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: Treasurys have been in the headlines over the past month, with many trying to discover the source behind recent volatility. This piece presents some evidence that Japanese banks and insurers’ selling to book profits as their fiscal year ended in March contributed to Treasury yields’ recent run-up. “One sign that Asian investors led the selloff in Treasurys was the timing of the market moves, according to several investors. Some Treasury auctions struggled in late February. Analysts at that time spoke of a buyers’ strike among Asian investors causing a shortfall in demand. Guneet Dhingra, head of U.S. rates strategy at Morgan Stanley in New York, tracked the differences in the timing of market moves. He found that during February, when the Treasury selloff accelerated, most of the upward move in yields came during Japanese trading hours. ... The Japanese selling wasn’t driven by any fundamental concern or changes in investors’ views of Treasurys, Mr. Dhingra said. Instead, banks in particular were looking to offset bond losses against equity gains.” This short-term development doesn’t change the supply and demand factors underlying Treasurys, and the latter isn’t going away as detailed here: “Japanese investors can earn a 1.3% yield on 10-year Treasurys including currency-hedging costs, according to Mayank Mishra, macro strategist at Standard Chartered in Singapore. That is double the yield on a 30-year Japanese government bond.” In our view, this is a reminder Treasury yields, like stocks, can be volatile and it helps not to read too much into those short-term wiggles. For more on the supply side and why we don’t think yields will move much higher this year, please see our 2/26/2021 commentary, “On Rising Rates and Stocks.”
MarketMinder’s View: China’s “official manufacturing Purchasing Manager’s Index (PMI) rose to 51.9 from 50.6 in February, data from the National Bureau of Statistics (NBS) showed on Wednesday, remaining above the 50-point mark that separates growth from contraction for the 13th straight month. ... Adding to the positive impulse, export orders returned to growth amid improving foreign demand, the survey showed.” Also, China’s March services PMI surged (to 56.3, up from February’s 51.4), while the official composite PMI—which combines services and manufacturing—rose to 55.3 from February’s 51.6. These figures point to the breadth of expansion among China’s big, state-owned firms, but we think the reactions to the data are most notable for investors. They range from warnings of slower export growth as pent-up demand wanes to ongoing global supply chain disruptions. This suggests expectations aren’t running ahead of reality right now—worth keeping in mind as investors monitor sentiment’s ongoing development.
MarketMinder’s View: We take no issues with what The Conference Board’s gauge of US consumer confidence shows: Folks are feeling much sunnier about the economic present and future now, a year from the bear market’s lows. But this piece draws a fair number of forward-looking conclusions from these data, suggesting sentiment predicts economic activity. But our analysis suggests these data are concurrent, not leading. They are also heavily influenced by the stock market. Stocks normally surge off of bear market lows, much as they have in the past year. The Conference Board’s gauge usually mirrors this, rising significantly in the year following six of eight S&P 500 bear markets since it was first published in 1967. Perhaps the more interesting part of this, beyond the rebound, is that the gauge is nearly back to where it was before the pandemic-driven lockdowns squelched economic activity. This is a pretty imperfect sentiment measure, as they all are to varying degrees. But the confidence gauge’s steep rebound suggests more optimism exists now than you would typically see so soon after a bear market.
MarketMinder’s View: For years now, pundits have warned Italian sovereign debt—which has long topped 100% of GDP—is unsustainable, with many viewing it as Europe’s ticking time bomb. This article documents the latest in that series, featuring the IMF’s recent outlook, which layers corporate borrowing on top of sovereign debt. The corporate piece basically asserts that elevated borrowing over the last year has heaped financial pressure on businesses, which could forestall the economic recovery. Perhaps that proves true on a select basis, but the theme is fully global—and it hasn’t held true in China or America, economies that have reopened earlier than Italy. Perhaps it does in Italy, but we have our doubts. As for the IMF’s view that Italian sovereign debt requires a “credible strategy” for reduction, that is an opinion. We like opinions. They are fun! But in markets, you can look to factors like credit spreads (how much more Italy pays to borrow than stalwart Germany, for example) to see how closely those opinions parallel reality. Today, Italian 10-year bonds yield just 0.96 percentage point more than German Bunds, the lowest since 2016 and among the narrowest spreads since before the financial crisis. (Source: FactSet.) That doesn’t suggest a calamity looms.
MarketMinder’s View: We highlight this piece not to dissect the policy ideas herein and certainly not to advocate for or against any politician or party. Rather, we think it does an effective job highlighting that, whether you fear or cheer such ideas, you must consider the headwinds to them passing. “Congressional aides expect a bruising legislative battle that will prove significantly more difficult than the relatively quick passage of Biden’s relief plan, in which Democrats were held together in part by the need to combat the pandemic. Despite some objections, almost every Democrat in both chambers voted for Biden’s plan. ‘I’m getting a little confused about how we’re going to get anything done. It’s only going to get more difficult from here on out,’ said Jim Manley, who served as an aide to former Senate majority leader Harry M. Reid (D-Nev.) ‘There’s not only more divisions over where to go, but there’s a certain sense of spending fatigue setting in on Capitol Hill.’” This, folks, is why we have been hearing about big infrastructure plans for a decade-plus, yet none have passed. Even if it gets done now, it would a) likely have to be watered down and b) take effect over such a long period that future budgets could change it and water it down even further. Don’t presume plans like this, whether you love or loathe them, are a fait accompli.
MarketMinder’s View: Here again we remind you that MarketMinder is nonpartisan, favoring no party nor any politician. We analyze politics and legislative developments solely for how they may impact markets. This article documents a somewhat curious twist: It seems some House Democrats object to the Biden administration’s emerging tax hike plan in search of … a tax cut that largely favors higher earners. That cut would be repealing the 2017 tax reform’s $10,000 cap on state and local tax (SALT) deductions, which hit higher earners in states with lofty income tax rates hard. Repealing this cap is very popular among some Democrats in states like California, Oregon, New York and New Jersey, but obviously, the more you pay in state tax, the more this means to your bottom line. So the obvious “winners” from the cap’s repeal would be higher earners, a tough talking point for many in the party—which highlights the internal divide that we think delivers gridlock in Washington, despite one party controlling the White House and Congress. With the Democrats having a historically thin 10-seat House margin presently, they cannot afford material defections if they hope to pass a major tax reform, to say nothing of the 50/50 Senate.
MarketMinder’s View: If you are like us and love fun diagrams with cartoon-style ships and tug boats, then you will enjoy this explanation of how the titular containership finally got unstuck. But we would like to offer a word of caution on the attempts to tally the economic costs. This piece cites a figure we have seen often over the past week, estimating the canal blockage cost between $6 billion and $10 billion per day. Thing is, that is the estimate of the value of goods flowing through the canal on a typical day. Most of this activity wasn’t lost—just delayed. The actual costs will include the expenses incurred by the canal operator, the cost of idling at sea for those who waited, the cost of re-routing around the Cape of Good Hope for those who didn’t, and the cost of any spoiled merchandise. It will take time to tally all of this, but it probably won’t approach those initial estimates, which are only a tiny fraction of global GDP anyway.
MarketMinder’s View: We are of two minds about this piece. It does a decent job documenting three general schools of thought about inflation risk, and it comes to a conclusion we agree with: While inflation rates likely tick up in the short term as lockdown-related deflation enters the denominator in the year-over-year calculation, that “base effect” is probably temporary, and runaway inflation doesn’t appear to be a risk. But our reasoning for supporting that conclusion is different and has nothing to do with the supposed “cost-push” and “demand-pull” argued here. We have always thought those were mythical inflation causes, partly because they focus on prices of individual goods and services in a given category, rather than across the entire economy. More importantly, they ignore the role of money supply and velocity, which is a pretty big blind spot. Yes, many money supply measures jumped last year by historic degrees. Yet even now, inflation globally is missing in action. In our view, that should raise hard questions about money supply measures’ accuracy—and should highlight the fact historically low money velocity (the rate it changes hands in the economy) seems to be trumping supply growth. If the money supply the Fed and other central banks increased isn’t changing hands in search of goods and services, it isn’t likely to stoke inflation and probably shouldn’t be thought of as money. For more, see last Friday’s commentary, “A Q&A on Inflation.”
MarketMinder’s View: As always, we are politically agnostic, preferring no politician nor any party globally, and we look at developments like this solely for their potential market and economic impact. To that end, this look at Germany’s latest polls—which show outgoing Chancellor Angela Merkel’s Christian Democratic Union (CDU) losing support and its coalition partner, the Social Democratic Party (SPD) losing its second-place standing to the Greens—spends oodles of pixels speculating about what this means not just for September’s election, but for fiscal policy across the entire eurozone. “Economists say the CDU’s weakening grip on German politics could usher in a new era for the country’s ultra-prudent fiscal policy and sacred debt rules. The ripples from a shake-up in Europe’s largest economy are also likely to reach Brussels when it rethinks its fiscal rules following the pandemic.” It then goes on to explore the Greens’ fiscal stimulus proposals, speculating how they might evolve if the party enters the next government. We think this it all rather premature. The election is nearly six months away, and as the article notes, things could look very different in Germany by then, with today’s vaccine issues in the rearview. Plus, multiparty coalitions like those discussed here are generally a recipe for gridlock, as they are usually marriages of convenience among parties with little to no common ground. We have seen that across Europe in recent years—including in Germany—and it has been overall fine for markets. So keep an eye out, but it is too early to fear or cheer radical change, in our view.
MarketMinder’s View: Once again, we have zero preference among political parties, and neither do stocks—which is why we bring you this interview with the new US Trade Representative, Katherine Tai. Quite simply, it shows tariffs are a bipartisan issue, and just because the administration that adopted new tariffs on trade with China is out, doesn’t mean the tariffs are out, too. Instead, it appears the Biden administration prefers to keep those levies in place as a bargaining chip. As Tai summed up: “‘Every good negotiator retains his or her leverage to use it,’ she said. ‘Every good negotiator is going to keep all of their options open.’” That also underscores our long-running view that these tariffs are tools to negotiate concessions—including freer and more open trade in the long run—rather than permanent economic policy. This isn’t the first time a new administration has extended its predecessor’s trade policies, occasionally defying prior rhetoric, and it probably won’t be the last. In the meantime, economic data from both sides (not to mention Vietnam and other trade intermediaries) show these tariffs are mostly just a nuisance for producers, not a wrecking ball for trade.
MarketMinder’s View: This is another mile marker in the journey back to normal after last year’s lockdown-induced market panic: From June 30, provided banks pass stress tests, the remaining restrictions on stock buyback and dividends will go away. “Since December, the amount that the banks can pay out to shareholders has been limited based on the company’s income over the past year. Before December, they had been barred from buying back shares or increasing dividends.” While this is a positive development, we don’t think it is some big positive change for bank stocks. For one, investors have been anticipating this change for a while, so it is probably already baked in to prices. Two, dividends and buybacks aren’t an outsized driver of returns. If they were, high dividend indexes and buyback indexes would always outperform—but like all categories, they have their times in the sun and the rain. Rather than focus on one-off developments like this, we think investors should remember Financials stocks are value-heavy and face headwinds from flattish yield curves.
MarketMinder’s View: This eye-opening piece from a British student captures all the things young folks want to know about finance—and aren’t necessarily learning in school. Compound interest, investing, mortgages, banking, budgeting, taxes and all the rest are crucial for people to learn when they are young. For instance: “Children can have a bank account from the age of 11, when they are still in primary school, so basic bank account knowledge is vital. We need to learn to recognise scams and the importance of checking bank statements regularly to avoid spending too much and incurring unexpected charges.” Hear, hear! So, dear readers, to all of you with young people in your life, consider this a note of encouragement to provide some financial education they might not be getting in school. You will probably find a very eager audience.
MarketMinder’s View: Attention all readers who sell on Etsy, Ebay, Poshmark and all the rest: Thanks to a tax reporting requirement tweak nestled into the American Rescue Plan Act, your sales will now get reported to the IRS if they reach or exceed $600 annually. The actual tax rules haven’t changed, but the threshold for automatic IRS reporting will drop from $20,000, putting more of a spotlight on hobbyists’ and resellers’ activity. Now, depending on what you are selling, you may or may not owe taxes on these sales, and this article has the rundown on that. In short, if you are simply cleaning out your closet and trying to recoup some of your initial clothing costs, that generally isn’t taxable. But if you are reselling used and vintage goods for profit, that probably is. There is also a fine line between a hobby and a business, as this article details. So consider this a friendly heads up, and don’t forget to call your tax person with any questions.
MarketMinder’s View: This piece veers into policy prescriptions at the end, and as always, that isn’t our bailiwick and we are neutral on all things political. But conclusion aside, it is a good explainer of how far the Fed has strayed from its original purpose—serving as lender of last resort and administering monetary policy—and the congressional statutes that have enabled it to do so. Now, we disagree on some of the particulars here. For instance, the article includes the Fed’s decision to pay interest on excess reserves in its list of extracurricular activities, even though research from no less than Milton Friedman himself showed paying interest on reserves is probably necessary to keep interest rates in line with the Fed’s target. We also think the analysis veers too much into sociology, which investors should set aside. But overall we agree with the main thrust: Big issues, from climate change to crisis prevention, are simply beyond the Fed’s expertise and purpose. One risk for investors here is that this mission creep increases the potential for Fed error—as a general rule, the more the Fed is responsible for, the bigger the chance it has to misfire. More broadly, we see this as an extension of the misperception that the Fed is all-powerful, and if only it pulls the right levers, everything will be fine. In reality, the economy is just too big and complex for that. So yes, in an ideal world, it would be beneficial if the Fed got back to basics. But in the real world, the Fed’s ever-increasing responsibilities are one more variable investors need to consider when weighing potential risks.
MarketMinder’s View: A huge cargo ship has been stuck in Egypt’s Suez Canal since Tuesday, and analysts have been busy projecting the potential economic fallout (and rendering fun maps illustrating the traffic jam). This article highlights experts’ estimates of the possible impact on global supply chains, oil prices, the container shipping industry and even regional geopolitics. The upshot: Most anticipate some near-term strains, though the longer-term impact will likely be fleeting (presuming the blockage is cleared relatively soon). Many think this episode reveals the fragilities of the global supply chain, though that seems a wee bit overstated to us. Global businesses must adjust constantly to both manmade and natural obstacles. Consider recent examples over the past several years: a labor dispute in America’s West Coast ports; Brexit; the COVID-19 pandemic. Global commerce adapted to all. Stocks recognize short-term bottlenecks don’t necessarily harm the economic and political factors affecting corporate profits over the next 3 – 30 months—and we suggest investors take a similar vantage point.
MarketMinder’s View: This longish, meandering piece is heavy on anecdotal evidence and veers into some weird sociological territory—and we suggest readers put those points aside. However, its discussion about nonfungible tokens (NFTs), which are essentially digital collectibles, touches on some worthwhile points for investors. NFTs are the latest hot thing dominating financial headlines today, particularly because some are selling for exorbitant prices. Yet for all the hype and alleged distant future implications discussed here, NFTs have more in common with a Beanie Baby or an expensive car than a stock—an important distinction for investors, in our view. As the article concludes, they are essentially performance art: “Are NFTs just an attention hack? Why shell out $1 million for a tweet from the billionaire Elon Musk if not to catch the eye of the notoriously mercurial richest man in the world? … He [investor James Young] may be the proud owner of [artist Annie] Zhao’s artwork, but the real performance is the dollar figure and the specific interest it sparks. In this way, the sale is not terribly different from any high-value art purchase that generates headlines.” We aren’t against owning NFTs, just as we aren’t against anyone owning a painting, an old bottle of wine or a rare sports card. But we don’t think any of this belongs in an investment strategy, which should generally consist of liquid assets that fit your long-term goals, cash flow needs, time horizon and comfort with volatility.
MarketMinder’s View: The back half of this article ponders the apparent disconnect between a soaring stock market and a still-struggling economy—no mystery, in our view, when you consider stocks are leading economic indicators. When the bull market began a year ago this week, stocks were looking ahead to the eventual recovery—which the data continue confirming today, overall and on average. However, what we found most interesting is the second half of the titular statement. The evidence: “The S&P 500 has surged a stunning 76.1% from that Covid crash last spring — and history shows the hotter a bull market starts, the longer it typically lasts. … And this first-year bull gain is well above average. In fact, it's more than double the average 37.5% for previous bull markets and the highest gain since 1945, according to [CFRA Research’s chief investment strategist Sam] Stovall. It's also a good clip above the 2009 bull's 68.6% first-year jump. So this runup could last quite a while.” These kinds of projections are common today—and revealing about sentiment. Based on our research, stocks are behaving as if this is a late-stage bull market, implying that the end may arrive sooner than many likely think. To be ultra-clear, we don’t think the end is imminent. We are bullish! But widespread optimistic expectations—and how they square with reality—will be worth monitoring closely in the months ahead. For more, see our 3/23/2021 commentary, “The Post-Lockdown Rally Turns One.”
MarketMinder’s View: US initial jobless claims fell by 97,000 to 684,000 in the week ending March 20, the latest in a positive longer-term trend. Now, these data are still a ways off from pre-lockdown levels: “Prior to the pandemic, a typical week saw around 250,000 new unemployment claims, and the number never topped 700,000, even during the depths of the Great Recession.” We also don’t dismiss the hardships many workers have experienced over the past year—and continue to face today. But as governments end their COVID restrictions and vaccine distribution becomes more widespread, businesses and households will return to some economic normalcy—and the jobs will likely follow. These weekly labor data are noisy—and this article touches on some of factors skewing some states’ data, including computer problems and instances of fraud—but their ongoing improvement provides more late-lagging confirmation of an economic recovery stocks anticipated months ago.
MarketMinder’s View: Like in the US, households’ savings are piling up in Europe—with rates as a percentage of disposable income over 16% and 22% in Germany and France, respectively. But as this article documents, while consumers are likely to unleash some pent-up demand as COVID restrictions ease, that won’t necessarily translate into a lasting spending surge. Some will pay down debt and, as an economist here notes: “‘Certain purchases can’t be repeated again and again. Anyone who during the first lockdown bought a new large TV for a home cinema or a high-tech kitchen to cook nice meals at home will not do this again just after six months,’ said Rolf Buerkl of the GfK institute, which conducts monthly consumer surveys. ‘The same applies to certain services. You certainly don’t go to the hairdresser more often to make up for all cuts you missed during lockdown. So certain consumer spending is simply lost in the long run, there won’t be any catch-up effects.’” Yep: Certain hard-hit sectors (e.g., hospitality and tourism) will likely benefit as society returns to normalcy, but that doesn’t mean all industries will see a surge in new consumer spending. We think this provides some evidence of rational expectations on display in developed markets today—a bullish backdrop for stocks, in our view. For more, see our 3/11/2021 commentary, “Why Savings Aren’t Necessarily Economic Rocket Fuel.”
MarketMinder’s View: This article delves into some of the BLS’s pandemic-related challenges in tracking the prices that go into its Consumer Price Index (CPI), a widely watched inflation gauge. For example, COVID restrictions prevented researchers from visiting stores and checking asking prices—leaving the BLS with an incomplete dataset. Moreover, the BLS’s pre-COVID basket of goods and services may not have been representative of actual economic activity during the pandemic. For example, “The shift to e-commerce accelerated during the pandemic: it accounted for 19% of core U.S. retail sales in the fourth quarter of 2020, up almost 4 percentage points from a year earlier. ... broader problems with measurement may emerge, because online sellers can easily customize prices for individual buyers and adjust them thousands of times a day via algorithms.” It is possible government inflation gauges could be increasingly imprecise, although we think it is too early to declare spending habits over the past 12 months will be the norm going forward. As statisticians and economists debate how to account for COVID’s impact, we think this is a timely reminder for investors about the importance of knowing what is going on under the hood with all economic data. Despite people’s best efforts, no dataset will provide a perfect economic snapshot.