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: As always, MarketMinder’s analysis is politically agnostic, and we don’t favor one party or politician over another. Our commentary focuses solely on the potential market ramifications of Israel’s latest election—the country’s fourth in two years. As this article details, preliminary results suggest neither Prime Minister Benjamin Netanyahu’s Likud party—and potential coalition partners—nor the opposition appear to have enough seats to form a majority in Parliament (though the final tally, expected at the end of the week, may change that). “The muddy result could extend the period of political uncertainty and polarization that has sent Israel reeling from election to election to election, failing each time to return a stable government. And it could lead to a fifth election.” The article dives into the splintered state of Israeli politics, but this ongoing uncertainty is neither new nor surprising to markets. Whether Netanyahu gets first crack at forming a coalition or President Reuven Rivlin taps another lawmaker to start the process, a gridlocked government that will struggle to pass major legislation seems likely. Note, too, that while a potential fifth election could stir some short-term uncertainty, stocks are well familiar with Israel’s unsettled politics at this point.
MarketMinder’s View: “IHS Markit’s flash composite PMI [purchasing managers’ index] for the euro zone, which looks at activity across both manufacturing and services, hit 52.5 in March versus 48.1 in February. A reading above 50 represents an expansion in economic activity. The preliminary data points to the first economic expansion in the region since September and the largest increase since July.” Notably, the consensus response is hardly celebratory, as many economists expect social restrictions to extend into Q2 due to Europe’s slow vaccine rollout—weighing on service sector growth. The tempered expectations about the eurozone’s economic recovery in the near term seem rational, in our view, and signal sentiment isn’t out of touch with reality.
MarketMinder’s View: We have seen a number of hypothetical and complex ways Congress could effect a higher federal minimum wage by tweaking corporate tax policy instead of passing an actual minimum wage increase. This details one such idea, proposed by two Berkeley economists, which would slap an extra payroll tax on companies paying employees less than $15 per hour—then give people making less than that a refundable tax credit. The theory behind this and all similar proposals is that the Senate would be able to pass it via budget reconciliation, negating the need to round up 10 GOP votes. That may be true on paper, but we would note that administrative concerns weren’t the only thing preventing Democratic senators from pursuing the higher minimum wage when drafting the most recent COVID relief bill. Some—particularly those in swing states—had other objections, which could easily torpedo some of these workarounds if they get past the hypothetical scenario posed in a research paper stage. Don’t underestimate intraparty gridlock’s ability to water down or block contentious legislation—a key force propelling stocks this year, in our view.
MarketMinder’s View: This is a detailed look at some potential new rules that will affect China’s internet lenders and small banks. “Regulators are considering stricter rules on what is known as loan facilitation, people familiar with the matter said. In this system, internet-lending platforms assess borrowers, connect them with lenders and sometimes help with risk management for outstanding loans but don’t put any capital at risk. The potential changes would be on top of restrictions on the industry’s other main model, co-lending in partnership with banks.” Much of the commentary speculates about the impact on publicly traded firms, and as always, MarketMinder doesn’t make individual security recommendations. But we do see this as a continuation of two noteworthy trends. One, it exemplifies officials’ focus on reining in credit rather than promoting fast growth, another sign of the general return to normal after their efforts to stimulate growth post-lockdowns last year. Two, whereas Chinese officials once saw private lending as the ticket to national prosperity and wider-spread growth, policies now appear to be channeling much of the country’s financial activity back to huge state-owned banks, which likely disadvantages small private companies seeking funding. That could have ramifications for growth down the road as well, though for now we see it mostly just an interesting development.
MarketMinder’s View: To update an old saying, there is nothing certain in life except death, taxes and scammers trying to steal your money. Keeping up with the times, they turned their attention to digital payments systems last year, taking advantage of the pandemic and quick mass adoption of new technologies. “About 18 million victims fell prey to scams through these digital payment methods last year, Javelin [Strategy & Research] found. ‘The culture of fraud is clearly shifting. The pandemic has created so many more points of vulnerability for families and businesses,’ says Paige Schaffer, CEO of global identity and cyber protection services at Generali Global Assistance.” But the tools to protect yourself remain the same. Don’t give information to callers purporting to be from government agencies, financial institutions or other outlets. Hang up on them and call the relevant agency back using their published telephone number. Don’t reply directly to unsolicited emails, click on links within them, or give out information. Remember government agencies will use snail mail for anything important. Update your passwords and use a password manager. Don’t bow to high-pressure tactics.
MarketMinder’s View: UK tax day, that is —and not day taxes are due, but rather day Treasury publishes a bunch of tax studies. The measures discussed in this article aren’t policy yet. Rather, they are proposals stemming from various UK government tax reviews, and they are aimed at closing loopholes and modernizing the UK’s tax system. They are also much milder than many of the ideas rumored in recent weeks, including steep capital gains tax hikes. Instead, we get stricter oversight of people claiming tax relief for second homes used as vacation rentals, consultations on air travel taxes and the tax reporting system for self-employed folks, and the removal of the requirement for all estates to file inheritance tax paperwork whether or not they owe anything. As with any tax changes big and small, these will likely create winners and losers, but it will likely be on a much smaller scale than feared. That should help reduce uncertainty and boost sentiment, in our view.
MarketMinder’s View: For the third time in two years, Turkish President Recep Tayyip Erdogan has fired a central bank head—this time ousting Naci Agbal, who pulled off a series of rate hikes in order to stave off a currency crisis over the past four months. It always seemed a bit strange that Erdogan allowed that to happen, given his long-running preference for low rates, and today’s sacking doesn’t really come as a surprise given that history and the institution’s revolving door. Replacing Agbal is Sahap Kavcioglu, who has recently echoed Erdogan’s view that high interest rates cause inflation and opined that rates are too high and the lira too strong—likely triggering investors’ quick reassessment of the likely path forward this morning. The main concern for investors targeting global developed markets is the potential spillover into Europe, given some southern European banks have Turkish ties. That appears to have triggered some volatility in European banks this morning, but it seems to us mostly sentiment-driven, given Turkey’s long-running issues are well-known and Turkey represents a small share of these institutions’ business. Mostly, we see this as a reminder that there are always pockets of weakness in the global economy, but the broader risk of spillover appears low.
MarketMinder’s View: This is mostly a roundup of banking data from the Fed, which generally isn’t earth shattering, but it does some curious things with a couple of data points. The headline refers to banks’ total loans and leases slipping to 62.8% of deposits and 48.7% of total assets, which is the lowest since these data begin in 1973—hence the headline. Thing is, this doesn’t represent loans dropping. It is more a function of total assets and deposits rising. Pull pure lending data at the St. Louis Fed’s data portal, and you will see that while last year’s COVID assistance programs caused a lending spike that has since reversed, lending is growing again. The year-over-year growth rate also remains positive despite the much higher base effect that is now starting to creep into the data. That base effect will probably skew the year-over-year results negative later this spring, but overall, banks are still lending, which supports economic growth, even if the flattish yield curve keeps loan growth from being robust.
MarketMinder’s View: One month ago, a Treasury auction of 7-year notes attracted lower demand than usual, sparking fears of an investor flight away from long-term bonds—never mind that the amount of bids was still a bit more than twice the amount of debt on offer. This article thus eyes this week’s upcoming 7-year note auction as a key test of demand in the face of continued volatility and the upcoming end of a small reprieve from the Fed on bank capital requirements, which we guess is fine if you are concerned about 7-year notes only. But long-term Treasurys have had a few tests in the interim, and despite the volatility and incessant Fed rule chatter, demand for 10-year notes and 30-year bonds was right in line with its trend over the past several months. Looking at the full spectrum, we don’t see much evidence demand for US debt is tanking. If anything, slightly higher yields entice more buyers. That is just how auction markets work. For more, see our commentary from earlier this month, “People Are Buying US Treasurys.”
MarketMinder’s View: The titular reshuffle is a leadership shift from growth stocks to value, which this piece argues should last a long while because of possible trends in interest rates and economic growth over the next … 25 years. In addition to using straight-line math over the far future, which is always a dubious endeavor, it also relies on textbook earnings models. We aren’t about to quibble with any of those calculations, which have their place in corporate accounting and planning, but we think they are of limited use for investors trying to get an edge. Markets move most on surprises, and they price widely known information efficiently. Models using standard textbook approaches are the very definition of widely known, making the analysis herein likely reflected in prices already. The same goes for the general enthusiasm toward value stocks, which is at its highest among fund managers in over a decade, according to a recent Bank of America survey. Whenever a trade is this popular, we think it behooves investors to look where most others don’t—in this case, we think that is growth stocks, which should enjoy underappreciated headwinds in what we think is actually a late-stage bull market. For more, see today’s commentary, “How Closed Is the Reopening Trade?”
MarketMinder’s View: We aren’t inherently for or against special purpose acquisition companies (SPACs), also known as blank-check companies, which are holding companies that raise money on the stock market in hopes of taking a startup public through a reverse merger. They have attracted a lot of attention lately—some good (big returns following some mergers, easing the administrative burden of going public), some bad (allegations of fraud and occasional post-merger tumbles). As with any investment, we think it is important for investors to do their own due diligence. To that end, we present this article, which highlights an important factor: There are a lot of SPACs hunting for startups to buy right now, to the extent that there may be a supply/demand imbalance. That can be a very big near-term negative for returns even if some SPACs eventually pull off successful mergers that thrive in the long run. Always remember that what influences markets most is supply and demand fundamentals over the next 3 – 30 months or so, and a supply glut can swamp even otherwise solid drivers.
MarketMinder’s View: You might think that when people fall prey to financial fraud, they easily learn how it happened, raise their defenses and never fall victim again. As it happens, the opposite seems to be true, and the headline figure doesn’t quite capture the extent of the damage. “The average loss for victims who had been scammed before was £21,121, the figures revealed. This loss rose to £84,604 for victims of investment scams, where bogus offers to buy shares, bonds or other schemes are made. … Half of repeat scam victims were hit by so-called fraud recovery fraud. It is a tactic used by organised crime groups to squeeze more money from victims. They pose as police, solicitors or debt recovery agents, claiming they can recover some or all of their target’s losses. Scammers use details they know about their case to gain their trust, but ask for an upfront fee.” The article closes with some handy tips on how to protect yourself, and they boil down to: Be very suspicious when a company calls you out of the blue and hounds you to make a quick decision. Hang up, and see if that company is registered with regulators, and know that no legitimate company is likely to nag you to hand over money lickety-split.
MarketMinder’s View: For weeks now, pundits have warned of market mayhem if the Fed didn’t extend banks’ holiday from the supplementary leverage ratio (SLR), which mandates higher capital requirements that don’t account for the varying risk levels of different assets on bank balance sheets. In plain English, that means a relatively risk-free US Treasury position would require the same capital as something far more volatile—prompting fears it would force banks to unload Treasurys if the SLR came into force. Today, after weeks of speculation, the Fed announced the SLR will take effect April 1, as scheduled. This seemingly hit sentiment toward bank stocks in today’s trading, but we think that reaction is likely fleeting—and it shouldn’t change the fundamentals for Treasurys. “Fed officials say banks are still well capitalized even without the exception and they don’t believe banks will need to sell their Treasurys to meet reserve requirements. The largest banks have about $1 trillion in capital, and rescinding the SLR relief will adjust those levels only marginally, Fed officials said.” As fears of forced selling prove unfounded, investors should move on.
MarketMinder’s View: As always, we are politically agnostic, with no preference among politicians or parties, and we assess political issues solely for their potential impact on markets and investors. Accordingly, this is an overall even-handed discussion of the implications of a tax on stock trades, which some congresspeople have proposed as a purported solution to the purported problem of individual investors buying deep value stocks in hopes of profiting from a turnaround. As it explains, a small tax probably will crimp liquidity, because the general rule is that the more you tax something, the less you get of it. At the same time, similar taxes in the UK and Hong Kong haven’t prevented them from being global financial hubs. (Nor have changes in them hit stocks—Hong Kong hiked its stamp tax earlier this year and it is among the best-performing nations worldwide year to date.) But beyond all that, we happen to think this is generally a solution in search of a problem. One, a tiny tax won’t deter retail speculators, who are an important component of markets’ overall functioning and price discovery. Two, it is a sheer fallacy to say money made in stocks doesn’t enter the real economy unless it is taxed, contrary to what some proponents argue. Every dollar in circulation is in the real economy. Those stored in bank accounts back new loans to consumers, home buyers, small businesses and large corporations—all of which generate new economic activity, which in turn creates jobs. Money in stocks backs publicly traded companies’ investments and operations, all of which, yes, create jobs. It just isn’t clear to us why redirecting some of this money to Uncle Sam’s coffers would be a better, more efficient use of capital, which is always just an opinion anyway. Lastly, free or near-free stock trading is one of the greatest benefits to emerge over the nearly 50 years since brokerage commissions were deregulated. Replacing that with a commission paid to the government seems like a step back. Not a hugely problematic one, but a step back nonetheless.
MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations. We think this article’s discussion of penny stocks’ risks is worth raising today, especially as wild investing success stories become increasingly commonplace. “Penny stocks” refer to shares of tiny companies that generally trade for, well, pennies. These securities are traded on over-the-counter markets rather than major stock exchanges, and because they are so small and illiquid, they can be extremely volatile. Penny stocks often feature in illegal “pump and dump” schemes, as described here: “First, fraudsters load up on ultracheap shares of a small stock hardly anyone trades. Then comes the pump: They pitch the stock as one with hot prospects, spreading around positive information to push up its price. Finally, there’s the dump: After the price jumps higher, the perpetrator sells and leaves the new buyers holding a mostly empty bag.” As optimism becomes more widespread—stoking greed—we think the major challenge for investors is to have rational expectations, maintain discipline and refrain from chasing dazzling returns. In our view, investing in penny stocks is pure speculation, and investors should think long and hard before acting. At best, it is a wild guess based on hope and greed—not a sound investing thesis, in our view. At worst, you may be on the wrong end of a ne’er-do-well’s scheme.
MarketMinder’s View: Tax-tip columns fill financial pages this time of year, and we thought this one was interesting for those taking required minimum distributions (RMDs). It discusses the benefits of Qualified Charitable Distributions (QCDs), “… which allow Individual Retirement Account holders to divert some of their federally taxable required distributions to charity. That lets the IRA holders make donations and reduce their federally taxable income — while still letting them take the standard deduction on their federal tax returns.” QCDs’ main tax break—“reducing your taxable income by offsetting distributions you were required to take”—was absent last year since the CARES Act canceled RMD requirements for 2020. Now that RMDs are back, QCDs may be worth looking into depending on your specific tax situation and cash flow needs. This piece provides some helpful details—including potential problems you may face. The article is a good starting point, but if you plan to explore how QCDs may benefit you, we recommend discussing it with your tax professional.
MarketMinder’s View: New Zealand’s Q4 GDP fell -1.0% q/q, missing expectations for mild growth. While these numbers are old news—especially for forward-looking stocks—we think they shed light on some trends that may appear in other developed economies’ data this year. New Zealand’s less severe COVID experience allowed the country to lift its strict national lockdown earlier than North America and Western Europe—leading to surging GDP growth in Q3 (13.9% q/q). While domestic restrictions have relaxed, however, New Zealand’s borders largely remain closed to foreigners—hurting the country’s big tourism industry. As noted here, “At the industry level, seven out of 16 industries declined. The two largest contributors to the drop were construction, and retail trade and accommodation. Both industries had strong September 2020 quarter results. … Where there is emerging agreement is that the economy will basically track sideways from here until we make progress on opening borders.” Similar to China, we think New Zealand’s experience provides a preview for other developed economies as governments eventually remove COVID restrictions. Though the data may pop initially, particularly in industries hit hardest by COVID-containment measures, broad economic growth is more likely to slow, not surge, once the initial boom wears off.
MarketMinder’s View: Here is some news use you may use if you haven’t filed your taxes already. “The IRS is planning to push back the deadline for filing tax returns by about one month, originally thought to be May 15, from the usual April 15, CNBC confirmed. But because May 15 falls on a Saturday, the final deadline for filers is likely to be the following Monday, May 17.” Note, this applies only to federal returns and taxes, so taxpayers must check if they have a deadline extension or not on their state taxes. Moreover, estimated quarterly payments are still due on April 15. So, while the headline may provide a welcome cushion for those who need extra time, check up on the details—and talk with your tax professional if necessary—so you don’t run into any unpleasant surprises.
MarketMinder’s View: While not totally sensible, this article provides some useful perspective on swirling inflation fears. On the less sensible side, we disagree valuations drive stock prices. At best, valuations provide a rough sense of sentiment. Rather than being “priced for perfection,” we think they are rationally reflecting better earnings ahead today. That aside, we agree a look back at history should assuage some inflation fears. Those worried about a 1970s’ rerun should note the long lead-up to double-digit inflation. “Inflation began to tick up long before reaching its twin peaks of 12.2% and 14.6% in 1974 and 1980, respectively. It first edged higher in 1966, doubling to 3.8% in October from 1.9% in January. After declining for several months, it gradually resumed its climb to 6.4% in early 1970.” High inflation doesn’t show up overnight, and investors have time to monitor the situation. Acting now in anticipation of future higher prices seems premature, in our view—worth keeping in mind for those tempted to find “protection” against possible inflation. Indeed, as the conclusion notes, right now “... the fear of inflation is a greater threat to investors than inflation itself.”
MarketMinder’s View: This article spills many pixels on a widely discussed topic: When will the Fed hike rates? As noted here, some investors think a stimulus-powered economic recovery will force the Fed to hike as soon as next year, while Fed watchers argue hikes will start in 2023 at the earliest. The piece then argues anticipating a rate hike isn’t as simple as reviewing the Fed’s “Summary of Economic Projections,” which includes the infamous dot plot rate level projections, and seeing if the Fed is hitting its inflation target. Thanks to the Fed’s new monetary policy framework, many now wonder what data are driving the Fed’s decisions. However, in our view, this analysis misses a critical point: The Fed has never behaved like a machine. Recent Fed heads have a history of suggesting an economic indicator hitting a certain threshold would prompt action—and then not acting. Every voting member of the FOMC has unique opinions and approaches to monetary policy, which can change—either on their own or as members come and go. Predicting the committee’s decisions over the next three years borders on impossible, in our view. We aren’t saying investors should ignore what the Fed says, but don’t treat their words as previews of definitive actions to come. As for the copious amount of pundit-driven Fed chatter, we think you can tune that out. For more on why Fed confusion is nothing new, please see our 2/24/2021 commentary, “The Trouble With Parsing Powell’s Words.”