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: While the IPO market is indeed hot right now, we think comparisons with the dot-com bubble are rather overstated. Yes, there are signs of froth in the universe of blank check companies, which acquire private companies and take them public without the traditional regulatory rigmarole and with financial projections to entice investors. Brand new alternative energy and next-generation auto companies have taken this route to public markets lately, generating quick returns as well as regulatory scrutiny and, in one high-profile case, a big crash once the SEC came knocking. So in that arena, yes, we can see some parallels with the dot-coms that went public with little more than a business plan and a website (and deep operating losses). But most companies going public now are more mature and testing the waters not because investment bankers are eager to reap big fees from backing any old thing, but because investors see fundamental strength. Combine that with difficulties obtaining private financing during the pandemic, and why not take advantage of a roaring bull market and high stock demand to raise money from the public?
MarketMinder’s View: Durable goods orders rose 0.4% m/m, slowing from July’s 11.7%, which is consistent with other major monthly indicators that have slowed from the initial reopening burst. Core capital goods orders, which are a loose proxy for business investment in equipment, rose 1.8% m/m following July’s upwardly revised 2.5% rise and are now above pre-pandemic levels. Beyond the obvious takeaway—the recovery continues—we found it noteworthy that orders for computer and electronics products were among the strongest contributors. In our view, this is a sign of Tech’s strength, which we don’t see changing any time soon—evidence the summer’s Tech rally was built on fundamentals, not sand.
MarketMinder’s View: Attention all readers who bought, held or sold bitcoin or any other cryptocurrency this year: The IRS is adjusting form 1040 to make it a whole lot harder to evade paying taxes on cryptocurrency sales, which are taxed as property. Last year, any crypto holdings were disclosed on a separate form that most folks don’t file. But starting with tax year 2020, form 1040 will ask front and center: “At any time during 2020, did you sell, receive, send, exchange or otherwise acquire any financial interest in any virtual currency?” “‘This placement is unprecedented and will make it easier for the IRS to win cases against taxpayers who check “No” when they should check “Yes,”’ says Ed Zollars, a CPA with Kaplan Financial Education who updates tax professionals on legal developments. Mr. Zollars notes that U.S. tax authorities have already succeeded with a similar strategy: A simple tax-return question about offshore financial accounts greatly aided their crackdown on Americans hiding money abroad. Since 2009, it has brought in more than $12 billion from individuals. By changing the position of the crypto question and having all 1040 filers respond to it, the IRS is making it much harder to claim ignorance of the rules. Lying on a tax return is a bad idea because filers sign returns under penalty of perjury, and juries often side with the IRS when it’s clear a taxpayer has lied.”
MarketMinder’s View: We are about six months into a new bull market, and as this article illustrates, though the concerns have changed a bit, sentiment remains overwhelmingly dour. Economists have gone from warning of a new Great Depression and years of high joblessness to now projecting a slowing economic recovery dependent on policymakers’ assistance—especially if a second virus wave forces businesses to close again. As described here, “Cash that households socked away over the summer from rich unemployment benefits will begin to run dry; small business loans appear to have limited bankruptcies and closures so far but were not designed for the long haul; Federal Reserve programs that helped unlock a massive round of private corporate financing may have left companies with difficult-to-service debt if business does not fully rebound.” While we wouldn’t be surprised if the economic recovery decelerated in the coming months, slowing, uneven growth is a far cry from a depression. No recovery moves in a straight line. Moreover, government spending may help businesses and households in a tight spot, but the economy generally doesn’t rely on congressional or central bank action. From an investing perspective, today’s fears combined with recent volatility reinforce how low expectations are right now. Even a slightly better reality could produce a bullish positive surprise, and while short-term, sentiment-driven dips like this month’s are always possible, we expect the bull market to continue.
MarketMinder’s View: The titular claim is based on the Household Pulse Survey—a new survey conducted by the Census Bureau and several other federal agencies. Based on their findings covering September 2 – 14, “The Census figures showed employers ranging from large corporations to government agencies to non-profits saw their ranks swell this month. But family firms suffered a loss of 450,000 jobs as the effects of the Covid-19 pandemic continued to slam small businesses, the survey showed. Middle-aged workers, those 40 to 64, returned to work in massive numbers as schools reopened. The survey shows almost 1.4 million people in that age group are working again.” However, we share this article less for its commentary about recent employment trends—jobs numbers are backward-looking—and more to shed light on this new report. As the Census’s website acknowledges, they just started collecting data about a month ago, and the survey, “… is designed to be a short-turnaround instrument that provides valuable data to aid in the pandemic recovery. … as such, data products may not meet some of the Census Bureau’s statistical quality standards.” For financial news consumers, keeping these limitations in mind provides important perspective often absent in headlines.
MarketMinder’s View: Today UK Chancellor of the Exchequer Rishi Sunak announced a new jobs support program—which will succeed the current furlough scheme, set to expire end of October. It also extended a couple other measures (e.g., a VAT cut) as part of the government’s effort to protect jobs, particularly in industries impacted heavily by COVID restrictions. This article provides a succinct rundown of the details, but notably, the new scheme doesn’t provide as much support as the current furlough scheme: “The grant given by the Government will be capped at just under £700 per month for every employee. This makes the support much less generous than the furlough scheme, which is currently capped at just under £2,200 per month and has cost the taxpayer £39bn so far.” Many are now debating the winners and losers, with some calling for the government to do more—especially after the renewal of activity limits going into the autumn and winter months. For businesses and households still affected by shutdowns, reduced assistance isn’t good news and could create hardship, and our thoughts are with them. But markets care most about the economic impact and how it squares with sentiment. On that front, this seems like a sequel of the CARES Act’s expiration and subsequent partial extension in the US. Then, too, everyone warned calamity loomed, but retail sales and other metrics continued improving, proving the recovery didn’t rest on government assistance alone. Notwithstanding the added variable of new restrictions on some businesses in the UK (which don’t include closures this time), we don’t see reason to believe things will go markedly worse there. Plus, markets have been anticipating the furlough scheme’s end ever since the program was announced back in the spring. The surprise power here seems low, in our view.
MarketMinder’s View: When volatility strikes, many go hunting for answers—and this article rounds up several reasons why the experts are worried, from weakening high-frequency economic data to declining confidence in a speedy vaccine development. As one strategist here argues, the S&P 500’s recent selloff has corresponded with a forecasting model showing the probability of vaccinating 25 million Americans within the next six months falling from 70% at the beginning of the month to around 50% today. In our view, this reads far too much into short-term market movements. Volatility can arise for any or no reason, and corrections (sharp, sentiment-driven declines of -10% to -20%) can happen any time during a bull market. Enduring these bumpy patches is key to successful long-term investing, in our view. As for a potential vaccine, we do think forward-looking stocks are mulling a future in which society has found a way to live with the virus. Whether that is through medical science or a societal adjustment, we can’t say—but markets are already fathoming a future in which COVID-19 doesn’t dominate headlines as it does today. Regarding high-frequency data, we will note that a lot of it is unproven (in terms of its ability to size up economic trends), much of it isn’t seasonally adjusted and most gauges are extremely narrow and bouncy. Don’t overthink it.
MarketMinder’s View: According to EU financial services chief Valdis Dombrovskis, though the EU is focused on strengthening its own capital market, it isn’t shutting London out once the Brexit transition period ends this year. As of now, the UK won’t have the access it did as an EU member, but as Dombrovskis acknowledged, British-based firms could use bilateral access to reach some member states—cumbersome, yes, but they can still do business. Moreover, both sides are working on an arrangement that will allow British firms to offer investment services to EU customers. We aren’t saying this is a major breakthrough, and it won’t receive the same attention as more speculative claims of Brexit decimating business between the UK and EU. But this development further shows Brexit isn’t as dire as portrayed in headlines and likely won’t hollow out London’s robust financial sector.
MarketMinder’s View: Note: MarketMinder is politically agnostic, favoring no party or politician. Rather, our analysis focuses solely on policies’ potential market and economic impact—or lack thereof. Today the House passed a government funding bill, keeping federal agencies operating as usual through December 11. Among the notable details, “The final agreement gives the administration continued immediate authority to dole out Agriculture Department subsidies in the run-up to Election Day. House Speaker Nancy Pelosi, D-Calif., retreated from an initial draft that sparked a furor with Republicans and farm-state Democrats. Instead, in talks Tuesday, Pelosi restored a farm aid funding patch sought by the administration, which has sparked the ire of Democrats who said it plays political favorites as it gives out bailout money to farmers and ranchers.” Politicians are angling for wins to take back to their constituents—shocking, we know. With the Senate and president likely to approve, some observers are cheering the decrease in political uncertainty. Sure, we suppose kicking the can to December somewhat qualifies as removing a topic for headlines to fret over, though government shutdowns have never derailed markets before and we don’t see what is different now. Still, falling election uncertainty as this and other question marks resolve should provide a tailwind for stocks for the foreseeable future, in our view.
MarketMinder’s View: Despite the hyperbolic headline, this article nicely illustrates why the UK’s renewed COVID restrictions probably won’t derail the UK economy or markets. As argued here, “A Second Wave has probably been ‘priced in’ to the economy for some time, since it was always very likely that the attempt to suppress transmission of the virus would lead to a further phase of spread once suppression measures were relaxed. Firms, investors and consumers must always have known and anticipated that and their economic behaviour and plans will have reflected it.” Now, time will tell whether the second round of restrictions—and potential extension of government aid—is delaying an “economic reckoning.” In our view, reopening progress is the critical component in an economic recovery, and if that stalls out or reverses, certain industries will suffer acutely. However, implementing or withdrawing COVID rules is a political decision, which we don’t think can be forecast. Moreover, the second half of this article nicely captures where expectations are right now: The second period of restrictions may not roil the economy as the first lockdown did, though people’s personal frustration will likely be higher. Whether the latter comes true or not, sentiment is pretty dour these days—and from an investing perspective, that is bullish, in our view. For more on how Europe’s second-wave lockdowns do and don’t impact markets, please see yesterday’s commentary, “Avoid Leaping to Conclusions on Europe’s Renewed Restrictions.”
MarketMinder’s View: First, note: We believe investors’ asset allocation depends on their personal investment goals, objectives, time horizon and unique circumstances. We aren’t advocating for or arguing against the titular 60/40 portfolio—i.e., a portfolio with a 60% equity weighting and 40% fixed income weighting. Rather, we highlight this article as a reflection of how low expectations are today. A snippet: “With stocks and government bonds at historically high valuations, savers are being forced to seek out alternatives, potentially creating a boon for other asset classes but also pitching long-term investors into uncharted territory. A ‘nuclear winter’ beckons for the 60/40 portfolio in the 2020s, said Vincent Deluard, global macro strategist at StoneX Group, who predicts inflation-adjusted returns could be just a fraction of the 8.1 per cent enjoyed in the past decade.” We don’t have a crystal ball into what the market will do over the next 10 years, and it is entirely possible stocks and bonds deliver lower returns relative to their historical average, but that isn’t knowable today. There are simply too many unknown variables. However, predictions of lower long-term returns aren’t exactly new. They were commonplace over last decade-long bull market, a period in which global equities enjoyed both big years and not-so-big years—but still delivered growth overall. Rather than get caught up in specific numbers, consider what you need your portfolio to provide and what options investment options you have. In our view, global stocks are still an essential component for any growth-oriented portfolio due to their growth prospects and liquidity compared to other asset classes, while fixed income holdings’ primary purpose is to dampen the short-term volatility associated with stocks. While rising interest rates are a valid risk for investors to consider on the latter front, there are ways to manage around this, including shortening duration to reduce a fixed income portfolio’s interest rate sensitivity and emphasizing corporate bonds, which can benefit relative to Treasury bonds if credit spreads narrow while interest rates rise.
MarketMinder’s View: A long-awaited switch from the London Interbank Offered Rate (LIBOR)—the average rate banks pay to borrow from each other in the short term—is underway. With financial contracts and derivatives nominally worth an estimated $200 trillion based on LIBOR, the shift has been careful and painstaking. This article shares some of the details: “The International Swaps and Derivatives Association, or ISDA, the global trade group for the industry, said plans to transition from the benchmark are awaiting sign-off from the U.S. Justice Department and global competition authorities, and could become effective in the second half of January.” The key here is a protocol that amends existing LIBOR-using contracts, allowing them to fall back onto replacement benchmarks. Whether officials adopt the protocol remains to be seen, but all the attention and discussion today undercut underlying fears of an abrupt switch causing financial havoc and a crisis. Keep in mind: The UK Financial Conduct Authority announced the 2021 LIBOR phase-out back in 2017. Folks with LIBOR contracts are well aware of the transition, its ramifications and alternatives—little is likely to sneak up on markets here.
MarketMinder’s View: “Data firm IHS Markit said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, slipped to a reading of 54.4 this month from 54.6 in August. A reading above 50 indicates growth in private sector output.” The article implies the -0.2 percentage point headline dip spells a waning economic recovery, but because purchasing managers’ indexes measure only growth’s breadth, not its magnitude, we think that is a bridge too far. Rather, as IHS Markit’s press release notes, a solid majority of firms’ business expansion points to “signs that the economy will have enjoyed a solid rebound in the third quarter after the second quarter slump.” Meanwhile, this article also reports strong housing activity in July—attributed to low mortgage rates and COVID-driven migration—though an economist here dismisses the development as a one-off surge. In our view, the negative spin on fine economic readings highlights widespread Pessimism of Disbelief, which lowers expectations and allows stocks to keep climbing the proverbial wall of worry. Also important to note: Even if growth slows in the coming months, bull markets don’t require a gangbusters recovery to continue.
MarketMinder’s View: Note: MarketMinder is politically agnostic, preferring no ideology, party or politician in any country. Rather, we monitor political developments purely for their potential economic and market impact. Italy’s recent regional elections strengthened the hand of the current governing coalition—comprised mainly of the establishment Democratic Party and anti-establishment 5 Star Movement. Some experts argue this is a positive development since it decreases the likelihood euroskeptic groups like the nationalist League push for early elections—thereby reducing political uncertainty. The evidence: Italy’s 10-year sovereign debt yield dipped to its lowest level since October 2019. We wouldn’t read a ton into one day’s bond price wiggle, and in our view, fears of anti-euro populist parties entering government have long been overstated. That said, markets do prefer less uncertainty, and the current government in power—whose members may have more differences than similarities—isn’t likely to enact much major legislative change. In our view, more Italian political gridlock for the foreseeable future is a positive for markets. One side item of note: The Democratic Party had to adopt 5 Star’s push to reduce the parliamentary ranks by one-third via referendum that came with this vote. That they did so is another sign this government may be as shaky as many presumed earlier. (The referendum passed, too.)
MarketMinder’s View: This article cites several surging shipping activity metrics—retailer inventories, cargo container imports, rail freight levels and trucking activity—in arguing the US economy is getting a much-needed boost from goods-producing (and shipping) industries. “Ports are seeing a flood of container imports while railroads and trucks rush those goods—as well as domestically produced merchandise and materials—to distribution points. The surge in activity has its roots in the shutdown of the economy that left businesses reliant on inventories, which are now extremely lean as demand accelerates. … At the Port of Los Angeles, the biggest U.S. container port, imports of 20-foot equivalent units climbed to an all-time high of 516,286 in August. With economies around the world stirring to life and looking to restock, shipping costs have accelerated and, by one measure, are the highest in eight years.” Since the US economy is predominantly services, we wouldn’t overstate the impact of a rebound in shipping or producing manufactured goods. Rather we would treat these data as a reflection of gradually loosening COVID restrictions’ releasing pent-up demand—good, but backward-looking, news likely already reflected in stock prices.
MarketMinder’s View: A few quibbles up front: Households’ debt dynamics aren’t comparable with governments’, in our view, as the latter’s earning years are essentially unlimited. Nor do we think higher interest payments necessarily “mean higher taxes, less money to spend on everything else, and slower economic growth.” Tax changes are a political question, which can’t be forecast, in our view. Finally, even if the government decides to hike taxes in the near future, that won’t inevitably lead to long-term “economic scarring.” History has shown vast fluctuations in both the rates and forms of taxation, yet companies and individuals adapt. On the positive side, this piece correctly notes the UK’s debt is presently affordable despite recent spending increases. “To judge from the debt markets, one would never know that [UK government] borrowing had soared. The Debt Management Office has been put through its paces, issuing record levels of bonds and bills to bring in the cash. Despite this demand for funds, interest rates are at rock bottom. The Government can borrow for short maturities at negative rates, with investors paying for the privilege of lending to the Treasury.” For more, see our 8/26/2020 commentary, “Why High Debt Doesn’t Imperil Growth.”
MarketMinder’s View: This succinct article contains both sobering statistics about COVID-related fraud—which, though waning, remains common—and a couple good rules of thumb for how to avoid being victimized. Per the Financial Trade Commission (FTC), “Consumers have filed more than 205,000 reports of fraud linked to the coronavirus since the beginning of the year … . Scammers have used multiple avenues to steal money from unsuspecting Americans, including crimes around financial relief like stimulus checks and unemployment benefits, fake treatments for Covid-19 and fraudulent charities.” Preying on emotions during stressful times for many is unfortunately highly effective, but there are simple countermeasures. As the consumer advocate quoted here notes, “Do your research and ask yourself if that website, email, text, direct message or call is legit. Be wary of handing over your money or personal information.” Indeed—and if it sounds too good to be true or threatens urgent-sounding penalties for not acting upon instructions, skepticism is warranted. For more, please see our 4/17/2020 commentary, “Tips on Protecting Yourself From Coronavirus Ne’er-Do-Wells.”
MarketMinder’s View: Japan’s opaque tax system has long discouraged foreign financial institutions from expanding in the country, and it appears new Prime Minister Yoshihide Suga aims to improve this—or at least have his government study different avenues to improvement. For example, many foreign professionals are wary of living in Japan due to the onerous inheritance tax. “When a foreigner who has lived in Japan for a certain period of time dies, his or her overseas assets are also subject to inheritance tax, so it is commonly said among wealthy foreigners that one should ‘never die in Japan,’ and many balk at coming here to live.” Among other topics to be reviewed: how to tax overseas assets, improving English-language support and how to boost Japan’s status as a financial center. The key word, though, is study—nothing here is certain to come to fruition. While the Suga administration’s desire to improve Japan’s global economic competitiveness is noteworthy, we suggest investors watch out for actions and actual policy, not just words.
MarketMinder’s View: Note: MarketMinder doesn’t make individual security recommendations; the companies mentioned herein represent a broader theme we wish to highlight. That theme: Trade metrics worldwide are bouncing back following the COVID-driven economic shutdown, a positive development given the myriad worries about global commerce (e.g., the US-China trade tiff). Some examples: According to the Kiel Institute for the World Economy, global trade has already regained half of its losses in June. IHS Markit has reported 14 of 38 economies reported growing export orders in August compared to just 4 economies in June. Moreover, businesses in export-heavy economies like China, South Korea and Germany suggest easing restrictions have allowed pent-up demand to find a release, with some exporters even reporting a resumption in hiring. Though these data are backward-looking, we think they are more evidence that allowing businesses to reopen and operate provides a much bigger economic boost than any government-related “stimulus” measure.
MarketMinder’s View: According to this piece, the US economic recovery will be a long slog. The evidence: Several economic and market datasets—as tracked by the “Back-to-Normal Index” cited here—have stalled recently, an allegedly worrisome sign. However, we believe it is important for investors to dig beyond the headline number, and upon our review, many of the index’s subcomponents reflect what just happened recently—not terribly helpful for investors wondering where stocks are headed next. For example, of the index’s 44 underlying indicators, several track unemployment, which is notoriously backward-looking. Economic recoveries often begin when unemployment is high—and jobs generally don’t start improving until well after the economy has resumed growing. We agree the data show the economy isn’t “back to normal” yet, but bull markets don’t wait for normal to begin. In our view, that folks focus on the economy’s struggle to return to pre-pandemic levels strikes us as another example of the Pessimism of Disbelief—investors’ and pundits’ tendency in a new bull market to twist good news into bad—reason to be bullish in our view.