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: 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.”
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.
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.
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.)
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.
MarketMinder’s View: While this piece does an ok job explaining all the various ways you could invest in gold, the rationales it claims for why you should invest in gold fall far short of the mark, in our view. It argues gold is a safe haven from economic troubles and equity market volatility, a hedge against inflation and attractive when interest rates are low. The trouble with this? It fails to explore whether historical data or logic actually prove these claims. As we have written on these pages many times, gold is historically more volatile than stocks (with lower returns to boot), which is an odd trait for a “safe haven.” It hasn’t reliably demonstrated a tendency to rise through the six equity bear markets since it became legal for US investors to own it in 1974. While it rose during the hotly inflationary mid-to-late 1970s, it fell precipitously thereafter, while prices kept rising (albeit at a slower rate). Further, if inflation is running hot, interest rates will likely be high and rising, which contradicts the claim that gold is attractive when rates are low. You can’t have it both ways.
MarketMinder’s View: It is entirely conceivable that, as this piece argues, the dialing up of restrictions on economic activity (particularly on the eurozone’s dominant services sector) will cause economic output to fall in Q4. Actually, the consensus forecast of 13 economists tracked by FactSet show an expected -2.3% q/q contraction in Q4 2020. This highlights a basic, yet ultra-relevant point for investors to remember: Surprises move markets most. March’s lockdowns were such a surprise. Today’s are far from one, in our view. We think this is why markets have continued to climb despite renewed lockdowns and sharply rising coronavirus cases, hospitalizations and deaths. Simply put: Markets anticipated a fall and winter resurgence months ago, when investors were first looking at this probability. They are looking far beyond today to a brighter time when reopening is a fait accompli. So whether we get another contraction or no, and whether the Centre for Economic Policy Research (the official body that dates eurozone recessions) labels it a double-dip recession or part of the recession that began in Q1 2020 isn’t all that relevant to markets now.
MarketMinder’s View: This is understandably unpleasant to think about, but having a will is critical for all those you leave behind. “Without instructions on how you want to distribute your assets, you may leave a legacy of chaos. In the worst cases, relationships are forever fractured, because you didn’t take the time to prepare for your death.” Yet many, many people don’t take the time to do this, and the headline refers to one high-profile recent example. It also illustrates why it is crucial not to wait until you are older or in failing health to get your affairs in order: Tony Hsieh was young and reportedly in excellent health, but that doesn’t stop tragedy from striking when you least expect it. This article details the steps to take and some important resources to prepare in addition to your will, including a book with your advanced directives, passwords, financial information and other key details.
MarketMinder’s View: The answer, in short, is yourself—if and only if you are doing critical analysis of all the opinions you read. This article explains three sanity checks you can perform. First: Are they confusing coincidence with causation? “Since 1928, whenever the S&P 500 Index has risen in the three months prior to a presidential election, the party that controlled the White House won 90% of the time. … The problem with this indicator is that both variables occur quite frequently: Markets tend to go up most of the time, about three out of every four years, and incumbent presidents tend to win re-election – 33 out of 44 prior to Trump. If both of these outcomes occur about 75% of the time, it is more likely that their simultaneous occurrence is coincidental and not predictive.” Second: Are they overemphasizing luck rather than skill? When assessing the views of an expert who got one or two big calls correct in the past, it is important to test whether their process is sound. That gives you at least a loose idea of whether or not their success is likely to be repeated. Third: Are they considering the counterfactual? Meaning, if they think X led to Y, are they thinking critically about what would have happened without X? No experiment is scientifically valid without a control group, after all.
MarketMinder’s View: We don’t have a position for or against any of these suggestions and, as always, are agnostic on political parties and politicians. But the simple fact that calls for big stimulus if December expires without the UK and EU signing a post-Brexit trade deal—bringing the widely feared no-deal Brexit to reality—illustrates how depressed sentiment remains about this potential outcome. In our view, this shows the wall of worry for stocks to climb remains sky high, with very, very little likelihood of a hugely negative outcome stocks haven’t already considered and incorporated into prices. Keep that in mind as talks go down to the wire these next few days.
MarketMinder’s View: We don’t think stocks depend on another COVID assistance package from Congress, but for those curious about what is inside the deal presently in the works, this has a good rundown of the likely provisions. In our view, the most noteworthy consideration is that, like the CARES Act, none of this stuff is traditional stimulus—it isn’t spending and investment on new projects to force new economic activity, with a multiplier effect rippling activity out from the initial spend. It is mostly transfer payments and general assistance, which we would place in the general “bailout” category—no doubt an immense help for households and businesses in need. But it is a replacement for lost income and revenue, not new demand created out of thin air. So while we are optimistic about stocks and the economy’s ability to recover from lockdowns, this isn’t why. It is a cushion, not a rocket boost.
MarketMinder’s View: The rule in question is the implementation of a small provision of 2017’s Tax Cuts and Jobs Act, which basically created a version of the alternative minimum tax for US-based multinationals who paid relatively little in foreign taxes on profits earned outside the US. The legislation accidentally ensnared companies that were already paying a lot, so the Treasury adjusted the rules to be more in keeping with the law’s intent, including the one that the incoming administration is now reportedly considering repealing: “Generally, under the rule, companies with foreign taxes exceeding 18.9% can now choose to stay out of the GILTI tax regime. The actual calculations can be complex. The Treasury Department issued the final high-tax-exception rule in July and made it retroactive to the beginning of 2018, a feature that companies sought. But the rule also limits how companies can calculate subsidiaries’ tax rates.” A handful of companies did benefit from this, and repealing it would create winners and losers, but its reach is very narrow. As the article reports, 30 companies declared $300 million in tax savings related to this rule over the past two years, which is a fraction of a drop in the bucket. If you have to look this hard for negatives on the tax front, then that seems like a good indication of an overall benign backdrop, in our view.
MarketMinder’s View: This is a good discussion of the risks inherent in swanky investment clubs, which usually feature professional athletes and other high-profile participants while offering access to private placements—a double dose of cachet that, thanks to a host of cultural biases, implies the potential for high returns. But all of that sparkle hides some key risks: “First, there is the risk inherent in every club deal — that a single, concentrated investment could go to zero. There is also the special risk that the access created by professional athletes could cloud the selection of deals, or that pools of wealthy individuals might not see the best deals to begin with.” In many cases, the associated athletes and celebrities also serve in a marketing capacity, making it important for the lay investors “to understand whether the person promoting something is doing it for quick financial gain or has a deep expertise in the investment.” We would add that liquidity and fees are another key concern. More broadly, remember that investing is a long journey, and reaping quick riches isn’t necessary for success—nor is the risk required for that commensurate with most investors’ long-term goals. You don’t need fancy, illiquid investments in order to achieve long-term growth. Market-like returns compound much more over time than you might think.
MarketMinder’s View: While most headlines dwell on the latest stalemate in the UK and EU’s Brexit talks, the UK keeps taking small steps toward solidifying post-Brexit global trade ties. The latest deal, with Switzerland, preserves free business travel, which sounds small but means a lot for finance, pharmaceutical development and physics. Both sides see it as a stepping stone to a larger free trade deal that broadens trade in services, which would be a big win for all involved. More broadly, this is yet more evidence that the UK won’t turn completely inward if 2020 ends without a post-Brexit EU trade deal. It will still be a thriving global economic participant.
MarketMinder’s View: This is an even-handed, detailed look at an overall unsurprising November employment report. Hiring slowed, but a reduction in temporary census workers skewed the number down considerable—the private sector’s 344,000 new jobs are more indicative of the broader economy’s health, in our view, than the headline nonfarm payroll gain of only 245,000. Once again, people misclassifying themselves as employed but absent while furloughed due to the pandemic made the unemployment rate look a bit better than it probably is, and as the pandemic grew one month older, the ranks of long-term unemployed people swelled some. A lot of these numbers represent real hardship for people, and we don’t dismiss that pain—especially this time of year. In the near term, it also seems likely things will worsen a bit as several states tighten restrictions on activity. For stocks, however, none of this is news. Jobs data are backward-looking. Stocks look forward—not just to tomorrow, but to the next 3 – 30 months. What matters most to stocks, therefore, is how the economy bounces back from the pandemic by the far end of that range, not the hit it takes in the short term. Given the abundant second wave chatter, we think stocks have probably already dealt with whatever unemployment figures show now or in the next few months.
MarketMinder’s View: Wait, weren’t President Trump’s tariffs on China—and China’s retaliatory tariffs on US goods—supposed to wreck bilateral trade? Yet here we are, in the middle of a pandemic, and this happens: “U.S. goods exports to China rose to a record $14.72 billion in October from $11.54 billion in September and surpassing the previous high of $13.63 billion set in December 2017. Imports from China rose to $44.83 billion from $41.21 billion, hitting the highest level since December 2018.” The more time passes, in our view, the more it becomes clear tariffs just weren’t the economic negative so many argued they were. As we pointed out repeatedly, they were just too small and too easily dodged. Beyond that, we think recovering Chinese demand offers a preview of what the US and other developed nations can expect as the pandemic eventually fades—activity can bounce back a lot quicker than you might think. Chinese data have shown this for a while, but those figures often attract skepticism due to some well-documented accuracy issues. US data on trade with China are less shaky, making them a good indicator, and they point positively.
MarketMinder’s View: This informative piece documents US companies’ record-high $2.1 trillion cash stockpile and dreams about what companies can do with all that cash. Options include more stock buybacks, dividends, investment and mergers & acquisitions, which are all possible. But based on recent history, we wouldn’t expect some huge bonanza of corporate spending and investment, as high corporate cash balances aren’t some sudden anomaly. Companies have been hoarding cash since the global financial crisis, which we think speaks to their desire to have large buffers against bad times. In our view, that is the main significance of this news: Companies were able to navigate the pandemic without drawing down on these buffers and significantly weakening their balance sheets. Even some travel companies, as this piece documents, were able to shore up their position a bit. That is overall good news for investors, in our view, as it speaks to corporate America’s underlying strength. As for all the stuff at the end of this article about what corporate cash hoarding means for bond issuance and interest rates, we find that speculative and not actionable. It also isn’t necessarily correct, considering corporate bond issuance rose alongside balance sheets throughout the last decade.
MarketMinder’s View: This piece argues stocks are at risk of getting too far out over their skis, with allegedly over-optimistic 2022 earnings forecasts the primary evidence: “Markets are baking in not just a ‘V-shaped’ rebound next year but also a consumer-led boom in 2022.” We award this article a point for recognizing stocks are looking ahead to the next year or two—a refreshing contrast to pessimistic market analyses based on backward-looking rationale. The hypothesis could even be correct, and euphoria is one thing to watch for. However, in our view, it isn’t a reason to be bearish today, and euphoria in and of itself doesn’t mean a peak is nigh. Markets move most on probabilities, not possibilities, and we don’t think it is possible today to assign probabilities to 2022 earnings forecasts proving correct. If they are wildly off the mark, there should be time to size that up. The fact that forecasts are above recent earnings growth rates, on its own, isn’t sufficient for a bearish stance. Earnings don’t revert to the mean, and forecasts could easily prove too pessimistic, rather than too optimistic, depending on how financial and economic conditions evolve over the next several months.
MarketMinder’s View: First the numbers: The Institute for Supply Management (ISM) reported its November services purchasing managers’ index (PMI) logged 55.9—a sign of expansion in industries across America’s largest sector. Moreover, the new orders subindex hit 57.2, signaling near-term growth is likely. However, most of this analysis understandably frets over a potential slowdown due to renewed COVID restrictions across the US. We acknowledge growth may slow—restrictions weigh on economic activity by design, and the services sector will probably take a disproportionate hit. But from an investing perspective, stocks aren’t destined to suffer. Surprises move stock prices most, and markets have had months to digest the multitude of estimates, warnings and forecasts about a late-year COVID wave and restrictions—sapping shock potential. It is possible COVID lockdowns turn materially worse and panic markets anew, but that scenario doesn’t look probable right now, in our view. Europe has already provided a preview of what we can expect in the US following new lockdowns, and while reality is by no means wonderful, it is also better than many feared. For more, see our 11/23/2020 commentary, “Lighter Lockdowns, Lighter Economic Impact (at Least for Now).”
MarketMinder’s View: We found this analysis mixed, especially since it reads a lot into the Australian dollar’s movement since late March—arguing its ascent means Australia and China’s recent political brouhaha is overblown. Yes, the Australian dollar rose relative to the US dollar since late March—but so did the euro and sterling. This isn’t so surprising since US Treasury bonds are investors’ preferred “safe haven,” so we expected some unwinding (and corresponding dollar weakness) following 2020’s early turbulence. We suggest investors refrain from treating currency markets as more prescient than other similarly liquid markets—they aren’t privy to special information. That aside, this article provides some useful numbers to help scale Australia and China’s trade tiff. When combining the trade that is still happening (e.g., iron ore, coal, education and tourism), “… they represent roughly $100 billion in exports, far more than the $15 billion or so on China’s target list of banned goods, including $792 million of wine. Even there, the damage is unlikely to be lasting. The list, after all, is unofficial, and Chinese customs agents have already started letting some coal cargoes through.” As was the case with US – China trade tensions, put aside the rhetoric and bombast and look at the actions. While escalation is always possible, words alone don’t dent global commerce.