MarketMinder

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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.


Vaccine Boosts Fed Confidence That Worst-Case Outcomes Can Be Avoided

MarketMinder’s View: With the Federal Open Market Committee (FOMC) meeting this week, many analysts expect Fed officials to bump up their economic projections. The primary reason, as summarized here: The economy looks likely to avoid “worst-case scenarios” (e.g., a tidal wave of bankruptcies roiling the banking system) thanks to recent positive vaccine developments, and some experts think a return to normalcy by next summer is feasible. Whether that plays out or not, we think this article illustrates what investors should—and shouldn’t—take away from widely watched economic estimates. For example, we don’t think folks should treat any single entity’s forecast as an all-telling crystal ball. All react to and interpret the data as it comes out—just like everyone else. On the useful side, Fed projections and the surrounding analysis and commentary provide a snapshot of sentiment. Despite the optimism surrounding vaccines, many think further Fed assistance is required to support the recovery—a sign plenty of pessimism still lingers. Monitoring how sentiment squares with reality is critical in determining where stocks are headed next, and in our view, the bull market still has plenty of wall of worry to climb.

Most Major Banks Have Increased Employment in London Since Brexit Vote

MarketMinder’s View: In today’s episode off “Reality Exceeding Expectations,” concerns that Brexit would prompt a mass exodus of financial sector jobs now appears just a wee bit off the mark. “In reality many companies have continued hiring in London and more than half of the largest finance firms have increased their employee headcount in the last five years, a survey of 24 major international banks and money managers by the Financial Times found. … A 2017 survey predicted that one in six asset management jobs could move from Britain to the Continent. Several banks predicted that thousands of jobs would be cut but the numbers have so far turned out to be far lower. A former executive at one of the top banks told the FT: ‘We were totally sticking our finger in the air. Everybody said 1,000. They thought if they said hundreds, nobody would believe them.’” Turns out London’s appeal didn’t materially diminish following the 2016 referendum—and we suspect the city’s status as a global financial hub will remain in a post-Brexit world, too.

Japan, South Korea Fret as Surging Coronavirus Undermines Leaders' Support

MarketMinder’s View: As Western European nations including Germany and the Netherlands announce “hard” lockdowns during the Christmas holiday, we think it is worth pointing out happenings elsewhere in the world—specifically, in the Pacific. Japan has renewed some targeted measures and a domestic travel subsidy program for two weeks. South Korea, which avoided draconian lockdowns earlier this year, closed some schools. But both nations haven’t yet announced measures as tough as what the developed world endured in the spring. Meanwhile, other nations are actually easing restrictions. Singapore will soon increase the number of individuals allowed to gather, and New Zealand plans to open a “travel bubble” with Australia in Q1 2021. That doesn’t mean easing progress will continue unimpeded, as COVID rules are political decisions that defy forecasting. Nor are incremental measures like a Kiwi-Aussie travel bubble economic game-changers. However, while announcements of new lockdowns in major economies understandably drive headlines, they don’t mean the global economy is going down that route, as Far East and Australasian nations show.

Brexit: 'It's Utter Confusion' Over Trade Talks Delay

MarketMinder’s View: After the UK and EU kicked the can on trade talks yet again on Sunday, we thought this concise roundup of UK business owners’ perspectives on the negotiations provides a telling sense of Brexit’s biggest headwind: lingering uncertainty. Anecdotes don’t represent all businesses’ issues, but this article highlights a couple of notable themes. For example, as frustrating as the unknowns are, firms aren’t exactly flying blind. They have set up contingency plans to deal with a number of scenarios and accounted for potential costs. The overarching point all these firms agree on, regardless of the industry: Getting some sort of resolution, deal or no, provides clarity and will allow them to move forward. That clarity will arrive soon, and when it does, we think a post-Brexit reality will turn out to be much more benign than many have fretted over the past several years.

In Covid Era Britain, a No-Deal Brexit Would Barely Register

MarketMinder’s View: And today’s Insightful Thesis Award goes to … this article! Short and sweet, it makes the very key observation that the pandemic and lockdowns allowed Brits to experience many of the alleged consequences of a no-deal Brexit, including severe shortages at supermarkets, on a grand scale. Now it is causing big backups at ports not just in the UK, but globally (with Southern California bearing the brunt of this). “Covid has so conditioned us for privations and constant disruption to our lives that it will be a job to discern what has been caused by Brexit and what has been caused by the pandemic. … The Office of Budget Responsibility (OBR) tells us that the economy will shrink by two per cent in the event of no trade deal. I never take too much notice of economic forecasts, but there would have been a time when such a prediction would have struck terror into many people, and would have led BBC news bulletins – with [politicians] popping up to tell us we were heading for self-inflicted recession. But hardly anyone seems even to have noticed the OBR’s forecast, and it is not hard to see why: what difference will another two per cent make when the economy has already shrunk by eight per cent this year and, according to the OBR, is likely to end the year 11 per cent down, all because of Covid and lockdowns?” An entirely valid viewpoint, in our view. If markets have already lived through many of the widely feared no-deal Brexit consequences, whether or not Brexit was the cause, how much surprise power can remain? Our hunch: not a lot.

A Day Trader’s Side Hustle Is Turning Volatile Stocks Into Artworks

MarketMinder’s View: This profile of an artist who turned stock price charts into art inspired a number of thoughts among your friendly MarketMinder editors. The first amounted to “whoa, this is super cool!” “Volatility really is quite beautiful” was another. On the more investing-related front, finally, someone has found a way to make actual profit off of stock charts! After all, past performance doesn’t predict the future, so looking at jagged lines of stocks won’t tell you where those lines go next. Yet in our experience, all too many people mistakenly seek patterns and extrapolate them forward. None of that works, in our view. But using those jagged lines to outline mountaintop ridges and adding skies, stars and happy little trees—and then selling them? That works. We tip our hat! (Also MarketMinder doesn’t make art recommendations, which we say half as a joke and half on the suspicion that we actually need a disclaimer here.)

Banks Can Restart Dividend Payments, Regulator Says

MarketMinder’s View: Having the ability to restart dividend payments doesn’t make UK bank stocks sudden surefire winners, as regulatory interference is just one performance driver. However, we do think it is noteworthy that regulators blessed banks’ balance sheets even as the pandemic’s second wave is raging and its economic consequences in the UK aren’t fully realized. In our view, that speaks to how much society has learned since March—particularly as it pertains to markets’ resilience and the economy’s ability to bounce quickly when businesses reopen. This knowledge is what helps markets move on, in our view, and decisions like the Bank of England’s only reinforce the ability to see the pandemic’s end. That brighter future is what matters to markets most at this juncture, in our view.

Fed ‘Manipulation’ Crushes Can’t-Miss Trade in U.S. Bond Market

MarketMinder’s View: We have plenty of quibbles with this piece and don’t necessarily agree with its forecast, but it does show rising long-term interest rates aren’t a given. For months, pundits everywhere have warned the economic recovery, rising deficits and higher inflation would drive long rates higher, punishing bonds. Rates had nowhere to go but up, they said. But this article highlights a logical reason that scenario isn’t guaranteed: Fed intervention. If the Fed keeps stepping on long rates instead of letting them rise (and letting the yield curve steepen), then they could go sideways, defying all the bond doom and gloom. This isn’t the only reason we think bonds still have a place in a portfolio designed to target lower expected volatility, but it does factor into our analysis.

The Dicey Economics of Investing in Oil During Covid-19

MarketMinder’s View: This spends a lot of words and charts overthinking a very, very simple point: Oil prices move on supply and demand. That. Is. It. Does that make it easy to predict oil prices? Probably not, as several variables influence supply and demand, but trying to assess those variables several years out is fruitless, as too many variables could change between now and then. Some of those variables are political decisions, which defy forecasting even in the near term. We suggest looking in the timeframe markets pay most attention to—and remembering that while oil prices have a strong influence on the sector in general, they aren’t the only thing to consider if you are choosing Energy companies within the sector. For instance, will small companies with high debt service costs and shaky balance sheets be able to reap big profits even if oil prices rise a good amount? Or will they spend most of their energy paying down debt, while larger producers with lower costs benefit the most? This, not oil demand in 2035, is what matters to investors considering Energy stocks today, in our view.

Missed Tesla’s 12,551% Rise? Don’t Feel So Bad.

MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations, and we aren’t supporting or opposing any of the company-specific analysis here regarding the meteoric rise of one electric automaker’s stock price. Rather, we think this piece shares some sensible behavioral finance takeaways—useful for any long-term investor. Professional and retail investors alike often gravitate to headline-grabbing companies—especially when their share prices are soaring. Yet for every Tesla, a multitude of other companies, both big and small, fall by the wayside. “There is plenty of scope for disappointment among larger stocks, too. There are nine companies trading today that have lost more than 99% of their value since June 2010 [month of Tesla IPO]. Plenty of others fell to zero.” Trying to discover the next Tesla is akin to finding a needle in a haystack. Thankfully for long-term investors, successful investing doesn’t require identifying the next big high flyer. What matters more is constructing a globally diversified portfolio that can generate the growth necessary to meet your investment goals. Another important ingredient: Keeping your expectations in check. To do this, Fisher Investments founder and Executive Chairman Ken Fisher recommends “shunning pride and accumulating regret.” This piece also offers some realistic perspective: “For the long-term investor, to get rich slow with a diversified portfolio you have to cope with people trumpeting far bigger gains. The best way to stay sane is to remind yourself that plenty of others are keeping quiet about their big losses."

UK Economy Almost at Standstill Before New Covid Restrictions Hit, ONS Says

MarketMinder’s View: UK October GDP rose 0.4% m/m, a sixth consecutive positive reading, albeit the slowest growth rate since the recovery began in May. This article recaps the relevant numbers, as services (0.2%), production (1.3%) and construction (1.0%)—GDP’s three output sectors—all rose. However, as shared here, analysts are already penciling in a November contraction due to England’s four-week lockdown and stricter social distancing rules across the UK—and some experts project an -8% monthly dip. For context, that would exceed March GDP’s -7.3% contraction, when the UK implemented its first COVID lockdown. We aren’t saying dour November projections are wrong, but we do find them telling about sentiment—and lockdowns’ dwindling surprise power. These forecasts give stocks more information to process and digest, and while reality may be bad for many businesses and households, bull markets don’t require good news to rise. In our view, they are already looking beyond the next three months or so and towards the next year or two, when COVID should (thankfully) be old news. Reacting to backward-looking information is never a winning tactic, in our view.

EU to Slap Fines of Up to 6pc of Global Turnover on Tech Giants

MarketMinder’s View: The EU has long been discussing new regulation on big Tech and Tech-like firms, and we are finally getting a preview of its planned rulebook: the Digital Services and Digital Markets Acts, whose full text will be released next week. From a high level, “… Tech firms with more than 45m users will have to share data with authorities and researchers, vet third-party suppliers and be more transparent about disclosing targeted advertising”—or they risk fines. The proposed reforms have already triggered debate, and while we won’t wade into policy discussions, we think the last official quoted here raises a key point: How exactly will the EU enforce these potential measures? We likely won’t know the final answer to that question and others for some time. While monitoring the regulatory space is good practice—new rules create winners, losers and unintended consequences—nothing here is actionable yet, in our view. For more, see Fisher Investments Research Analysts Timothy Schluter and Warner Jacobs’ commentary, “Breaking (Up) Bad (Tech)?

UK’s Johnson Says ‘Strong Possibility’ of No-Deal Split in EU Trading Ties

MarketMinder’s View: Whaddaya know, the UK and EU are engaged in some epic brinksmanship ahead of a self-imposed Sunday deadline for a trade deal, and this brinksmanship is occurring at—wait for it—a summit! It is refreshing that even in 2020, some things never change. As for the actual subject matter here, the article has a good rundown of where Brexit talks stand and what both sides are saying about the likelihood of a compromise. The last decade has seen many, many EU negotiations go this way, with compromise at the last minute. Maybe that happens this time, maybe it doesn’t. If not, both sides have been making contingency plans for a long time, and we think markets are already aware of the tariffs that would take effect. Long lines at ports have been part of the discussion for eons, too. There may be some bumps along the way, but even a no-deal Brexit isn’t likely to be as chaotic as feared, in our view. For more, see our 12/8/2020 commentary, “Today in Brexit, Day 1,628.”

Lockdown Lite Spares Economies but Doesn’t End Pandemic

MarketMinder’s View: This article isn’t entirely sensible, as it implies markets are looking much shorter term than our research indicates they usually do at this point in a bull market. While we agree lighter-than-expected lockdowns are offering some relief for stocks, we think a much bigger factor is markets’ ability to look further into the future, to a time when COVID is behind us. With that said, this does a fair job in documenting policymakers’ more targeted approach this time, why it makes sense, and how the economic impact is somewhat milder than what we endured this winter and spring. For example in France, “the current wave appears to have been contained at a lower economic price than the first. Whereas economic activity fell to just 71% of normal in April according to Insee, the French statistics agency, it stood at 88% in November, and is projected to rebound to 92% in December.” This broadly reflects the experience of other European countries. US states have also allowed more activity to remain online this time around. We may face a nerve-wracking winter, but so far at least, it doesn’t appear to be as bad economically as in Q2—and better than feared is generally fine for stocks, in our view.

For Seasoned EU Watchers, Brexit Trade Talks Look Uncannily Like Grexit

MarketMinder’s View: Besides the naming convention for leaving a supranational European organization, this article shows brinksmanship is nothing new for European institutions and that, when the stakes are high, they have overwhelmingly compromised—as they did in 2015, when Greece nearly crashed out of the eurozone. The situations aren’t identical, and this article highlights some of the differences, but we think the diplomatic pattern is worth noting. Also noteworthy is that, while both sides have incentive to compromise, that outcome shouldn’t be necessary for either side’s stocks or economy to do fine. A trade agreement might be nice, but absent one, reverting to WTO rules wouldn’t be disastrous. The stakes—for all the headlines—just aren’t that big, which is why whether deal or no-deal, Brexit won’t be as momentous as many think. As uncertainty continues clearing, we think relief provides a tailwind for stocks.

Should You Buy AirBnB? Hot IPOs Are Not Necessarily a Ticket to Riches

MarketMinder’s View: We will leave the titular question up to you, as MarketMinder doesn’t make individual security recommendations. But this piece does a nice job showing that new IPOs are largely a shot in the dark, with even employees and investors who bought a few years before the public offering not always turning a profit immediately. In other cases, as the article shows, even when the investment was profitable, it often lagged broader markets. That isn’t guaranteed to be the case for an IPO, but this is a critical point to keep in mind: “Cool companies don’t always make good investments. The people screaming on Robinhood about their splurge on a hot I.P.O. may not know what they’re talking about.”

Why Water Won’t Make It as a Major Commodity

MarketMinder’s View: Interest in water as an investment flares periodically, with people believing shortages in certain geographic areas spell financial opportunities. Yet as this article shows quite nicely, commodities markets exist for resources that are either finite (gold, silver, iron ore) or subject to short-term disruptions from crop damage or problems with livestock (onions, potatoes, pork bellies). These markets exist to give companies the ability to hedge their future costs and keep earnings more stable. Water, despite its entry into futures markets, doesn’t pass that test. Plus, precious metals futures markets work because the markets are global. Water isn’t. “Precious metals are so expensive that they’re typically transported by air, a fact that caused havoc in the gold market earlier this year when the Covid pandemic grounded much of the world’s aviation fleet. Almost everything else moves more cheaply on boats, trains and trucks, with the cost of transport taking up a rising share of final prices as the value per ton goes down. It typically costs between $5 and $10 a ton to ship coal from Australia’s east coast to consumers in northeast Asia, making long-distance trade just about viable. There’s little point, however, in spending dollars transporting water that changes hands in its end-markets for mere cents. That’s particularly the case because, for all we talk about water scarcity, it’s hugely abundant compared to any other commodity. In most places it can be collected for free by just attaching a tank to your drainpipe. Even in places with low rainfall, desalination is a far cheaper option than long-distance transport.” Without a global market, you don’t get a viable global commodity market.

We’re Having Trouble Learning to Live Without Inflation

MarketMinder’s View: We are of two minds about this piece, which argues that the low inflation we have been living through for at least the last decade—especially this year—has many savers wondering how to fund their retirement. To start with the negative (not because we are grouchy but because there is less of it), there is a presumption in this piece that broad-based measures of price changes reflect retirees’ expenses. But those gauges are, in Australia, America and everywhere else, based on a basket of goods and services that may or may not actually reflect retirees’ expenses. So the notion that low inflation isn’t all bad because it means your expenses aren’t galloping higher could be true but isn’t assured to be. On the sensible side, this piece concludes by pointing out that you don’t need to rely solely on interest income to fund your retirement cash-flow needs. In our view, there is no reason to limit yourself in this manner beyond a psychological one. Also: This piece offers an excellent explanation of how and why long-term interest rates tend to move with inflation expectations.

Here Are Some Smart Money Moves to Make Before the End of the Year

MarketMinder’s View: A decent rundown of a few things to weigh as we approach the blessed end of this god-awful year and look forward to (hopefully) better times in 2021. Some of these are pretty standard: Making sure you are set to contribute to IRAs or Roth IRAs if you are eligible; planning out charitable contributions—particularly since the government is allowing even those who take the standard deduction to subtract up to $300 in donations from their adjusted gross income—and more. But the last part of this seems wisest to us. It counsels people to avoid basing long-term decisions on short-term factors, like the pandemic’s end. “For example, deciding to buy a vacation home now, when you usually prioritize overseas travel, could be a source of regret once there is a return to normalcy.” It also reminds people to review actual spending in 2020 versus your intent, which we think is doubly important now, considering the pandemic has impacted many folks’ consumption patterns in big ways that could reverse once vaccine distribution is sufficiently widespread. (Think: Commuting expenses, eating out, groceries, etc.)

Canada’s Credit Rating Could Take Another Hit If Ottawa Sticks to Spending Plans, Fitch Warns

MarketMinder’s View: After Canada’s federal government boosted COVID fiscal response plans this fall for a second time—likely meaning bigger deficits—credit rating agency Fitch has warned they may downgrade the country’s rating for a second time this year (it cut Canada’s from AAA to AA+ in June). Now, you can’t forecast what ratings agencies like Fitch will do as it pertains to sovereign ratings, as such moves are made by people using rather squishy criteria. But in our view, this story best illustrates a simple point: You don’t need to forecast what they do. These decisions carry very little actual weight in the market. Case in point: Fitch cut Canada’s rating on June 24. Since then, its 10-year yields are up just 0.22 percentage point from a paltry 0.54% to a still-paltry 0.76% (per FactSet data). Even this rise doesn’t seem to be about Canada’s creditworthiness: US 10-year yields moved up by 0.21 percentage point in the same span—and remain about 0.17 percentage point higher than Canada’s.