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: According to this piece, the monthly US employment report isn’t as meaningful anymore because the Fed’s new monetary policy framework prioritizes inflation over employment. The supposed implication: The Fed won’t consider hiking rates even if the unemployment rate drops sharply in the coming months as long as inflation remains tame, so the labor report now provides fewer clues about monetary policy’s future direction. This argument stems from a misperceived place, in our view: that any economic data have a predetermined effect on monetary policy. Contrary to what many central bank observers presume, the Fed isn’t a machine that changes the fed-funds target rate when data reach certain thresholds (e.g., 2% annual inflation or a 6.5% unemployment rate, to cite two figures Fed officials noted in the past and subsequently ignored). Instead, the FOMC is comprised of individuals basing decisions on their interpretation of the data—which makes trying to forecast future Fed decisions a futile exercise, in our view. Rather than get caught up in Fedspeak—or experts’ interpretations of Fedspeak—we suggest investors monitor central bankers’ actions. For more, see our 8/27/2020 commentary, “The Fed’s ‘Strategy Refresh’ Mirage."
MarketMinder’s View: The Tokyo Stock Exchange shut down for the day Thursday, apparently due to a technical glitch. The exchange operator, the Japan Exchange Group, plans to restart the system and resume trading Friday, and while the unexpected closure frustrated investors and regulators, many experts don’t seem overly concerned about longer-term ramifications. Interestingly, the glitch occurred during the Mid-Autumn Festival holiday in Asia—potentially fortuitous timing since most markets in the region (e.g., China and South Korea) were closed. However, for long-term investors, we do think Japan’s exchange failure holds some important lessons. Namely, it is impossible to screen out all possible negative events. Sharp daily dips happen. “Flash crashes” happen. Technical glitches and fat fingers happen. But whatever the cause for daily volatility or bumps, it needn’t prevent stocks from rising over the longer term—the more important timeframe for investors, in our view.
MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations. Rather, this article highlights a broader theme—and in this case, that theme is to beware heat-chasing. Two weeks ago, we featured a story in our Headlines section discussing special purpose acquisition companies (SPACs). Commonly referred to as “blank check” companies, SPACs are publicly traded holding companies without any holdings—they exist to merge with startups, enabling them to go public without the costly initial public offering (IPO) process. SPACs have exploded in popularity this year, and while we aren’t inherently opposed to any security (save for deferred annuities and non-traded REITs), we urge caution with investments getting attention due solely to recent hot returns. In our view, the development of an ETF designed to track SPACs is more evidence it is a fad, elevating expectations in this narrow corner of the market. Mind you, one frothy slice of the investment universe doesn’t mean broad euphoria is afoot. Rather, as with any investment, think carefully about how it fits into your personal plan and keep in mind that past returns aren’t a sound investing thesis. In our view, successful retirement investing is about seeking market-like returns in the long term, not a get-rich-quick needle in a haystack.
MarketMinder’s View: After a surge in COVID-19 cases, Spain’s central government has ordered Madrid and nine other municipalities back under lockdown. However, the latest restrictions aren’t as onerous as rules during the first wave. Though outsiders won’t be able to enter Madrid for non-essential visits and the curfew for bars and restaurants moved up a couple hours, this is a far cry from March’s lockdown, which kept people largely at home. Moreover, the disagreement between Spain’s central government and Madrid’s regional government exemplifies a political dynamic we have observed in recent months: Many politicians worldwide are loathe to return to draconian restrictions due to the economic fallout. We aren’t saying they definitively won’t return—political decisions aren’t forecastable, in our view—but the resistance to economically damaging lockdowns is notable. For more, see our 9/22/2020 commentary, “Avoid Leaping to Conclusions on Europe’s Renewed Restrictions.”
MarketMinder’s View: We think this article’s negative spin on positive, albeit backward-looking, economic news illustrates the Pessimism of Disbelief at work in Canada—and a theme consistent globally. As noted here, “Output jumped 4% in July and August, Statistics Canada reported Wednesday, bringing gross domestic product to about 95% of levels in February, the last full month before lockdowns began.” While Canadian GDP has nearly made a full recovery—much swifter than many anticipated—the reaction toward this development shows how much pessimism remains. As the interviewed experts share here, many suspect the economy will still take years to reach pre-pandemic levels as potential future outbreaks weigh on growth, and some industries (e.g., air transport) may never recover. That is possible but by no means is it probable, much less certain. Moreover, stocks don’t require rapid economic growth to rise. In our view, the dour mood sets a low bar for reality to clear, providing plenty of fuel for the bull market to run.
MarketMinder’s View: After signing a free-trade agreement with Japan a couple weeks ago, the UK is working towards another deal—this one with Frontier Market Vietnam. As the article notes, in addition to talks trending positively, the UK also, “secured Vietnam’s public support for it to join CPTPP, formally known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.” Don’t overstate the economic impact of UK-Vietnam trade—just 0.2% of total UK goods exports in 2019 went to Vietnam (per FactSet). But we think these overlooked positive trade developments undercut the idea the UK is becoming more protectionist as it prepares to officially leave the EU. They also highlight another key point: Nations seem perfectly willing to sign deals with the UK, contrary to rhetoric in some corners of the commentariat.
MarketMinder’s View: China’s “official manufacturing Purchasing Manager's Index (PMI) for the month of September came in at 51.5 as compared to 51.0 in August, according to the National Bureau of Statistics. Analysts polled by Reuters had expected the official manufacturing PMI to come in at 51.2 in September. PMI readings above 50 indicate expansion, while those below that signal contraction.” On another positive note, China’s non-manufacturing PMI, which captures the services sector, rose to 55.9 from August’s 55.2. As this article also highlights, the Caixin/Markit manufacturing September PMI—which includes more small- and medium-sized businesses—also showed expansion. PMIs measure only growth’s breadth, not its magnitude, but these September data are more evidence of China’s ongoing economic recovery. Moreover, forward-looking new order and new export order subcomponents for both sets of Chinese manufacturing PMIs signal further growth ahead—it seems domestic and international demand for Chinese goods is picking up.
MarketMinder’s View: This article provides a helpful corrective to notions global supply chains are undergoing a sea-change realignment along geopolitical lines. Headlines have typically focused on government pledges to bring production back home (e.g., Japan’s $2 billion in subsidies for companies reshoring supply chains or US presidential candidates pushing “Buy American” campaigns). But as the article explains, political rhetoric is usually disconnected from economic reality—and businesses are much more aligned with the latter. Importantly, today’s global supply chain network is pretty resilient, and it isn’t easy to make big changes overnight. Consider: “Apart from one or two products affected by rapid shifts in demand, such as domestic toilet paper, there have not been many obvious shortages of consumer goods. Covid restrictions have affected labour-intensive and personal services, particularly transport, tourism and hospitality. But capital-intensive manufacturing and goods trading have mainly been hit by reduced demand rather than interrupted supply.” We think this is a nice reminder that despite governments’ proclamations, corporations’ supply chains operate fine on their own.
MarketMinder’s View: We think this article raises some interesting points about why central bankers aren’t exactly gung-ho about negative-rate policy, i.e., moving short-term interest rates below zero. As this article highlights, “it is telling that this year’s Covid-19 crisis—the greatest economic shock in modern history by many measures—hasn’t prompted any major monetary institution to adopt a new negative-rate policy. Nor have the parts of the world with existing negative interest rates—notably the eurozone, Denmark, Japan and Switzerland—cut their rates further.” Per San Francisco Federal Reserve research discussed here, “... the longer negative interest rates are in place, the more they hurt not only bank profits but bank lending too. Even their advocates in central banks that have adopted this policy concede that shallow negative rates do little to help.” That sounds about right to us. As we have described before, negative policy rates are counterproductive tools because they act as a tax on bank reserves and aren’t effective in spurring lending—which is purportedly the point. Should some central banks decide to go into subzero territory—unknowable since human decisions aren’t predictable—they would likely be hurting more than helping, in our view.
MarketMinder’s View: Please note, MarketMinder’s analysis is politically agnostic by design, and we favor no politician or political party over another. We analyze politics solely for the potential economic and market impact—or lack thereof. With myriad headlines previewing tonight’s presidential debate between President Donald Trump and former Vice President Joe Biden, we aren’t surprised some intrepid market analysts have explored how US stocks performed following past first debates—an interesting but myopic exercise that encourages people to overrate short-term market movements and widely discussed events, in our view. We doubt that is any help from a portfolio positioning standpoint. Beyond that, we share this article to make a broader point: Don’t make portfolio decisions based on events exemplifying political noise. Nothing discussed tonight or in any subsequent debates will likely qualify as a surprise to stocks. Likewise, pundits’ inevitable discussion of who “won” the debate has no bearing on who will win in November. Unless you enjoy the political theater, feel free to change the channel. For more, see our 9/14/2020 commentary, “Cutting Through 2020 Election Fears.”
MarketMinder’s View: “The Conference Board’s index increased 15.5 points, the most since April 2003, to 101.8 from August’s upwardly revised 86.3, according to a report issued Tuesday. … Respondents indicated they were more likely to make big purchases in the months ahead.” While this may sound promising, we wouldn’t draw too much from one monthly reading. First, consumer confidence surveys reflect folks’ current moods, which are primarily shaped by recent economic and stock market developments. Though sentiment remains below pre-pandemic levels, we aren’t shocked survey respondents’ feelings have improved given stocks’ record-fast recovery from the winter’s bear market and the nascent economic recovery. But feelings are fickle and don’t correspond to activity—hence the historically weak connection between consumer confidence levels and retail sales. In our view, reopening progress—not consumer sentiment—will determine the economic recovery’s trajectory. Also, while this piece notes “the S&P 500 turned positive after the report,” we think guessing small daily moves’ causes is futile. Rather than focus today’s data or survey releases, look to the timeframe markets care about most, in our view: the next 3 – 30 months.
MarketMinder’s View: Per a recent report from the National Bureau of Economic Research, “central bank [research] papers ‘report systematically larger effects of QE [quantitative easing] on both output and inflation,’ and are more likely to report QE effects on output that are ‘significant, both statistically and economically.’ ‘While all of the central bank papers report a statistically significant QE effect on output, only half of the academic papers do,” the authors added. … The authors said there are tangible benefits, such as promotions and visibility, that come from writing positive takes on policies their respective institutions are implementing.” We highlight this not to argue central bank researchers are intentionally misleading the public or that their apparent biases necessarily render their findings false. Rather, we think this underscores the importance of approaching studies—and coverage of those studies—with healthy skepticism. Consider the potential incentives and leanings of a study’s author(s), review the evidence and consider counterarguments. We agree central banks overstate quantitative easing’s effectiveness, and we welcome you to dig into our logic and evidence. To do so, check out one of our many articles on the subject, like 10/21/2016’s “Japanese Godzilla QE Shows Fed Mothra Feckless.”
MarketMinder’s View: When governments globally opened the fiscal spigots to combat COVID-related economic fallout, they borrowed record amounts to pay for it—sparking concerns of soaring debt costs that could imperil sovereign finances. But that fear has yet to manifest—not terribly surprising, in our view, given today’s ultra-low sovereign debt yields—and some countries are finding their debt servicing costs are falling well short of initial projections. Germany is one example: “The German parliament has temporarily suspended the constitutionally enshrined debt limits to allow the government finance its measures with net new borrowing of 218 billion euros this year and additional 96 billion euros next year. The finance ministry so far has earmarked 9.6 billion euros for debt servicing in its 2020 budget which already marks a drop from some 12 billion euros in the previous year. But the ECB's bond-buying programmes and worldwide demand for safe-haven bonds mean that the government now even expects to pay only 5 billion to 6 billion euros, a senior official told Reuters on condition of anonymity.” Note: Don’t overstate the role of quantitative easing programs here. Yes, central banks are one purchaser of long-term debt on the secondary market, but demand is healthy among private investors, too. Most importantly, debt service costs, not absolute debt levels, are the best gauge of affordability—and Germany’s situation today shows why debt burden fears are overstated.
MarketMinder’s View: Many feared the pandemic’s economic fallout would cause a surge of “fallen angels”— corporate bonds downgraded from investment grade to junk—leading to a massive wave of corporate defaults. Though we think this piece overrates the Fed’s role a tad—we don’t think markets need a savior—it also shows this supposed “crisis-in-waiting” has yet to materialize. As noted here: “While 2020 has by some estimates already seen a record value of corporate bonds downgraded to junk status, fallen angels are still falling short of the worst-case estimates many analysts predicted this spring. And the overall share of investment-grade corporate debt rated triple-B—the lowest category before junk status—is hovering around the same 50% mark where it was at the end of 2019, Intercontinental Exchange data show.” Yep: Reality has proven far better than what many experts estimated when early-year troubles arose. Even as some companies’ debt was downgraded, markets recognized many businesses were in sounder shape than widely appreciated—a reminder that the market, not credit ratings agencies, is much better at determining which firms can ultimately make good on their obligations even during tough times.
Market Minder’s View: While we agree recent Chinese economic data have pointed to a nascent recovery, we caution investors against reading too much into narrow data series and anecdotal evidence—which this article relies on heavily. Car sales, whether in China, the United States or anywhere else, reflect one type of discretionary spending. Moreover, historical data (for the US) suggests auto sales growth tends to be strongest at the beginning of an expansion—so an uptick in Chinese auto sales following a COVID-driven contraction isn’t shocking. In our view, the arguments here suggesting China’s wealthy must prop up consumer spending—along with concerns of a second wave, the health of the financial system and the well-being of small and medium-sized businesses—signal plenty of doubts about China’s economy persist. In our view, it is another version of the pessimism prevalent across the global economy—and another reason to be optimistic about the young global bull market.
MarketMinder’s View: The five titular reasons largely rely on the flawed premise that dividend-paying stocks are inherently superior to any other type of stock. In our view, they aren’t—and thinking otherwise is a mistake. Consider the first reason listed here: “Dividends generate income.” Yet all stocks can generate cash—all you have to do is sell a share. Moreover, dividend-paying stocks don’t produce that payout out of thin air. When a company pays the dividend, the company’s share price falls by that amount. Most critically, dividends aren’t guaranteed. When times get tough—as they did this year—companies may elect (or, in the case of banks, be forced) to suspend dividend payments, either temporarily or indefinitely. An investor relying on dividend payouts for cash flow purposes may be left in a tough spot. For more, please see out 5/7/2020 commentary, “COVID-19 Highlights the Perils of Relying on Dividends for Cash Flow.”
MarketMinder’s View: First, MarketMinder doesn’t make individual security or fund recommendations—any mentioned herein are part of a broader theme we wish to highlight. That theme: Some fixed income funds have outperformed all-equity funds this year, prompting a debate over whether investors should increase their portfolio’s bond exposure. We believe this misses the primary reason why investors should hold fixed income in the first place—which is to dampen stocks’ short-term volatility. Depending on an investor’s goals, cash flow needs and time horizon, holding some fixed income may make sense. But we believe investors seeking growth must own stocks to some degree, which have produced superior returns compared to bonds over the long term. That bonds have outperformed over a very short window of time that includes a bear market is neither new, unusual, rare nor game changing. Projecting this forward is likely to prove a mistake—as is the basic practice of buying something just because it did better recently. That reeks of heat chasing—a common investing mistake, in our view.
MarketMinder’s View: This piece argues Congress stopped its stimulus program too quickly after the financial crisis-driven recession ended in 2009, hamstringing the recovery—and risks making the same error now. Not only does this overlook some key facts, in our view, but it draws several flawed comparisons between then and now as the two recessions have very little in common. Starting with the central thesis, while Congress didn’t pass new stimulus measures after 2009, the measures included in that package dripped out slowly through 2011. Any economic slowing around then, in our view, stemmed mostly from counterproductive monetary policy (think: quantitative easing, which flattens the yield curve and reduces banks’ incentives to lend) and the eurozone’s debt crisis and recession, which knocked demand in some of the US’s key trading partners. But it is a testament to the economy’s strength that growth here still helped pull the rest of the world along, rather than the other way around. As for today, the CARES Act wasn’t stimulus so much as a massive bailout for households and businesses hurt by forced closures during the lockdowns. Any actual stimulus—new demand created out of thin air via government investment—would require new legislation, so in that sense, the article raises a valid enough point. But whether that is necessary for the economy and stocks, we aren’t so sure. As the article notes, the economy was firing on all cylinders when the pandemic broke out, and the recession came entirely from forced business closures to contain it. Reopening those businesses is the key to recovery, and it was enough to start a sharp recovery in monthly data over the summer. Maybe stimulus would help things along, but if the eurozone could escape its 2011 – 2013 with austerity instead of stimulus, we think it is fair to say that the US can do fine now even if Congress doesn’t pony up.
MarketMinder’s View: Since this piece references a politician, we are compelled to remind you we are politically agnostic, favor no politician or political party, and assess political developments (including Brexit) solely for their potential economic or market impact. With the Brexit transition period’s end approaching fast, fear-mongering about a clean break with no trade deal has hit fever pitch. The latest twist: warnings of long lines at customs allegedly risking trade and economic growth. But those claims come from people outside of the shipping industry. Within the industry, there is a lot more calm: “There is little danger that Government fears of a 7,000-truck tailback through Kent will come to pass, according to Europa Worldwide managing director Andrew Baxter. The trucking chief, whose firm runs more than 400,000 shipments a year and is one of the UK’s largest privately owned logistics operators, said: ‘To be honest, I think this is a misconception of the logistics industry. Some businesses may be under-prepared. However, we currently have 99pc clarity as to what will be required in order to cross. By the time we get to January all operators will have 100pc clarity. … Will some operators get it wrong with their first load? Maybe. But will they then make the same mistakes over and over again. I very much doubt it. If you travel to a country, where you need a visa, would you go to the airport without a visa? Even if you made a mistake, you wouldn’t keep coming back to the airport, day after day, week after week without one? Our industry is run on tight margins, and operators aren’t stupid.’” Indeed. In our view, this is one of many areas where reality is likely to exceed today’s dismal expectations.
MarketMinder’s View: If this week’s net stock fund outflows were the worst since Christmas 2018—even worse than at any time during this winter’s bear market—yet this week’s portfolio declines don’t come close to some of the weekly declines during said bear market, then what does that tell you about fund flows as a driver or indicator of stock returns? They show sentiment, nothing more.