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: Yes, Wall Street professionals’ consensus forecasts, overall and on average, tend to miss the mark—and this piece is a handy documentation of that history of error. But we don’t highlight this to poke fun at any analysts. Rather, we think it is important to consider that the consensus’s tendency to miss is actually quite helpful for investors. In our view, Wall Street’s forecasts aren’t off, year after year, because the analysts are inept. Often, their reasoning is logical. But markets digest all widely known information, including professional forecasts. Those forecasts get priced in, and markets generally do something else. Where they really come in handy for investors, however, is as a measure of sentiment. If professionals suddenly get very, very optimistic, it could be one sign of euphoria—as it was 20 years ago, as the Tech Bubble was popping. Not that we are there now, but just keep it in mind.
MarketMinder’s View: UK retail sales beat expectations in November despite England being under lockdown, with many non-essential retailers closed for part of the month. Sales volumes fell just -3.8% m/m, a much milder decline than during the first lockdown, and remain positive year-over-year. “Total sales for the year to date are almost as high as those in the first 11 months of 2019, as enthusiastic shopping since the end of the first lockdown has almost completely filled in the gaping hole left by the crash of one-fifth at the height of the pandemic.” While this is all positive, retail sales exclude most services, and personal services have taken a disproportionate hit from lockdowns. While your favorite boutique can open an online shop, it isn’t like you can get a facial, haircut or manicure over the Internet. Our hunch: Soaring retail sales are mostly a figment of lockdowns creating winners and losers. Moreover, with travel not really an option for most people, as the article notes, folks are likely transferring their holiday vacation budgets to putting a few extra gifts under the tree this year. So while this report is indeed good news for retailers, as far as the broader economy is concerned, it probably just offsets weakness elsewhere. Not that we are trying to be Debbie Downer here, but we think it is important to keep measured expectations.
MarketMinder’s View: Remember when the Asian Infrastructure Investment Bank (AIIB)—China’s attempt to compete with the World Bank—was going to result in China colonizing the global economy through debt and dethroning the US as the most influential economy? That was one raging concern five years ago, part of broad-based China is taking over the world fears. This is a short and sweet look at how that actually panned out. “The AIIB reported $30.78 billion in assets at the end of September. Even combined with the $19.32 billion of the New Development Bank, another Chinese-led multilateral bank, that is still less than a fifth of the Asia Development Bank’s $250.8 billion. Both are overshadowed by World Bank Group’s constituent parts: The International Bank for Reconstruction and Development, the International Development Association and the International Finance Corp. together hold more than $600 billion in assets.” Compared to these other international institutions, its lending amounts to a pittance. Meanwhile, the dollar remains the world’s preferred reserve currency, the yuan’s international traction hasn’t surged, and the world is still turning. Remember this when the China fear inevitably returns in different clothing.
MarketMinder’s View: This piece mentions a bunch of individual companies, and as always, MarketMinder doesn’t make individual security recommendations. But it is also a good look at a mentality surging among investors today: the hunt for the next Tesla. It reminds us a lot of investors’ hunt for the next Dell during the dot-com boom, which eventually ballooned into a bubble—with that mentality one of the prime drivers. This sort of optimism hasn’t been around in a long time, considering the prior two bull markets ended when big negatives walloped them before euphoria arrived. Thus, it may not be familiar to readers and may even seem alluring. So we think it is important to understand how it works, and this article is a good look at a mindset we think investors are best off avoiding as sentiment keeps heating up. Successful long-term investing, in our view, is about reaping market-like returns over time—not about finding quick riches. That is speculation, not investment, and in our view it is inconsistent with most long-term investors’ needs.
MarketMinder’s View: Most of this is sociological and focused on UK political matters that are outside of markets’ general purview—and as always, we are agnostic on politics, preferring no party or politicians, and focused on political events’ potential market impact. So we thought it worth sharing the nugget of wisdom, which pithily sums up why the trade talks between the UK and EU aren’t as monumental as headlines make them out to be: Yes, a trade “agreement is important from an economic standpoint. It would limit trade disruption to both sides at a time when they need to focus on recovery from the pandemic. That said, and without minimizing the potential for severe short-term pain if the talks fail, much of the drama surrounding these negotiations has a manufactured feel. The alternative to a comprehensive deal is to revert to the more common sort of trade arrangements one normally expects between two sovereign economies, with tariffs and regulations governed by World Trade Organization rules. Since ‘two sovereign economies’ is what the U.K. and EU have been since Jan. 31, this possibility was easy to foresee. … What will be permanent about Brexit is the phase the two sides are in now, not whatever deal they strike next: a phase when trading relations between them are always open to reinspection and renegotiation.” That last bit is key. No trade deal is permanent—just look at the redone NAFTA. These things always ebb and flow. If they don’t get a deal now and trade on WTO terms—which are favorable, overall and on average—they could strike another deal later. And then another. And another. And another. Markets know this song and dance very, very well, considering it is the global standard.
MarketMinder’s View: Welp, in addition to the IRS, FedEx and Social Security scams, there is now the fake cartel scam: “According to the authorities, scammers in the plot would telephone people and tell them that their assets and bank accounts were being seized after officers from multiple U.S. law enforcement agencies found their bank account details at crime scenes involving drug cartels in Mexico and Colombia. Investigators said the victims would be given a choice: Either face arrest or choose an ‘alternative dispute resolution’ option that would allow them to avoid facing the law. ‘They were asked to buy Bitcoins or Google gift cards worth all the money in their accounts,’ said Anyesh Roy, a police officer in New Delhi. The money was then transferred to what the victims were told was ‘a safe government wallet’ but that actually belonged to the scammers.” The three aforementioned schemes—along with many others—also asked for payment in gift cards. Folks, government agencies will never ask you for payment via gift cards or cryptocurrencies, and they won’t call you demanding money. Tactics like the one used here are designed to scare you into acting quickly without thinking it through. Knowing how these people operate in advance can help you be ready when you inevitably get one of their calls.
MarketMinder’s View: The main point here isn’t whether Tech is or isn’t in a bubble, as even non-bubble bull runs eventually end. Most bull markets end when euphoria leads investors to set expectations reality can’t beat, but it has been over 20 years now since we have seen such a euphoric peak, hence the feeling of newness as optimism perks now. Much of this article documents some potential pockets of froth in IPO markets, comparing activity in London and New York, which we agree is worth keeping an eye on. But most of all, we think the conclusion makes a very, very key point: “It’s worth remembering that it is in fact not especially hard to spot a financial bubble. What is far harder and has baffled experienced investors for centuries, is to correctly determine when it will burst. After all, financial bubbles can often continue inflating for years after they have been identified before finally popping. It is precisely that ‘fear of missing out’ on easy money, even when all rational evidence suggests valuations are overblown, that makes them so alluring to even the most hard-nosed investor and at a late stage in the cycle.” It wouldn’t surprise us if this was one of the key challenges for investors as this bull market progresses—particularly considering how fresh and alluring optimism may feel after this terrible year.
MarketMinder’s View: Can the US and UK finalize a post-Brexit trade deal before the Trump administration leaves office? We have our doubts, given how long trade talks normally take, but strong incentives and urgency have a funny way of inciting fast action. (Of course, any deal struck would likely face a ratification vote in the next Congress, not the current one.) If they somehow make it happen, though, it would be yet one more indication that the UK’s post-Brexit prospects are better than most headlines allege, and this piece highlights some of the areas where reduced trade barriers could benefit both sides. This probably won’t be some huge GDP boost considering transatlantic barriers were already quite low, but the symbolism might at least boost sentiment.
MarketMinder’s View: As always, MarketMinder doesn’t make individual security recommendations, but we highlight this piece because investors often presume index classification changes drive returns. This is one nuanced instance, but it shows a broader point: Index changes usually follow market events. Note MSCI’s rationale for removing the companies in question from its Emerging Markets and All Country World Indexes: “MSCI said it had heard from more than 100 market participants, and respondents said it would be hard for international institutional investors to invest in these 10 stocks. ‘In particular, non-U.S. market participants noted that the extensive presence of U.S. entities, such as commercial banks, broker-dealers, and custodians, within their chain of financial intermediaries would significantly limit their ability to transact in the impacted securities,’ it said.” Part of the reason people presume index classification changes drive returns is that index fund managers will be forced to buy (or sell) the companies added to (or subtracted from) the index, and that this forced buying (or selling) will move prices significantly. But in some cases, like this one, the decision stems from fund managers not being able to access the securities in question, period, making that reasoning moot. Even in instances where the securities are accessible, markets price in the changes long before they take effect, as there is a long lead time between the announcement and effective date, giving investors plenty of time to front-run the change. In our view, index classification changes are interesting, but not actionable, milestones.
MarketMinder’s View: “The Fed has been buying $80 billion in Treasurys and $40 billion in mortgage bonds a month since June while pledging to maintain those purchases ‘over coming months.’ On Wednesday, the central bank stated those purchases would continue ‘until substantial further progress has been made’ toward broader employment and inflation goals. Officials don’t expect to reach those goals for years, according to projections they released Wednesday.” Ok, well, we just have one question: If the same report showed the Fed’s earlier forecasts for 2020 were far too pessimistic (to the tune of anticipating a GDP decline roughly three times as large as the new outlook in June’s forecast), forcing them to revise their GDP projections higher (as the article goes on to document), then why should we take their policy forecasts as an iron-clad plan? These are all just opinions, not promises, and we recommend treating them as such when assessing markets looking forward.
MarketMinder’s View: First, the numbers: “Data firm IHS Markit said on Wednesday its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to a reading of 55.7 early this month from 58.6 in November. A reading above 50 indicates growth in private sector output. ... The survey’s flash composite new orders index fell to 55.1 this month from a reading of 57.5 in November.” This article notes many economists see December’s weaker PMI data as a preview of the sharp slowdown to come due to rising COVID cases—and the corresponding shutdowns. Weaker future data wouldn’t shock us, though PMIs don’t tell the whole story. These surveys capture the breadth of expansion (or contraction), not the magnitude, and based on December’s preliminary figures, a majority of businesses in the services and manufacturing sectors should see more growth in the near future. For investors, remember: Stocks don’t require steady, quick economic growth to rise—what matters more is how expectations square with reality. Many have anticipated winter lockdowns denting activity for months, so nothing here is breaking news for stocks.
MarketMinder’s View: Trade data are late lagging, but we think the eurozone’s October export and import figures highlight a couple global trends. First, eurozone trade with the rest of the world remains below pre-pandemic levels: “... compared to February, the month before COVID-19 restrictions were imposed, exports and imports were down respectively 6.2% and 7.4%.” For context, from February to April—a period covering the worst of the shutdowns—exports and imports were down -31.8% and -21.7%, respectively (per FactSet). The improvement since then highlights trade’s recovery, reinforced by October’s month-over-month rise (exports and imports up 2.1% and 1.0%, respectively). Second, we think eurozone exports’ relatively stronger growth reinforces how the recovery isn’t uniform. This isn’t a shock given China’s quicker reopening than Europe or the America’s. However, we don’t recommend getting caught up in how individual countries’ recoveries compare to each other—what matters more, in our view, is that the data show global commerce remains pretty darn resilient even in the face of an unprecedented economic contraction.
MarketMinder’s View: China’s economy continues to recover according to November monthly data. Industrial production accelerated to 7.0% y/y—its fastest rate in more than two years—as the industrial sector leads the rebound. Fixed-asset investment—which includes spending on factories, real-estate development and infrastructure projects—in 2020’s first 11 months rose 2.6% from a year ago, while retail sales accelerated from October’s 4.3% y/y to 5.0%. This article highlights some observers’ surprise—a sign of generally dour expectations worldwide, in our view. “Economists had anticipated industrial production would slow in recent months, as a resurgence of the coronavirus threatened to hurt demand abroad, but official figures, including Tuesday’s data, have defied those predictions.” This doesn’t mean growth will be free of hiccups, but with so many expecting the economy to falter, a slower recovery may qualify as a positive surprise. Moreover, China’s better-than-anticipated growth over the past several months previews what major economies can likely expect as economic normalcy returns—a future stocks already see, in our view.
MarketMinder’s View: Concerns about failing banks—particularly in the eurozone—have gone in and out of headlines ever since the currency bloc’s sovereign debt crisis early last decade. The European Commission has proposed the setup of “bad banks”—“private or government funded repositories that soak up soured loans”—to help countries deal with a surge of potential defaults. Yet as this article notes, an EU-wide approach (which includes non-eurozone EU nations) isn’t exactly easy sledding. “The effort would rely on individual governments to sponsor the bad banks, falling short of more ambitious proposals for a continent-wide bad bank. ... Such a solution isn’t feasible, the commission said Wednesday, because countries have different nonperforming loan portfolios, different national rules on insolvency, and it would be too costly. Instead, the commission said it would support countries that wish to set up a bad bank.” Even though this is just a proposal, it illustrates, in our view, both the limitations and the slow-moving nature of EU bureaucracy—a reality worth keeping in mind given the latest rumblings over Tech-related regulation.
MarketMinder’s View: In the latest development in the ongoing saga of government v. Big Tech, the EU today revealed draft legislation aimed at blocking allegedly anti-competitive practices in Tech. The legislation is actually two bills: the Digital Services Act and Digital Markets Act. The latter would designate select Tech firms as “gatekeepers” and subject them to heightened scrutiny, including review of mergers and acquisitions of basically any size. It could also penalize them (up to 10% of global revenue) for favoring their own products or services above a peer that pays to use their service. At the most extreme, the EU could force violators to split up or divest certain businesses. The Digital Services Act aims mostly to make firms more accountable for policing users’ illegal speech or fake news. Failure to do so would mean a fine up to 6% of revenue. There is a ton of speculation about what this all means for Tech today, but this seems premature to us. This is a draft law. “The draft still faces a long ratification process, including feedback from the EU’s 27 member states and the European Parliament. Company lobbyists and trade associations will also influence the final law.” Moreover, if this law does pass and jacks up costs for Big Tech, we would anticipate them passing that along to consumers just about as quickly. As for breaking them up, investors would get shares in any divested business—there isn’t much reason to think this would be bad for shareholders.
MarketMinder’s View: “Last spring, [one research outfit] predicted the economic devastation wrought by the coronavirus would mean a plunge in the tax receipts of state and local governments, causing budget shortfalls of $300 billion to $400 billion over two years. But deficits in the year ended June 30 were only about $30 billion above pre-pandemic projections, and deficits in the current year are likely to be in the same range ….” That pretty much tells you everything you need to know, but the article goes on to explain exactly why deficits are nowhere near as bad as many thought. For one, tax receipts have come in much better than expected because higher earners saw far fewer layoffs, and they pay the vast majority of state and local taxes. But also, the extra unemployment benefits paid under measures like the CARES Act are taxable. We aren’t taking any sides in the political debate over granting states additional federal aid—we are simply pointing out this is another area where reality topped dire expectations.
MarketMinder’s View: We like this article for a couple of reasons. One, it tells the tale of how major import and export sea terminals operate, detailing the sheer scope of operations at America’s third-largest port by volume. But from an investment perspective, in documenting an 18% y/y rise in inbound container volume in September and October, it shows the strength of goods demand this autumn. It also makes you think about the frequently reported news from Britain that its ports are clogged, which is usually reported in a negative light ahead of Brexit. Now, we think Brexit preparations could explain part of the country’s port issues, and it is possible those issues grow after December 31’s exit date. But if a big demand uptick is underway in America and that coincides with Britain seeing increased traffic, issues and delays at the country’s ports don’t seem all bad.
MarketMinder’s View: Belgium, Germany, Holland and the UK are all among European nations dialing up restrictions as the pandemic’s second wave surges in Europe—and this piece offers a decent roundup of the measures. In some cases, like Holland’s, the restrictions are more extreme than at any point in 2020 to date—with the government limiting visitors to two (three over Christmas), non-essential businesses ordered to close, and schools set to shut on Wednesday. Germany’s new national lockdown runs from Wednesday through January 10 and builds on already-announced restaurant closures by shuttering hair salons and similar services. But despite all of this, markets haven’t reacted as they did in February and March. We think this is a testament to their efficient ability to discount widely held fears. Because virtually everyone expected an autumn resurgence would lead to renewed restrictions, that reality materializing didn’t shock stocks like lockdowns did earlier this year. Keep that in mind as headlines continue emerging over possible New York City lockdowns.
MarketMinder’s View: “The Federal Reserve reported Tuesday that the November gain in industrial output [0.4% m/m] followed an even stronger 0.9% increase in October. Even with the gains, industrial output is still about 5% below its level in February before the pandemic hit.” It isn’t a shock to us that heavy industry is faring better this fall than during the first round of lockdowns in February and March. This is largely due to the fact most factories are currently, ummm, open—a key difference from the springtime. That being said, while the sector’s faring better may help to defray the macroeconomic impact of lockdowns somewhat, at roughly 14% of US GDP (per BEA data), the three industries covered in this report (manufacturing, mining and utility production) are too small to fully offset services industries, which are suffering a far greater hit from coronavirus-related restrictions. Should these measures persist for long, we would not be surprised to see contraction in US GDP, although stocks have long since factored this in and moved on.
MarketMinder’s View: The US and other countries have begun distributing COVID vaccines, a most welcome development in a challenging year. However, as discussed here, scammers will seek to take advantage of vaccine attention for their own selfish, crooked reasons. Just as bad actors preyed on people’s fear at the start of the COVID crisis, they will likely find ways to exploit people’s emotions as vaccines roll out. This article provides some helpful tips on how to avoid vaccine cons. For example, “Be skeptical of offers to pay for a vaccine on your behalf. Because the coronavirus is a public health emergency, it’s unlikely you will have to pay for the vaccine. … No, you can’t pay to get your name on a list to get the coronavirus vaccine. Don’t fall for scammers’ promises about getting early access.” As with other scams, healthy skepticism is your best defense, in our view. If it sounds too good to be true, it likely is, and if someone appeals to your emotions and demands immediate action, hang up the phone (or don’t respond to the email or text message).