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: Here is an interesting piece that, contrary to today’s zeitgeist, cites the originator of the “4% rule” as saying a higher withdrawal rate may be equally sustainable today. For those unfamiliar, the 4% rule states that you can withdrawal 4% of your initial portfolio value, adjust over time for inflation, without depleting your assets. Many argue this concept is dead because today’s ultra-low bond yields mean long-term returns will be too weak to sustain withdrawals of this amount. This article promotes that viewpoint of returns, yet it notes: “‘But people have to keep in mind that inflation is equally important as returns in this analysis. And that when you have a low inflation environment, your withdrawals are also going up much more slowly.’” This is a valid, and not often shared, consideration. Now, we think investors must also consider that the 4% rule is only a rule of thumb. Your personal circumstances and time horizon should be the key to determining a withdrawal rate. It is also sensible to keep in mind that your cost of living may not reflect national inflation rates, which are based on a basket of goods purchased economy-wide. For more, see our 10/7/2020 commentary, “A Mindset Shift for a Low-Yield World.”
MarketMinder’s View: As European COVID infection rates pick up, we have been closely watching governments’ responses. After UK Prime Minister Boris Johnson announced a three-tier COVID restriction system for England, on Monday, Welsh officials announced it would impose “a two-week ‘fire-break’ lockdown from Friday in which everybody apart from essential workers must stay at home. … All non-essential retail, leisure, hospitality and tourist businesses will have to close in Wales, as will places of worship. Most children apart from some older students will return to school in the second week after the half-term holiday.” Though officials haven’t resorted to the sweeping lockdowns from earlier this year, an escalation is always possible—though any political decision is unpredictable. We will continue monitoring governments’ COVID policies should things change.
MarketMinder’s View: On Monday, the US and Brazil reached a limited trade deal agreement, and though details are scant, the deal “focuses on trade facilitation, or aligning the methods the two governments use to process goods passing over their borders, with the aim of making it easier for companies to trade between the countries. It will also reduce regulatory barriers to trade and strengthen rules to root out corruption.” Politicians on both sides are claiming a big victory, and while we agree making it easier to trade is a positive, don’t overstate the benefits, either: The winners here are limited largely to select sectors (e.g., agriculture). Moreover we caution against overestimating the economic impact on trade given the limited scope of US-Brazilian commerce—as of 2019, just 2.6% of total US goods exports went to Brazil, while Brazilian goods accounted for 1.2% of total US imports (per FactSet). Nevertheless, we think this development along with the Trump administration’s other limited trade deals undercut the common concern of rampant protectionism stemming from the US.
MarketMinder’s View: For those who view their art as part of their investment portfolio, this piece shares some helpful pointers many don’t consider. For example, art isn’t a liquid asset, meaning it isn’t easy to sell quickly. That can present a problem if you find you need cash in a jiffy. Moreover, holding art as an investment comes with little-noticed costs including conservation, insurance and storage and appraisals—all of which can add up over time. Finally, one other consideration shared here: “Collectors and their families also take a big risk if they assume that estate taxes and administration fees can be covered by selling the art. During a recession, or if the market for a particular style or artist is depressed, sale proceeds might fall well short of expectations.” In our view, art is better suited for personal enjoyment than as a key component to an investment portfolio for most people.
MarketMinder’s View: Before reading this, please note that MarketMinder favors no political party nor any candidate. This piece covers a lot of ground, and we have some quibbles. For example, in our view, the Fed’s actions aren’t responsible for the bull market. We also think it makes sense to adjust your portfolio if you have strong evidence others don’t see that a bear market is likely forming. That said, we also think this article shares some helpful perspective on stocks’ ability to rise in the face of bad news as well as presidential elections’ market impact—or lack thereof. As noted here, “Presidents are powerful, but they don’t control the market. … With all the factors affecting the staggeringly complex markets and the overall economy, presidencies don’t matter as much as it may seem in campaign season.” The article then runs through several common arguments making the case for why a Biden or Trump presidency would be good or bad for markets, which inadvertently illustrates a broader reality: “The more important point is that stock markets have risen and fallen under both Democratic and Republican presidents — and more often than not, they’ve risen.” We agree. Though politics certainly impacts markets, what matters more is policies, not personalities—and for investors, focusing on the former can help tune out the noise related to the latter. Remember this as election chatter reaches fever pitch in the coming weeks.
MarketMinder’s View: For a bit of positive global economic news to start your week: China’s Q3 GDP rose 4.9% y/y. Though growth fell short of expectations, Chinese GDP is now up 0.7% through the first nine months of 2020—recovering lost output from its COVID-driven national lockdown. Looking under the hood, the recovery appears broad-based, with growth in consumer spending and the services sector picking up. Q3 GDP is consistent with other recent datasets, including growthy purchasing managers’ indexes and positive readings for September exports and imports. While nothing here tells us about the future, growth in the world’s second-largest economy is a positive for the global economy, adding to demand for goods and services.
MarketMinder’s View: We aren’t about to quibble with any of these economic forecasts for the UK, as they all hinge on whether the recent local COVID restrictions snowball into a nationwide lockdown—except to say that the impact is actually impossible to forecast, as these are political decisions. However, we think this is a handy point to keep in mind: “Philip Shaw at Investec said the economy was not likely to shrink in the final quarter of the year as a whole, because even flatlining GDP at September’s level would leave the nation in a better position than it was in the early days of the third quarter when restrictions were only starting to lift.” Mathematically, this is true: If GDP flatlines in October, November and December, it would still register as quarter-over-quarter growth due to the depressed base effect from July and, to a lesser extent, August. In our view, this illustrates GDP’s backward-looking skew, which is why it isn’t predictive for stocks. It is nice of the ONS to release monthly GDP so we can more quickly see changing trends, but that is more a plus for data geeks like us than investors trying to assess what markets will price in over the next 3 – 30 months. Whatever GDP shows this autumn, stocks will have already lived through and priced in. To say otherwise is to say markets aren’t at all efficient, which we think is always and everywhere a grave error.
MarketMinder’s View: Social Security can be hard to navigate regardless of your personal situation, but there are a lot of unique provisions (and frequently forgotten benefits) for those whose spouse has passed away or those who have been divorced. If either applies to you, we suspect you will find this piece helpful, as it details the ins and outs.
MarketMinder’s View: This spends a lot of time editorializing against fund managers, and we prefer to stay above the fray. But it also includes some data debunking the widespread thesis that stocks’ rally this summer stemmed not from markets’ rationally pricing in a better future 3 – 30 months ahead, but from uninformed speculators using apps like Robinhood and creating a bubble. As always, MarketMinder doesn’t make individual security recommendations, and we pull this text solely because it illustrates the main point: “Let’s look at Zoom Video Communications Inc., the teleconferencing company whose stock is up more than 660% so far this year. Given the popularity of its service and the stock’s scorching performance, you might expect Zoom is a darling among individual investors and traders. Yet, on the Robinhood app used by millions of individual traders, Zoom was only the 49th widest-owned stock this week, according to the online broker’s tally of most-popular holdings. In fact, of the 25 stocks with market values above $10 billion that have the hottest returns so far this year, only two— Moderna Inc. and Peloton Interactive Inc. —are among the 25 most-popular stocks on Robinhood. They are up more than 288% and 375%, respectively, in 2020.” Anecdotal, yes, but illustrative all the same.
MarketMinder’s View: This piece does a good job of cutting through the latest Brexit bluster, which has the world fearing a no-deal Brexit once again after UK Prime Minister Boris Johnson told his country to prepare for that outcome. As it explains, this is just more of the same brinksmanship we have seen throughout the Brexit talks, albeit more hyperbolic. “What mattered in Johnson’s BBC interview is what he didn’t say: After warning two weeks ago that he would walk away from the long-running trade talks if no progress had been made before the EU summit, Johnson is, in fact, ready to keep talking despite the absence of progress. His intended threat of a no-deal Brexit came with the caveat, repeated three times in the six-minute interview, that it would only happen ‘unless some fundamental change of approach’ is perceptible on the EU side. The EU, for its part, had urged the U.K. to keep talking, and instructed its key negotiator Michel Barnier to keep doing what he has been doing for months. And Barnier said indeed that he would be in London next week to do just that, in a meeting with his counterpart, the U.K. Brexit negotiator David Frost.” As always, watch what politicians do, not what they say.
MarketMinder’s View: Based on data from Chase showing unemployed people’s checking account balances this year, this article argues falling account balances in the wake of the CARES Act’s expiration means people have burned through extra unemployment assistance saved earlier in the year, teeing up problems for consumer spending in the coming months. We won’t argue the expiration of the extra $600 in weekly benefits from the federal government had no impact on individual households, and the subsequent partial replacement may still force some people to budget very carefully. That is a difficult situation for anyone, and we are empathetic. However, extrapolating this to broad economic troubles seems like a stretch. The data include “Chase customers who receive direct-deposited unemployment benefits in every week of July and August, 2020, while the employed group is never observed receiving direct-deposited benefits in 2020.” (See their official publication if you want the full details.) The problem with this is that it ignores the nearly 11 million people who lost—and then regained—jobs during and after the pandemic. Portraying 80,000 unemployed customers of one bank as emblematic of society as a whole just isn’t an accurate way to view the economic impact, in our view.
MarketMinder’s View: Negative economic data tend to grab the most eyeballs and drive the majority of financial news analysis (e.g., why still historically high weekly jobless claims is troubling for the economy). However, good news is out there, too, even if it doesn’t get top billing. “New business formations of any size hit 1.5 million in the third quarter, up 77% from the previous three months and 82% from a year earlier, according to the U.S. Census Bureau, which collects and publishes the IRS data. … The South had more of these likely employers file than any other region in the third quarter, up by 79% with more than 236,000 applications. The Northeast, which had lagged in filings earlier this year, rebounded with the biggest percentage gain, up 97% with almost 85,000 filings.” In our view, this is a testament to individuals’ creativity and resiliency during an unprecedented and tough year—emblematic of the capitalistic spirit that drives economic recoveries. When pundits warn economic growth has entered a new (usually weaker) normal, keep stories like this one in mind. Nothing here is predictive for stocks, mind you, but it is one bit of evidence that sentiment might be a mite too dour.
MarketMinder’s View: This argument posits that with stocks looking expensive and the 10-year Treasury yield at 0.72%, investors should consider building up cash reserves to buttress their portfolio in case of potential market turbulence ahead. We see a couple of flaws with this approach. One, valuations aren’t predictive, and at best, they reveal sentiment. The cyclically adjusted price-to-earnings ratio (CAPE) cited here doesn’t even do that since it reflects data from the past 10 years—not relevant to forward-looking stocks, in our view. Other valuations are near-useless because the recession is wrecking the denominator while forward-looking stocks have already recovered (not atypical of a young bull market). As for Treasury yields, yes, they are historically low. Yet this doesn’t fundamentally alter what we think fixed income’s primary role in a portfolio is: to dampen the short-term volatility associated with owning stocks. Note, that is different from being a safety blanket during a bear market—bonds’ purpose is perpetual and doesn’t depend on a market outlook, but rather, your long-term goals and cash flow needs and whether they necessitate having a less bouncy portfolio. However, the market outlook can influence your positioning within fixed income, and if you expect interest rates to rise, then shortening duration or boosting your exposure to corporate bonds can be more beneficial than simply owning long-term Treasurys. If, and this is merely an if, interest rates were to go deeply negative, we could see a case for employing cash instead. But that is a heckuva “if.” If and when the time comes to go defensive in the equity portion of your portfolio because you believe a bear market is forming—for identifiable fundamental reasons that aren’t widely discussed and are probable, not merely possible—then cash may prove more beneficial than bonds, but that depends on a host of variables at that time, and guessing about it now is premature. For more, see our 10/7/2020 commentary, “A Mindset Shift for a Low-Yield World.”
MarketMinder’s View: As always, MarketMinder doesn’t make individual security recommendations, and we highlight this solely for the long-running trade dispute involving two companies. While the titular offer according to the always-mysterious “sources” might sound like a meaningful breakthrough in the long-running US-EU spat over aerospace subsidies, reality is a bit messier. As noted here, the United States Trade Representative (USTR) proposed to settle the dispute and drop tariffs on certain European goods so long as Airbus pays back subsidies, which could total up to $10 billion. But repaying subsidies is a thorny political issue, and the EU is unlikely to accept the proposal—which one official quoted here called “insulting”—as is. Moreover, we don’t think it is a coincidence the USTR made its offer days before the WTO authorized Brussels to impose counter-tariffs on US goods due to subsidies to American aerospace firm Boeing. In our view, this jostling strikes us as typical negotiating tactics, and the sharp public rhetoric won’t necessarily prevent both sides from reaching a resolution. But as we commented in our Headlines section Tuesday, even if both sides can’t arrive at a compromise, raising tariffs on several billion dollars’ worth of goods won’t materially affect either the US or EU economy, respectively. Plus, as the article notes, this spat is now 16 years old, likely bereft of surprise power.
MarketMinder’s View: Though the presidential election will dominate headlines for at least the next several weeks, we can also see concerns about jobless benefits expiring at year-end getting some traction, too—particularly with congressional candidates campaigning on it. This comprehensive rundown goes through some of the programs set to expire, the estimated number of people impacted and what the latest progress (or lack thereof) in Congress is. It also paints a bleak picture, arguing a failure to pass a new relief package will hurt millions of Americans, delaying the economic recovery. We have a couple of takeaways from this article. First, while we don’t diminish the struggle of millions of households during this COVID-driven recession, the notion the government alone is supporting the economy seems overstated. Consider: Several notable CARES Act unemployment benefits expired at July’s end—and some were only partially replaced in August—yet the latest data show personal consumption didn’t plunge. People find ways to adapt and persevere during tough times, and most won’t roll over if some government assistance ends. Second, this piece also shows the political calculus behind the negotiations. “As it stands, an updated version of the Democratic-backed Heroes Act, which passed the House earlier this month, would only extend the provisions until Jan. 31 — weeks into a new presidential term and new session of Congress. That would still give a new Congress little wiggle room to extend the benefits before they expire. The presidential inauguration is scheduled for Jan. 20, 2021, giving a new Congress a few weeks to hammer out another deal.” Said another way, politicians can find ways to push back deadlines as they find necessary, so view most warnings time is about to run out with some skepticism.
MarketMinder’s View: Please note, MarketMinder’s commentary is politically agnostic by design. We aren’t for or against any politician, political party or policy (e.g., Brexit)—rather, our focus is on the potential economic and market impact. While the second half of this article veers into long-term speculation that isn’t terribly useful for investors—like Europe’s seemingly dire economic prospects over the next decade—we think it also offers some interesting insight into one of the hang-ups in a UK-EU trade deal: fishing rights. Rather than presenting a united front, EU member-states disagree in negotiating strategy. “Ministers from several EU states cajoled France and the coalition of fishing states to give ground at a meeting in Brussels this week. Michel Barnier has been pleading for more negotiating leeway from his masters to break the impasse, so far to no avail.” Economically speaking, a compromise seems to make sense, given, “Britain no longer has a fishing fleet large enough to trawl its own waters. Most of the North Sea catch caught by boats of all nationalities and processed in Grimsby is exported to the EU.” However, political developments are unpredictable, which is why we recommend investors focus on actions rather than words. Whether both sides can actually reach an agreement remains to be seen—the EU just proposed a two-week extension to negotiations—but even the widely feared no-deal result won’t materially damage the UK economy.
MarketMinder’s View: According to the poll this article features, “More than 2 in 5 Americans (or about 44 percent) say the novel contagion that’s infected about 38 million people worldwide so far and unleashed the worst economic downturn in generations is the biggest threat to the financial system over the next six months. That compares with 34 percent who point to the outcome of the November vote.” That COVID-19 and the presidential election rank at the top isn’t surprising, though we found it interesting that the gap between the two isn’t that big. As with any survey, though, this is a snapshot of people’s opinions—and feelings don’t always translate to action. In our view, the recommendations in the conclusion—e.g., build an emergency fund—also indicate how dour sentiment is today. Don’t get us wrong; we think it is sensible to have a reserve for unexpected expenses or loss of income. However, hoarding a huge cash pile instead of investing for your long-term goals simply because of possible dire ramifications related to COVID-19 or the election strikes us as a fear-driven, emotional decision that could prove counterproductive.
MarketMinder’s View: As European COVID infection rates pick up, we have been closely watching governments’ responses. After shutting down bars for two weeks in several major cities, French officials declared a public health emergency today, “allowing the government to take a stricter line on fighting the spread of infections.” Right now that entails a curfew in Paris and eight other cities starting Saturday that will last at least four weeks. Though these new restrictions aren’t as draconian as the sweeping lockdowns from earlier this year, an escalation is always possible—though, as political decisions, restrictions are unpredictable by nature. We continue monitoring governments’ COVID policies should things change.
MarketMinder’s View: As this article explores, the ECB is undergoing a “strategic review” on how it conducts monetary policy. Much like the Fed’s recent revamp, though, we think there is less here than meets the eye. First, this is just a discussion and nothing may come of it, as at least one ECB board member quoted here prefers. Second, changing the inflation target wouldn’t automatically make the ECB any better at hitting it—the ECB’s aim has fallen short for most of the last decade. Third, new operational mechanisms the ECB is proposing, like buying so-called “green bonds” to compensate for alleged “market failures,” may actually be counterproductive. In that possible case, the ECB’s picking winners and losers carries potential political implications, which could lead to unintended consequences. Now, in a pinch, we think central banks have proven helpful as lenders of last resort—their original reason for existence. But outside that limited purview, like inflation targeting or other types of macroeconomic management, their record is much more spotty, in our view, so any overhaul to monetary policy bears scrutiny. That said, we think investors should stay focused on central bankers’ actions, not their words and non-actions.
MarketMinder’s View: Politicians posturing is nothing new, and the latest comments from UK Prime Minister Boris Johnson, European Commission President Ursula von der Leyen and European Council President Charles Michel over a trade agreement suggest more of the same. Current lines in the sand indicate, “Both sides now consider the end of October or first few days of November as the real deadline for getting a deal, people familiar with the negotiations said. The U.K. will leave the bloc’s single market and customs union with or without a new trade agreement when the 11-month transition period expires on Dec. 31 -- but any deal has to be approved by the British and European parliaments before then.” As pundits and pols alike anticipate talks to go down to the wire, the upshot for investors: Don’t let the noise spook you. Even if talks yield no new agreement, that outcome wouldn’t be hugely surprising at this point—nor would it likely be very disruptive. To see why, please see our 5/26/2020 commentary, “The UK’s Post-Brexit Plan Undercuts Protectionism Fears.”