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: Despite the headline, the latest reports show German and French manufacturing doing much better than expected. Yes, French industrial production fell -0.9% m/m in November, but that decline came from mining and utilities. The manufacturing subindex rose 0.5% m/m, its seventh straight increase. German manufacturing also notched its seventh consecutive rise, up 1.2% m/m, as broader industrial production climbed 0.9%. The disconnect between this and services—including France’s consumer spending slump—has a simple explanation: Most factories remained online during the latest lockdowns. In a traditional recession, manufacturing usually has a very tough time as businesses globally get lean and mean, slashing inventories and investment. That hasn’t happened this time, which is strong evidence 2020’s economic contraction wasn’t your typical recession. Manufacturing bounced because businesses didn’t have excess to work off and faced a wall of pent-up demand as lockdowns eased. So not only does that suggest the business cycle hasn’t really reset—putting us much later in the cycle than most coverage presumes—but it argues against fast catch-up growth the further we get from lockdowns. The slower growth typical of a late expansion seems likelier, making it important to monitor expectations for irrationally high hopes.
MarketMinder’s View: This piece documents a number of ways this tax season is probably more of a hassle for many people, from the short-staffed IRS to the many quirks surrounding the don’t-call-them-stimulus checks. Filing early and electronically is indeed a helpful way to overcome that, especially if your receiving a check hinges on filing a 2020 return. The tens of millions of people who received unemployment assistance last year—which is taxable—will also have some new forms to navigate. If you received assistance and opted not to have taxes withheld, you may appreciate calculating your tax bill now and giving yourself more time to determine the best way to pay. And everyone, regardless of special circumstances, could benefit from heeding this tax expert’s guidance: The earlier you file, the higher the likelihood you beat the scammers. “‘I hear more and more cases about someone having their identity stolen and a tax return filed in their name,’ he said. ‘Ultimately it ends up taking them a year or more to get their refund because the IRS effectively paid their refund to a fraudster. It’s a big headache.’”
MarketMinder’s View: Count sky-high Korean IPO expectations as another sign of warming sentiment as 2021 dawns, but don’t write it off as peaky euphoria. High IPO issuance isn’t inherently a sign of a bubble. It depends on the quality of companies going public and expectations attached to them, which will be key to monitor in the year ahead—not just in Korea, but globally. Beyond that, the simple fact of an IPO boom in Korea is encouraging from a long-term perspective given the outsized role huge holding companies have played since the country’s rapid economic development. While they have brought large benefits, they also have some governance issues, including an ownership structure that reduces accountability and discourages creative destruction, and their political influence has led to a number of high-profile corruption cases in recent years. The more competition they get from nimble upstarts, the better off that likely is for the country’s economy and capital markets in the long run.
MarketMinder’s View: This overall mixed piece makes a good observation: Heat chasing, already a big theme, probably gets more widespread this year. The more people brag about hitting it big with ill-advised concentrated positions, the more temptation there will be to stray from your long-term goals and chase quick riches. Guarding against that extreme greed will be crucial. This piece offers a couple of suggestions, including using a tiny slice of your portfolio to indulge your greed or asking your broker to research stocks that have fallen instead of soared. The former we are agnostic on, but rare is the person with enough discipline to keep from falling down the slippery slope of greed once they start to indulge. The second strikes us as misguided, considering it is a) just another form of seeking a needle in a haystack and b) based on the misperception that whatever fell when the rest of the market rose must be primed for a rebound. We think the best approach here is to reset your expectations. Investing for retirement isn’t about hitting it big in any short period, regardless of the tactic. It is about staying diversified and achieving market-like returns over your entire investment time horizon. Keep your eye on that prize whenever fear or greed start tugging at you.
MarketMinder’s View: This article relies largely on retail-specific anecdotes—not the most rigorous form of evidence—but we think they highlight a broader point: Post-Brexit everyday life will have its share of small bumps. “Since the end of the Brexit transition period, however, continental customers must both complete a customs declaration for goods imported from the UK – a procedure generally performed by transporters, for which consumers will be charged, frequently up to €20 per declaration – and pay national VAT.” The upshot: Continental consumers may face a larger-than-expected bill on certain UK goods. These types of issues won’t derail trade, though they may cause headaches as businesses and consumers adjust to the new rules and figure out workarounds. As the logistics expert interviewed here counsels, “My recommendation to anyone in the EU looking to buy goods in the UK is: don’t order anything until you know what the charges and VAT will be. And be patient. This should all sort itself out eventually, but it’s going to take some time.” That last sentence is key, in our view. Just as truckers crossing the UK border appear to be adjusting fine to new paperwork requirements, consumers, too, will adapt—and business will likely carry on as normal.
MarketMinder’s View: We think this analysis packs several misperceptions into one concise read. The argument: With the Democrats taking both Georgia Senate seats (presuming initial results hold), “A Democratic-controlled Senate likely means that more fiscal stimulus is on the way, not just in the form of checks to individuals but also infrastructure spending, investments in green energy and aid to cash-strapped local governments.” The article then highlights expected winners and losers based on Wednesday’s market activity (e.g., some big Energy firms rose, allegedly because a split Senate means a big tax increase or major anti-fossil fuel legislation likely won’t pass). The first misperception: That one party “controls” Congress. Consider: The Democrats’ edge in the House is the party’s smallest since 1900, and the Senate is split with Vice President-elect Kamala Harris the tiebreaker. This piece even acknowledges this slimmest of majorities means major legislative change is unlikely. So, yes, the Democrats control the White House and Congress, but the practical political reality is gridlock. As for using one day’s market movement as evidence of what sectors will do well under the Biden administration? Don’t—trying to determine the reason behind why a sector or stock is up or down for the day is an exercise in futility for long-term investors.
MarketMinder’s View: After days of speculation, Japanese Prime Minister Yoshihide Suga declared a state of emergency in Tokyo and three other nearby prefectures on Thursday in response to rising COVID cases. This article rounds up the details, and the upshot is restrictions don’t appear to be as harsh as the first COVID-driven state of emergency, which lasted from April 7 – May 25: “Last time, the Tokyo metropolitan government asked a wide range of facilities and businesses, including karaoke establishments and live music clubs, to suspend their operations. Some local governments asked elementary, junior high and high schools to close for that period. To minimize the impact on the lives of the people and the economy, the government will not request a wide range of business suspensions and school closures this time around.” Moreover, “The central government is coordinating with local governments for them to pay up to ¥60,000 per day to restaurants that close by 8 p.m., as ‘cooperation money’ for eating establishments that accept requests to shorten their operating hours.” In our view, Japan’s second state of emergency illustrates global society’s adjustment to living with COVID. New restrictions will hurt business, no doubt, but the policy response is largely more coordinated this time—providing quicker relief where it is needed. The news also likely won’t shock businesses and households, which have adjusted to living with COVID at this point. We don’t dismiss the economic fallout from renewed restrictions, but from an investing perspective, surprises move markets most. Given COVID’s dominance of society’s attention over the past year and long-running expectations for winter lockdowns, surprise power is largely spent at this point, in our view.
MarketMinder’s View: The Institute for Supply Management’s (ISM) December Services PMI hit 57.3, up from November’s 55.9 (readings above 50 imply expansion). The report appeared strong across the board, though some subcomponents may reflect COVID-related developments. As noted here, “As with the manufacturing data, the improvement in the services industry index partly reflected a rise in the survey’s measure of supplier deliveries to a reading of 62.8 last month from 57.0 in November. A lengthening in suppliers’ delivery times is normally associated with a strong economy and increased customer demand, which would be a positive contribution. But in this instance that indicates supply shortages due to the pandemic.” Looking ahead, the forward-looking New Orders subindex was well above 50, but order backlogs contracted. None of this means gangbusters growth lies ahead—PMIs indicate only the breadth of growth, not magnitude—but despite new restrictions, the US services sector remains in better shape than where it was in March and April when the first lockdowns went into effect. In our view, this is a sign of businesses’ ability to adapt.
MarketMinder’s View: With $600 stimulus checks now arriving in bank accounts and mailboxes, here is a friendly reminder: Scammers will be on the prowl, eager to take advantage of anxious, stressed-out Americans waiting for the aid. This article runs through some common red flags and popular scams, but in our view, the most important point is this: “Consumers should know that the IRS won't contact them through text, email or phone calls. Instead, the agency will only reach out through the mail.” If someone claiming to be with the IRS reaches out, hang up and contact the IRS separately. For more, see our 6/18/2020 commentary, “Keep Your Guard Up Against COVID Wrongdoers.”
MarketMinder’s View: “Amid a massive influx of cash from fiscal and monetary authorities, total currency in circulation soared to $2.07 trillion by the end of the year, according to Federal Reserve data. That marked an 11.6% gain from a year earlier and was the biggest one-year percentage increase since 1945, as the nation was coming out of the war and the military-industrial complex took hold.” An interesting observation, though not a surprising one—as this piece also notes, “A major reason was the $2.2 trillion stimulus bill the government passed in May, along with Federal Reserve digital money-printing that saw the central bank balance sheet swell by more than $3 trillion.” However, we disagree with the conclusion that a huge rise in cash in circulation means faster economic growth ahead. As we have written, all this cash isn’t forcibly creating new demand—it is a lifeline. The Fed and Congress’s programs provide a substitution, not new fuel, for cash-starved businesses hampered by COVID-related restrictions. We don’t dismiss the importance of tracking money supply—though M4, the broadest money measure, is more telling than M1—but in our view, a return to normalcy, not the amount of currency in circulation, matters most for an economic recovery.
MarketMinder’s View: The ADP National Employment Report, which tallies monthly private sector job changes, showed a -123,000 decline in December. Notably, “The job losses were concentrated heavily in the leisure and hospitality industry, one of the sectors hit hardest by the pandemic. The industry shed 58,000 jobs in December as state and local governments implemented new lockdown measures restricting indoor dining, while cold weather limited restaurants' ability to offer outdoor dining.” This is tragic for those affected, and it underscores lockdowns’ economic costs—and a recovery’s dependence on reopening, as opposed to fiscal or monetary aid. From an investing perspective, though, ADP’s report likely doesn’t hold many surprises for stocks, which processed forecasts of a tough winter for people-facing businesses due to rising COVID cases months ago. In our view, markets have long since moved on from business decisions made in December—they are focused on a future in which COVID is old news.
MarketMinder’s View: This article notes the bond market’s “breakeven” inflation expectations—based on the gap between Treasury and Treasury Inflation-Protected Securities (TIPS) yields—are marching higher. For a quick primer, TIPS’ principal value rises with inflation to maintain investors’ purchasing power. Hence, the difference between Treasury yields and TIPS yields provides a sense of traders’ inflation expectations. The titular upshot: Traders anticipate inflation will average 2% over the next decade—a big change from around 0.5% last spring. However, expectations aren’t destiny. They are snapshots of current thinking—opinions—not reliable gauges of future pricing activity. Look to the shift from last March to now for evidence of inflation expectations’ change in less than a year. For investors, we would put aside the supposed “causes” for this uptick, as neither Fed decisions nor an incoming Biden administration’s actual actions are predictable. Rather, we see so-called “reflation trades” as part of today’s widespread optimism as uncertainty—political and pandemic—clears. Something to take note of, but without any immediate investment implications, in our view. Also, if this forecast actually comes true, 2% isn’t runaway inflation—it is bang on the Fed’s target.
MarketMinder’s View: Please note, MarketMinder is nonpartisan, favoring no party or politician. We assess political developments only for their potential market impact. That said, here is a useful refresher on what an evenly divided Senate—rare in the nation’s history—may entail. The last time the Senate split 50 – 50 was in 2001, when Democrats and Republicans settled on a power-sharing agreement. “Republican Leader Trent Lott was recognized as the majority leader, based on the fact that the new Republican vice president, Dick Cheney, was the tie-breaking vote. The agreement, however, mandated that both leaders seek to attain an equal balance of the two parties’ interests when scheduling and debating legislative and executive business. The deal split committee memberships evenly, instead of giving the majority an advantage as would normally happen, and made some other provisions to regulate floor proceedings.” It remains to be seen whether Senate leaders will strike such a power-sharing deal, but as then-Senate Minority Leader Tom Daschle now notes: “‘There’s only so much you can do with 51 votes, and you can’t expect the vice president to be sitting there, day after day, on every single issue, breaking the tie.’” For those fearing or cheering a wave of partisan legislation, the reality is likely to be less than many expect, with swing-state Democratic senators holding most of the power—a recipe for moderation.
MarketMinder’s View: This article does a fairly good job of explaining why the common notion of “cash on the sidelines” just isn’t a market driver—pertinent today, given many analysts note high cash balances in the US. As noted herein, the measures don’t tell you why cash balances may be high—or who owns that cash. It may be corporations holding more cash because they want to ensure basic needs are met in the short term and floated a bond to do so. It may be that individuals are holding more cash that they never invested and have no intention of ever investing. But above all, it quotes one well-known hedge fund manager in noting that for every seller, there is a buyer—and vice-versa. “‘There are no sidelines. Those saying this seem to envision a seller of stocks moving money to cash and awaiting a chance to return. But they always ignore that this seller sold to somebody, who presumably moved a precisely equal amount of cash off the sidelines.’” Now, this article isn’t perfect in the sense it is internally contradictory, suggesting in one part that there are few buyers left to push stocks up, even though the preceding passage debunks that equally. Always remember: The stock market is an auction. It isn’t so much how many bidders you have, but how motivated they are.
MarketMinder’s View: It is important to realize what the World Bank is and isn’t referring to when it talks about a “Lost Decade.” In its January 2021 “Global Economic Prospects” report, released today, the supranational outfit used the term in two different manners: One refers to 2020’s hit to per capita income in selected Emerging Markets, noting that the scale of the downturn is expected to cut that to levels seen in 2011—a backward-looking metric. The second way is a projection of potential GDP. Potential GDP is an estimate of where GDP growth was heading before a recession sent it off that trend. It is effectively “shoulda been” GDP that fails to account for recessions, even though they occur throughout history. For investors, this is a purely academic figure and one that rekindles worries supranational think tanks spent oodles of hours arguing about during the 11-year bull market that ended in March. The World Bank’s base forecast is for pretty solid, 4.0% GDP growth in 2021 and 3.8% in 2022. Those are, of course, forecasts—subject to error. But we think they are a lot more relevant to investors now than any assessment of the next decade, particularly one comparing actual output to where an arbitrary trend that discounts cyclical changes says it should be.
MarketMinder’s View: While some specifics in this are in the “now”—like the Georgia runoffs, third UK lockdown and virus resurgence—this is the type of article arguing rising markets are irrationally disconnected from reality that dominated financial analysis for much of this bull market’s early months. Today, as optimism rises (tied to simple market performance and vaccine development, in our view), these pessimistic viewpoints seem increasingly rare. So we highlight this misperceived argument that doesn’t acknowledge stocks’ tendency to look far into the future after a bear market strikes—especially when the “negatives” alluded to here aren’t new or surprising—as a way to see sentiment isn’t totally rosy. That is bullish, not bearish.
MarketMinder’s View: This does a fair job of highlighting the latest restrictions on business in the UK (and, to a lesser extent, Germany), which—now that schools are once again closed—are approaching the degree of closure seen last March and April. Yet we agree with the economist’s analysis herein, which notes this new lockdown is unlikely to prove as devastating to the economy as they were earlier. We would also extend that to markets: While news of lockdowns like this may cause some short-term volatility, it isn’t likely to reap anything on the order of the springtime’s brief bear market. For most of the year, folks have anticipated a hard winter of virus resurgence and renewed lockdowns. That it seems to be taking shape, to at least some extent, isn’t a surprise—and it is surprises that move markets most. Actually, the gradual evolution of this winter’s restrictions likely makes them even less of a shock to markets, which have time to bake in expectations of future moves with every policy change.
MarketMinder’s View: Brexit is now official, and the first goods facing customs checks crossed the English Channel on Friday morning. People still fear widespread chaos as trucks arrive at checkpoints without the proper paperwork, but so far, that hasn’t happened. Rather, the first wave was pretty seamless: “But on Friday, with most business halted for New Year’s Day, trains and ferries were reported to be running smoothly. Eurotunnel reported that 200 trucks had used its shuttle train by 8 a.m., with all the correct documents.” That boldface is ours, because that is really the linchpin here. It wasn’t so much the existence of checkpoints that concerned pundits, but rather drivers’ supposed lack of preparedness. So far, people seem to have their ducks in a row. It would be unrealistic to expect zero hiccups from here, but for now, incremental positive surprise seems to be materializing and uncertainty is falling.
MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations. Rather, we share this piece for its helpful rundown of what delisting does and doesn’t mean for investors—relevant since the New York Stock Exchange will soon delist American deposit receipts (ADRs) in three Chinese telecom operators to comply with President Trump’s November executive order banning investment in firms affiliated with the Chinese military. As noted here, the ADRs won’t be worthless, but investors should be aware of some restrictions: “Investors in the Chinese telecom carriers can sell their ADRs on NYSE before they are delisted or convert them to the Hong Kong-listed ordinary shares. But the U.S. ban also prohibits American investors from buying securities that trade on any exchange anywhere, or even just over-the-counter, so switching into Hong Kong shares might only buy a few months’ respite.” That said, investors don’t have to sell until November, and as one legal expert notes here, the Treasury Department isn’t likely to focus on individual investors—broadly speaking, “‘… most U.S. retail investors will simply lose access to opportunities to purchase the securities.’” However, this otherwise informative article misses one critical caveat: An incoming Biden administration could overturn the ban. We aren’t predicting future policy, but we think it is an important possibility for investors to keep in mind—nothing here is set in stone. For more on Chinese delisting concerns, see our 12/4/2020 commentary, “The Details Debunk Fears of Chinese Stocks’ Delisting.”
MarketMinder’s View: Please note, MarketMinder’s analysis is politically agnostic. We prefer no politician or political party over another, and our focus is solely on the potential economic and market impact. Tomorrow’s Georgia Senate runoffs have many market observers’ attention, as the races will determine which party controls Congress’s upper house. However, all the predictions of potential winners and losers noted here—e.g., a Democrat-led Senate boosting green energy stocks or a Republican-led Senate meaning no new taxes—miss a simple point, in our view. Whatever the Senate’s final composition, some form of gridlock is the likely result. If the GOP wins one of the two Senate races, traditional partisan gridlock will persist. But if the Democrats win both races, their resulting majority will be slim—unlikely to be sufficient for easy passage of radical legislation. Democratic Senators in swing states have incentive to water down potential major legislative changes, lest they alienate their constituents and hurt their own re-election chances. It is the same in Congress, where the Democrats hold their slimmest edge since 1900 and redistricting looms. So while pundits make broad proclamations about the implications of tomorrow’s races, gridlock will emerge as the result—a fine outcome for stocks, in our view.