reserve notes, that isn’t certain. “The three rounds of checks have seen progressively less spent and more saved, according to New York Fed data. The numbers tell a twin message—that consumers are building up their balance sheets, indicating large spending power ahead, but also are growing increasingly reluctant to part with that cash.” We also think this article highlights a broader point: Pockets of skepticism still exist, signaling investor sentiment isn’t at euphoria yet. Sentiment’s evolution will be critical to watch this year, as our research suggests stocks are behaving more like it is a late-cycle, not early-cycle, bull market.
MarketMinder’s View: Like always, MarketMinder is politically agnostic, favoring no party or politician. We seek only to assess their proposed policies’ potential market impact. On that note, for any policy—but particularly far-reaching tax plans—the devil is in the details. After the Biden administration announced its plans for a major reform of global corporate taxation, some worried about the fallout for low-tax European nations, including Ireland, the Netherlands and Luxembourg. But talk about an agreement is one thing, and as this article points out, actually reaching a deal is another. “However, any new EU-wide taxes require the unanimous agreement of all 27 member states, handing a veto to governments that are fiercely protective of their taxation rights. As a result, EU finance ministries have been struggling for years to agree on bloc-wide policies to root out multinational tax avoidance. ... earlier this year countries including Ireland, Malta and Luxembourg opposed draft EU plans to force multinationals with more than €750m in annual turnover to report how much profit they made and tax they paid in all EU member states.” If there is such struggle over disclosing profits, imagine the battle over actually taxing them. Also note, this is just for Europe. Trying to get over 130 countries to agree quickly on the details of a US-led global minimum corporate tax seems like a stretch to us. Now, while these developments are worth monitoring, keep in mind the ongoing discussion about this initiative’s potential implications will give global markets plenty to process and digest. We doubt the issue will surprise stocks and see no reason why investors should act on hypothetical proposals now. For more, please see last week’s commentary, “The Global Minimum Tax: Tough Sellin’ for Yellen.”
MarketMinder’s View: Please note that MarketMinder doesn’t make individual security recommendations. Companies mentioned here serve only to highlight a broader investment theme: China’s journey toward market-oriented reforms and financial liberalization is a long, winding path that will include both progress and setbacks. As this piece notes, a huge financial holding company—majority-owned by China’s Ministry of Finance—appears to be on shaky ground after failing to publish 2020 earnings in late March. Its bond yields have since soared and how authorities will resolve the situation remains unknown. As this piece concludes, “... global investors must consider whether they should really be involved in a market where everything comes down to opaque political machinations, which they will likely never really understand.” That is a fine point to consider—especially when investing in Emerging Markets—but this isn’t a new development for China. The government has been trying to inject market discipline for years, and the process has occurred in fits and starts. Whether the government steps in with support or not, we think global markets are well aware of the long line of trial and error toward liberalizing China’s financial sector. Note, too, that Chinese officials’ top priority still appears to be social stability—if this issue posed a broader threat to the economy, they likely wouldn’t hesitate to step in and assist as needed.
MarketMinder’s View: This piece, which features several analysts and measures highlighting optimism toward value-heavy European stocks’ outlook, is a near-perfect example of the faulty logic we see underpinning value bulls’ theses—and the “reopening trade”—lately. It highlights the fact stocks are looking through the (widely known) issues in vaccine rollout to focus on the (just as widely known) expected spike in economic growth tied to reopening. As one analyst quoted herein put it, “‘The market rightly anticipates accelerating earnings growth.’ … ‘The difference this time is magnitude. Specifically, the U.S. and Europe are likely to experience the mother of all recoveries over the next several years.’” This optimism seems to be behind the sentiment-driven value countertrend that may have petered out in mid-March. The fact it is so widely known and factored into Wall Street forecasts, though, suggests to us it lacks power to sway stocks looking forward. More likely, in our view: The years-long boom many expect proves a mere fleeting pop, disappointing value fans.
MarketMinder’s View: This article covers the aspirational aspects of Spanish Prime Minister Pedro Sánchez’s plan to distribute the special, EU-backed €140 billion in grants and loans approved late last year as part of the bloc’s broad-based fiscal response to COVID. It is a little hard to see how the talk of a huge transformation eclipsed only by the formerly isolated nation’s entry into the EU—the world’s largest economic bloc—won’t disappoint true believers. €140 billion is a large amount of money to us, but it is also slated to trickle out over six years. At that rate, you are talking about an average of €23 billion annually. Still sound big? Spanish GDP clocked in at €1.122 trillion last year (source: Eurostat). That means it would be equivalent to investing 2.0% of GDP annually—small potatoes. Further, all it really does is aim to replace demand the lockdowns destroyed, so it isn’t really growth as much as it is an offset. Furthermore, this is all if the Spanish government passes the package—no sure thing given Sánchez’s Socialists head a minority coalition—and the EU aid package survives German legal challenge.
MarketMinder’s View: “Chinese trade figures look especially dramatic compared with early 2020, when the ruling Communist Party shut factories to fight the virus and trade plunged.” That is the only sentence in this coverage that reveals the reality: China’s Q1 economic data, overwhelmingly calculated on a year-over-year basis, are massively inflated by the so-called base effect, as current readings look back to depressed data from a year ago. So tune down all the optimism in this piece about huge surges in exports and imports, including 49% y/y and 28% y/y jumps in Q1 exports and imports, respectively, as well as all the talk about exports to America rising more than 53% despite tariffs. There is a lot of noise in these data that markets dealt with long ago anyway.
MarketMinder’s View: It is entirely possible, if not likely, that Taiwan’s central bank is intervening in currency markets to keep the Taiwan dollar weak versus the US dollar. However, both that intervention and the US Treasury’s “name-and-shame” list of manipulators reflect wrongheaded logic. Weak currencies offer little to no edge in the global economy. They can make imports (think: component parts, raw materials) pricier, while making exports cheaper only if companies pass them on. At any rate, the currency manipulator tag is mostly symbolic and rests on a whole lot of meaningless criteria that wind up with weird results, like putting Germany on watch when it has no independent currency to manipulate. Even China—which faced tariffs for a slew of reasons and was briefly named a currency manipulator—never actually faced them under this ruling. So before fretting what this means for already-scarce semiconductor prices or US foreign policy, consider that the moniker is not, in itself, very meaningful.
MarketMinder’s View: This article details recent fiscal and monetary moves made in response to the pandemic and compares them to modern monetary theory (MMT)—a fringe economic theory that argues governments can borrow and spend as much as they like with no risk of default. The only brake? Inflation. But the trouble with this theory was summed up quite well here, in our view: “‘When you look at MMT, there’s really no evidence in history that it’s worked,’ Bank of Canada Governor Tiff Macklem said during a speaking engagement last September. ‘In fact, when monetary policy has been directed to supporting government deficits and underwriting the government, it has ended badly.’” Just take a look at Turkey or Argentina presently. We get that these are far from developed markets, but both have taken steps away from advancing lately, largely because the governments are too intertwined with their central banks. Besides, it takes a lot of confidence in policymakers, more than we have, to suggest that unlimited government spending would be allocated well, or that they would accurately forecast and address inflation before it became hugely problematic. Note: That is also true if you believe a government couldn’t or wouldn’t be forced to default if it constantly ran huge deficits. Doing so for one year is just a coincidence—not evidence of MMT’s viability.
MarketMinder’s View: This piece posits that America’s fast vaccination rates and its huge COVID fiscal response—and a potential infrastructure bill—favor US stocks over foreign, as well as domestically oriented firms over multinationals. But to us, this amounts to arguing the most widely known pieces of information globally are set to drive performance going forward. Folks, markets are efficient and forward-looking. Suggesting an already-passed fiscal relief bill—much less widely scrutinized vaccine rollouts—will impact stocks looking forward is to suggest they are somehow blissfully unaware of all the factors media covers minute-by-minute lately. That is quite unlikely. Now, we do suspect US stocks will fare well going forward—both in absolute and relative terms. But it is more because of the country’s tilt toward large growth stocks, as they discount what is on the other side of the widely watched economic uptick—which we figure is a pretty quick slowdown toward pre-pandemic trends.
MarketMinder’s View: Chinese new bank lending hit a record high in Q1, even as “total social financing,” which includes state-run banks’ lending as well as the shadow banking sector, slowed and missed expectations. This has many worried about policymakers’ reining in stimulus and hurting economic growth, but we see it as policy returning to normal. Before the pandemic last year, officials’ primary focus appeared to be getting corporate and local government debt in shape in order to shore up financial stability. Critical to that effort, whether you consider it a net benefit or not, was clamping down on shadow banking and private lending in general. If loan growth jumps while total social financing slows, that indicates policymakers have returned to that effort. That they are able to do so is a testament to how much China’s economy has recovered from last year’s lockdowns, and we think it is a good preview of what a return to post-pandemic life and priorities looks like. That weaning from stimulus is overall good, not bad, in our view.