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: Note: MarketMinder doesn’t make individual security recommendations, including the companies mentioned herein. We feature this article because it shows diplomatic tensions between trading partners don’t necessarily curtail bilateral trade. “Beijing has slapped tariffs on Australian barley and sanctions on some beef products in the wake of [the Australian government’s] call for an inquiry into the origins of Covid-19. … But [Australian Minister for Resources] Mr [Keith] Pitt said China would probably continue to buy Australian resources owing to the high quality of products and reliability and efficiency of its industry. Data due to be released this week by Australia’s Department of Industry will show Australian mining and energy exports hit a record of almost A$300bn [$300 billion Australian dollars] in the 12 months to the end of June. Exports of iron ore alone will top A$100bn, as Australian producers … cash in on surging Chinese demand.” While we don’t dismiss the possibility of tensions escalating into high, broad-based tariffs—which can dent bilateral trade—diplomatic scuffles alone don’t dissuade private businesses from doing business across borders. In our view, those concerned about strained US/China relations should take note.
MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations and we are highlighting this for a broader takeaway. With the hunt for COVID-19 vaccines and treatments in full swing, many investors may try to load up on Health Care firms they perceive as most likely to bring medical solutions to market. This concise piece explains why this desirable outcome isn’t necessarily a fast track to gangbusters returns. Beyond the substantial uncertainty surrounding which vaccines or treatments currently in development will prove safe and effective, even success could disappoint, as “sales and profits might not flow as much as hoped. The drug industry has managed to avoid heavy scrutiny over its pricing practices as a U.S. presidential election approaches, and insiders would prefer to keep it that way by pricing a vaccine modestly. It is also possible that the pandemic will be conquered without a vaccine. Many therapeutics to treat the disease also are under development, and it is possible for viruses to fade away on their own. In those scenarios, investors also would likely enjoy a sharp marketwide rally, but the vaccine makers wouldn’t come along for the ride.” We would also note that advances in creating COVID treatments and vaccines are among the most watched issues worldwide presently. It is highly likely that firms near the forefront of development already see success priced into the stock to some degree or another. Should this not materialize—or turn out to generate disappointing profits—chasing a vaccine could prove costly. We aren’t saying you should avoid all firms engaged in this—just have other reasons to target them that don’t involve COVID. For more, see our 4/17/2020 article, “Why Investors Shouldn’t Chase ‘Coronavirus Winners.’”
MarketMinder’s View: This informative article isn’t just for those who are disappointed by their returns or decision-making in 2020’s first half. Many, many investors could benefit from exploring it. It has a lot more than five questions, but the main five generally focus on introspection, as noted herein: “The above questions are all about being brutally honest with yourself. Your beliefs, mistakes, performance and ego must all be addressed head on if you want to improve. … Even if you don’t have all of the answers, having good questions can point you in the right direction.” One quibble: The lauding of passive investing early on doesn’t ask whether an individual is actually capable of mirroring markets and never taking any action. In our experience, most investors who call themselves passive aren’t in the true sense of the term, rendering this distinction moot. But that is a minor quibble in an otherwise very good behavioral piece.
MarketMinder’s View: Here is a timely reminder of why context is key when analyzing data (even if a very narrow dataset, like this report). Per this piece, British consumers “have failed to sustain the immediate growth that followed the reopening of hospitality and leisure businesses in England on July 4 when coronavirus lockdown restrictions were eased, industry data showed on Monday. Researcher Springboard said shopper numbers, or footfall, across all retail destinations in the United Kingdom increased by 4.5% in the week to July 18 from the week before. That compared to growth of 10.6% in the week to July 11.” For one, to think footfall’s initial increase would repeat despite no new reopenings in that second week strikes us as an odd assumption. Not everyone has the same level of comfort with resuming normal activity, and some might find the social distancing protocols too much of a hassle to deal with. It will take time for word of mouth along the lines of “hey it is actually fun to browse a boutique with a mask on and I felt totally safe” to percolate through society. Two, foot traffic and customer anecdotes don’t perfectly predict traditional “hard data” like the monthly retail sales report. They are also too widely used now to offer investors an edge. The reaction to their results is a sign of sentiment, however, and this shows sentiment toward reopening and recovery remains dreary, which should set an easy bar for reality to clear as long as draconian national lockdowns don’t return.
MarketMinder’s View: Japan’s June exports are the latest data illustrating lockdowns’ economic fallout: “Ministry of Finance (MOF) data showed on Monday that Japan’s exports dived 26.2% in June from a year earlier, bigger than a 24.9% decline seen by economists in a Reuters poll. The contraction slowed slightly from the prior month’s 28.3% fall – the worst downturn since September 2009.” That isn’t terribly surprising, considering Japan’s Western trading partners were only just starting to emerge from lockdown in June, and the comparison point was June 2019—months before the peak of Japan’s most recent economic expansion. Recoveries generally take longer to materialize in countries using year-over-year calculations since they are skewed by year-old data. So keep an eye on Japanese exports, but we suggest not using them as a barometer for the global economy’s COVID-related ups and downs. Data series using seasonally adjusted month-over-month calculations will be more telling, in our view.
MarketMinder’s View: Taiwan’s June export orders shattered analyst expectations, rising 6.5% y/y—the sharpest increase since August 2018. As the title indicates, Taiwan’s crucial role in the global Tech supply chain partially explains why: “The ministry, which has repeatedly warned of a difficult outlook for orders because of the coronavirus pandemic, said the better-than-expected performance was due to strong demand for semiconductors and telecommuting products. Strong electronics orders, including smartphones, which grew 23.9% on year also contributed to growth, the ministry said.” However, as the article also notes, the boom in telecommuting demand could slow in the coming months “and uncertainties from the pandemic as well as China-US trade tensions could still harm Taiwan’s exports.” It is certainly possible telecommuting demand slows some as more individuals head back to work as lockdowns lift and those who stay at home have all the equipment they need, but telecommuting is just one portion of overall enterprise hardware demand. As business investment improves in a new economic expansion, technology upgrades are generally a part of this, which should benefit Tech companies. The demand fears documented here are just one more indication of skeptical sentiment toward the Tech sector, which is one reason we differ with the many pundits calling its outperformance a bubble.
MarketMinder’s View: It seems the next shiny object captivating investors’ attention is silver. As the title notes, despite some minor lockdown-related mining disruptions that impacted supply, silver futures recently reached a three-plus-year high as investors rushed into alleged safe havens that supposedly hedge against stock market declines. Silver, as this piece explains, gets extra love due to its high-tech and industrial end uses—key fundamental demand drivers gold lacks. This brings to light the principal issue people should consider when weighing whether to own silver: It is a commodity, like copper. Commodities tend to move in long cycles due to the long production lead time—it takes a while to go from initial investment to productive mine. Prices can stay elevated for a while as new investments take time to bring new supply, satisfying demand. But eventually producers overshoot, leading to a supply glut that sends prices lower. Add in the occasional sentiment-related swings when people wrongly view it as a safe haven, and you get a cyclical investment that lags stocks, doesn’t pay a dividend and has bursts of volatility to boot—not really what you would expect in an actual safe haven. In our experience, silver often gets bursts of attention following crises, but the long-term returns just don’t support the hoopla. For more, see our past (but still relevant) commentary on the shiny metal.
MarketMinder’s View: With a €1.8 trillion budget on the table—including a €750 billion COVID relief package funded by jointly issued debt—EU leaders are doing what they always do when facing tough money conversations: holding a summit. This piece, which covers leaders’ socially distanced arrival, outlines the battle lines being drawn over the rescue funds. Those battle lines are rather predictable: Northern European states want to dictate conditions for states receiving aid money, including social and fiscal reforms. It is like the 2010 – 2013 debt crisis rescue talks all over again, with the only difference being that recipient member-states don’t have to repay institutional funds. We won’t guess at how this turns out, but in our experience, whatever results from this type of situation usually ends up gradual and watered down. That cuts against the widespread notion of these funds as “stimulus,” in our view. They won’t make or break Europe’s economic recovery, and we suggest investors not get hung up on this.
MarketMinder’s View: Ordinarily, consumer sentiment surveys aren’t meaningful for investors, as they show only a real-time snapshot of feelings—not predictive. In this case, however, a look at Brits’ attitudes toward going out can help investors gauge whether expectations for spending and the economic recovery are too hot or cold. For weeks now, the popular thesis has been that fears of contracting COVID would keep shoppers and diners at home even as governments allowed businesses to reopen. As this survey shows, respondents say that is true in some cases but not all, and society’s mentality appears to be shifting toward more comfort with leaving the house: “A growing number of people now say they would feel comfortable sitting inside a restaurant for a meal, offering cautious hope that the economy can start to rebuild after the coronavirus recession. Almost three in 10 last week said they would have a traditional meal out, up from two in 10 the week before. This has started to show up tentatively in spending. Between 8 and 12 July one in four of us visited a cafe, restaurant or pub, thought most bought food or drink to take away, rather than eating in.” As a rep from a pub industry trade group observed, people are venturing out, feeling safe with social distancing measures, then telling their friends, who go out, feel safe, and tell more people. Plus, for stocks, what matters isn’t how slowly attitudes are shifting, but simply that this shift is underway, which helps markets have more confidence in life returning to some semblance of normality within the 3 – 30 month period they typically look to. One last point: The fears highlighted towards the end of this piece regarding the negative effect of phasing out government furloughing support echo fears extant in the US about the elimination of the $600/week extra unemployment aid—and constitute a common early bull market fear—what happens when stimulus ends? This is part of the Pessimism of Disbelief that lowers expectations for stocks, in our view.
MarketMinder’s View: In addition to exploring the shades of elitism that seem to taint experts’ view of young folks using trading apps like Robinhood—a long-running theme that that has shut people out of parts of the investing world for decades—this piece nicely explains the benefits of developments like this. Among them: As the commission-free app gained popularity, competition forced more traditional broker-dealers to move to slash or erase trading costs as well, benefiting all retail investors. Now, with the good comes some stumbling blocks, as regulators are also widening the field of investment options open to investors working with smaller sums, including private equity. Those options aren’t inherently good or bad, but they are more opaque, illiquid and complex, increasing the amount of due diligence investors must do to ensure these investments’ risk/reward profiles are a fit for their long-term goals and needs. Lastly, and perhaps most importantly today, the article offers some numerical evidence underscoring our shared belief that euphoric Robinhood daytraders aren’t driving the rally since March 23: “Research firm Alphacution estimates that Robinhood’s average account size is $4,800, which puts the total value of its accounts at roughly $48 billion. That’s a tiny fraction of the roughly $11 trillion in market value added to U.S. stocks since the market bottomed on March 23, according to Bloomberg data. There’s also little indication Robinhood users favor companies that are moving the market higher. … Barclays recently examined the account activity of Robinhood users and concluded that, ‘More Robinhood customers moving into a stock has corresponded to lower returns, rather than higher.’” For more, see Christopher Wong’s column, “Have Markets Gone Young, Wild and Free?”
MarketMinder’s View: The titular risk? Six large, recently outperforming Tech and Tech-adjacent companies comprise 25% of the index’s market cap. Here we will note MarketMinder doesn’t make individual security recommendations—we simply wish to address the broader theme, which argues growth stocks are hugely overvalued and investors are ignoring risks in US markets. To the latter, if you are worried your US-only portfolio isn’t adequately diversified, we have an easy solution for you: Go global. Investing globally mitigates country-specific risks. However, we disagree US growth stocks are a bubble waiting to pop. This article is one of many pieces calling for small-value stocks to lead based on cheap valuations and their history of outperforming in new bull markets. Yet in our experience, when everyone expects a certain thing to happen in capital markets, those expectations become priced in, and stocks do something different. Plus, a deeper look shows fundamental factors favor large-growth stocks. Chief among them, in our view, is the flat yield curve, which limits bank financing to smaller companies with less robust balance sheets. Banks borrow at short rates, lend at long rates and profit off the spread. A flat yield curve renders lending less profitable, motivating banks to lend less and only to the most stable firms. As a result, large firms generally crowd smaller firms out of a tiny feeding trough, which makes it hard for smaller and value-oriented companies to invest and grow. Plus, this bear market didn’t last long enough for small value stocks to endure their traditional bear market grind and the buildup of fears over their survival, the forces that generally set up their outsized early rebounds. So again, by all means, get more diversified with global stocks—but don’t avoid big US growth stocks, especially when so much of world seems to think you should.
MarketMinder’s View: One question we have seen a lot in recent days: How can stocks still be up when some places are locking down anew? The answer, generally, is that as a bull market begins, stocks usually shift focus from the immediate future to the longer end of the 3 – 30 month window they typically look toward. Developments like the one highlighted here show why optimism for that timeframe doesn’t appear to be unwarranted. Having most of the UK up and running by Christmastime, even with some social distancing measures still limiting retail and entertainment traffic, is a world away from the fear of prolonged lockdowns. While we don’t dismiss the possibility of a COVID resurgence affecting economic activity later this year, what matters more is the evident change in the government’s approach, moving to targeted local containment instead of a blunt national hammer. France has stated it will take the same approach, and California is presently demonstrating the same. That should help dramatically reduce the risk of another sudden economic stop, defying investors’ worst expectations. Stocks don’t need reality to be perfect for a bull market to march higher. A bit better than expectations, overall and on average, is all it takes.
MarketMinder’s View: “Retail sales climbed 7.5% last month following a record 18.2% increase in May, the government said Thursday. Economists polled by MarketWatch had forecast a 5.4% increase. Sales still haven’t returned to pre-crisis trends, however, after a huge drop in the first two months of the pandemic. The recent upturn could also stall if the virus continues to rage and more states reimpose restrictions on retailers and other businesses that rely on customers visiting their stores.” Fair enough. But very few states (or, globally, governments) are currently signaling plans to return to their draconian early-pandemic lockdowns, even if cases continue rising at a fast clip. The measures this time are less sweeping, at least thus far. Coverage of positive economic data’s tendency to leap from “rising cases” to “harsh shutdowns” to “renewed economic woes and stock market lows” showcases rampant pessimism—fuel for better-than-expected reality to keep supporting this new bull market, in our view, even if that reality is far from perfect. For more, see our 7/1/2020 article, “How Investors Should Approach America’s COVID Uptick.”
MarketMinder’s View: While lacking a direct investment takeaway, this interesting piece documents the consequences for farmers of US consumers’ “cooking more at home, buying more organic food, purchasing in bulk, forgoing brand-name treats and eating smaller meals due to fewer trips to restaurants with their often oversized portions. Even one of those changes by itself could throw a wrench in the global food supply chain. Add all five together, and some suppliers are finding they can’t adapt fast enough to keep pace with all the changing consumer demands.” These changes may not be permanent. Some of your friendly MarketMinder editors have resolved to eat out less and cook more at home before, with predictably disappointing follow-through. That said, while we don’t yet know how farmers will adapt to potential changes in Americans’ eating habits, this article shows they are scrambling to do so. While we don’t dismiss the hardship on family farmers, who often operate on razor-thin margins dependent on numerous factors outside their control, this saga could also breed innovations with big long-term benefits, including more nimble food packaging and supply lines. That could generate new profits in new, unexpected ways. For more, please see Chris Ciarmiello’s recent column, “Covid-19’s ‘Forever Changes.’”
MarketMinder’s View: A new SEC rule that took effect on June 30 says “those who sell financial products must act in their customers’ best interest. But consumer advocates say investors could be led to believe they’re getting more protections than the rule delivers.” We agree. In our view, “Regulation Best Interest” largely amounts to mandating extra paperwork and disclosures. It also further blurs the (already fuzzy) financial industry line between investment sales and service. Nothing wrong with either, but it sure helps to know which one (or, confusingly, perhaps both!) the person you are talking to is, and how they are compensated. (Pro tip: Ask them. “The broker [or investment adviser] should be able to fully explain how he or she is compensated.”) While much of this article focuses on how to make sure the financial professionals you do business with are fiduciaries, we are afraid this, too, may be insufficient protection, as we sadly live in a world where rules don’t guarantee behavior. Additionally, whether or not an investment professional will sign a contract designed by an advocacy group isn’t at all telling, particularly if you are dealing with a Registered Investment Adviser under the 1940 legislation establishing that designation—which entails a much more detailed and meaningful code of ethics. To do your due diligence, it is important to get all the information you can on your adviser or broker’s business model, resources, investment philosophy, values, performance history, successes and failures—and get it all in plain English. For more, we recommend Todd Bliman’s (still relevant) 2013 column, “The Compass."
MarketMinder’s View: While this article leans too heavily on unemployment as a forward-looking economic negative, in our view, it does show a crucial point: Countries calculate statistics differently, making it critical to look under the hood before comparing results. In this case, the UK counts furloughed workers as “temporarily absent” but still employed, making UK payrolls look massively healthier than their US counterparts, which count furloughs as temporary job losses rather than absences. Adding to the gloom is the fact that many of these workers remain classified as on furlough, rather than laid off, due to temporary government incentives. Most presume a lot of those job losses will become permanent, potentially derailing the UK economy’s recovery. While unemployment is a tragedy for those affected, the silver lining for investors is that recoveries normally begin amid rampant joblessness, as labor markets lag the economy and stock markets by a mile. Growth begets hiring, not the other way around, and stocks generally lead all of it. We see little reason to suspect it will be different this time—and with a new bull market underway, stocks may already be showing just that.
MarketMinder’s View: The concern here is that Tech stocks have risen too far, too fast and recent volatility may spell the end of their run. The two titular signals: “One alert stems from the widest spread since 2004 between the Cboe NDX Volatility Index, a measure of implied equity swings for the Nasdaq-100, and the counterpart so-called ‘fear gauge’ for the S&P 500. Another comes from unusual simultaneous gains in the technology index and the NDX recently.” Said more simply, some professional investors are reading a lot into a Tech-focused index’s options prices’ recent movement. But volatility—and attempts to measure volatility—don’t say anything about stocks’ future direction. Past prices—even if swings are bigger than usual—don’t predict. Stocks don’t care about where they have been. Rather they are forward-looking, focused mostly on the economic and political factors that impact corporate profits over the next 3 – 30 months.
MarketMinder’s View: June’s industrial production rose 5.4% m/m following May’s 1.4% m/m gain, led by a 105.0% jump in vehicle output. As the article notes about factory output—11% of the US economy: “The Federal Reserve said manufacturing production jumped 7.2% last month, the largest gain since March 1947, after climbing 3.8% in May. Despite two straight monthly increases, factory output was 11.1% below its level in February. Economists polled by Reuters had forecast manufacturing output rising 5.6% in June. ... In a separate report on Wednesday, the New York Fed said its Empire State current business conditions index rebounded to a reading of 17.2 in July from -0.2 in June. That was the first positive reading since February.” The Empire State report is a regional manufacturing purchasing managers’ index, so while its scope is limited, it indicates some economic activity is stirring in America’s Northeast. That said, despite the bounty of positive June numbers (and early-July readings), the tone of this article remains dour, driven by concerns of rising COVID-19 infections in the South and West and the likelihood of a slow economic rebound. In our view, this reflects the prevalence of the “Pessimism of Disbelief”—widespread doubts about any positive developments—which is common early in bull markets. Though it seems counterintuitive, that is reason to be optimistic about the rally, in our view.
MarketMinder’s View: We don’t recommend investors put too much stock in one industry group’s projection, but we think this story provides more evidence of why consumer spending tends to be more resilient than many think. As students prepare for an uncertain autumn that may include more remote learning, “total back-to-school and college spending is projected to reach $101.6 billion, topping last year’s $80.7 billion and crossing the $100 billion mark for the first time, the [National Retail Federation] said Wednesday.” The pandemic may have thrown businesses, schools and households for a loop in the spring, but don’t underestimate people’s ability to adapt to changing circumstances.
MarketMinder’s View: In some non-COVID news, Bulgaria and Croatia recently took steps toward joining the eurozone by entering into the Exchange Rate Mechanism II, which is basically the euro’s waiting room. This doesn’t mean the two countries are destined to use the euro one day—they must meet requirements, like ensuring their respective currencies remain in a given range for two years. However, we think this development cuts against the popular narrative that the eurozone is on the verge of breaking apart. Despite persistent rumblings of a country leaving the eurozone—see Greece and Italy for more—the bloc has remained resilient. That countries want to join indicates the eurozone isn’t as frail as critics suggest and its advantages and stability overlooked—a good reason not to count out investing opportunities in the eurozone, in our view.