Daily Commentary

MarketMinder’s View: As always, MarketMinder is politically agnostic—we prefer no party nor any politician and assess developments for their economic and market implications only. So why do we bring you this piece about a small UK government-run investment fund that, according to the analysis here, is too small to move the needle on investment and economic growth? Well, we think it is a handy, if indirect reminder, that next month’s Budget isn’t all about doom and gloom. As everyone focuses on potential tax hikes and how they might hurt the economy (a false fear, as this year’s continued growth amid higher taxes demonstrates), investment is also part of the Budget circus. And just as various outfits lobby the government to avoid taxes they view as destructive, they also poke and prod in hopes of maximizing public investment’s efficacy. In this case, there is a wealth of ideas for how to address redundancies and inefficiencies in the UK’s myriad investment vehicles in order to foster successful public-private partnerships. Time will tell how this all shakes out, but markets know Budgets have plusses as well as minuses and are pretty good at weighing the totality even when investors dwell on the negative. Just one example of markets moving on the gap between sentiment and reality.

MarketMinder’s View: This piece is kind of all over the map, but the essential implication is that the main force powering stocks higher is allegedly clueless retail investors who should know better than to “buy the dips” and who are irrationally ignoring scary headlines and the Greek chorus arguing Tech stocks are overvalued. Short-sellers are frustrated that these folks, supposedly, are keeping pullbacks shallow. Analysts are frustrated that younger investors aren’t heeding “fundamentals” like finance-101 models of company value. It all reads like sour grapes to us, with a side of condescending elitism. When we read the anecdotes here (which reminds us, MarketMinder doesn’t make individual security recommendations, and those here merely illustrate the broader theme), we see something different: more evidence that younger folks are generally more bullish. This is a long-running trend and one sentiment surveys show, too. And we think it is worth considering the causes. We suspect they are twofold. One, younger folks know they have many decades for their money to work toward their goals, helping them stay disciplined through the shorter-term ups and downs. Two, it has been almost 20 years since global markets endured a traditional bear market—the long grueling kind that accompanies a full-fledged recession as the business cycle resets. The kind that sends unemployment skyrocketing, particularly among those new to the workforce—with joblessness lingering long after the bear market and recession have ended. Most young investors today were in school when that last happened, not in the market, and don’t have the scars more seasoned investors do. That will naturally lead to more optimism and risk-taking. Now, we think these are generally fine phenomena, and we love seeing young people saving diligently and learning the magic of stock markets and the compound growth they deliver. It is also nice to see a crop of investors who aren’t beholden to the industry’s conventional wisdom, which is generally priced in and not much help. But it all risks enabling the next bear market to be a big shock to the system when it happens, and it wouldn’t surprise us if it amounted to the next bear market being more of a monster than the last two. Not a prediction, but a hunch, a scenario we think worth keeping in mind.

MarketMinder’s View: How is this for a silver lining of the government shutdown taking most official US data offline: We are getting more private-sector reports to fill the void. Payroll provider ADP’s private sector employment report for October hits next week, but we now have weekly data to chew over in the meantime. Huzzah! “Private sector employers added an average 14,250 jobs per week over the past four weeks, according to new preliminary data being released by ADP, a turnaround from the negative September numbers. Stepping into the void created by the government shutdown, ADP will now release a four-week average weekly change in employment with a two-week lag every Tuesday. Today’s number is the four-week average ended Oct. 11.” The monthly report will be based off the following week’s data, so stay tuned. But this is some very preliminary evidence that things are turning a bit after September’s private sector jobs decline. All good, though backward-looking for stocks. But now, may we offer a caveat? Some friendly advice? Don’t get hung up on what any of these weekly reports show, for better or worse. Often, shorter-term data bounce more than those smoothed over longer periods, making it harder to see the broader trend. It means the various readings more subject to short-term skew from events like bad weather, and it makes seasonal adjustment leakier. We have seen this in Canadian and UK monthly GDP, and we will probably see it here, too. More data are grand, don’t get us wrong! But short-term reads go best with a pinch of salt and a longer-term perspective.