Advice Worth Taking

By John Mauldin


We’ve reached the Thanksgiving weekend, and as always, I’m thankful for loyal readers like you. I hope you are enjoying some quality time with family and friends.

And because of the holiday, this week’s letter will be shorter than usual, but I think it will offer real value. Year-end is rapidly approaching, which means time to review your investing strategy. Below, I have some time-honored advice that may help. Both Dennis Gartman and Bob Farrell are legendary traders, and they kindly shared the rules they’ve found most helpful. I know they help me. So read these, and I’ll have a few more words below.

Oh, and by the way, as you read these rules think about your own personal portfolios, investment decisions, and your life, and how these rules may apply to you. It will make the process a lot more valuable.

The Gartman Rules

Several different versions of Gartman’s rules are floating around the internet. This one is my favorite. Note that Dennis is first and foremost a trader, so these are rules for traders but also offer insight to investors.

1.   NEVER, EVER, EVER ADD TO A LOSING POSITION: EVER!: Adding to a losing position eventually leads to ruin, remembering Enron, Long Term Capital Management, Nick Leeson and myriad others.

2.   TRADE LIKE A MERCENARY SOLDIER: As traders/investors we are to fight on the winning side of the trade, not on the side of the trade we may believe to be economically correct. We are pragmatists first, foremost and always.

3.   MENTAL CAPITAL TRUMPS REAL CAPITAL: Capital comes in two forms... mental and real... and defending losing positions diminishes one’s finite and measurable real capital and one’s infinite and immeasurable mental capital accordingly and always.

4.   WE ARE NOT IN THE BUSINESS OF BUYING LOW AND SELLING HIGH: We are in the business of buying high and selling higher, or of selling low and buying lower. Strength begets strength; weakness more weakness.

5.   IN BULL MARKETS ONE MUST TRY ALWAYS TO BE LONG OR NEUTRAL: The corollary, obviously, is that in bear markets one must try always to be short or neutral. There are exceptions, but they are very, very rare.

6.   "MARKETS CAN REMAIN ILLOGICAL FAR LONGER THAN YOU OR I CAN REMAIN SOLVENT:" So said Lord Keynes many years ago and he was... and is... right, for illogic does often reign, despite what the academics would have us believe.

7.   BUY THAT WHICH SHOWS THE GREATEST STRENGTH; SELL THAT WHICH SHOWS THE GREATEST WEAKNESS: Metaphorically, the wettest paper sacks break most easily and the strongest winds carry ships the farthest, fastest.

8.   THINK LIKE A FUNDAMENTALIST; TRADE LIKE A TECHNICIAN: Be bullish... or bearish... only when the technicals and the fundamentals, as you understand them, run in tandem.

9.   TRADING RUNS IN CYCLES; SOME GOOD, MOST BAD: In the “Good Times” even one’s errors are profitable; in the inevitable “Bad Times” even the most well researched trade shall go awry. This is the nature of trading; accept it and move on.

10.               KEEP YOUR SYSTEMS SIMPLE: Complication breeds confusion; simplicity breeds elegance and profitability.

11.               UNDERSTANDING MASS PSYCHOLOGY IS ALMOST ALWAYS MORE IMPORTANT THAN UNDERSTANDING ECONOMICS: Or more simply put, "When they’re cryin’ you should be buyin’ and when they’re yellin’ you should be sellin’!"

12.               REMEMBER, THERE IS NEVER JUST ONE COCKROACH: The lesson of bad news is that more shall follow... usually hard upon and always with worsening impact.

13.               BE PATIENT WITH WINNING TRADES; BE ENORMOUSLY IMPATIENT WITH LOSERS: Need we really say more?

14.               DO MORE OF THAT WHICH IS WORKING AND LESS OF THAT WHICH IS NOT: This works well in life as well as trading. If there is a “secret” to trading... and to life... this is it.

15.               CLEAN UP AFTER YOURSELF: Need we really say more? Errors only get worse.

16.               SOMEONE’S ALWAYS GOT A BIGGER JUNK YARD DOG: No matter how much “work” we do on a trade, someone knows more and is more prepared than are we... and has more capital!

17.               PAY ATTENTION: The market sends signals more often than not missed and/or disregarded... so pay attention!

18.               WHEN THE FACTS CHANGE, CHANGE! Lord Keynes... again... once said that “ When the facts change, I change; what do you do, Sir?” When the technicals or the fundamentals of a position change, change your position, or at least reduced your exposure and perhaps exit entirely.

19.               ALL RULES ARE MEANT TO BE BROKEN: But they are to be broken only rarely and true genius comes with knowing when, where and why!

Bob Farrell’s Rules for Trading

Bob Farrell was a widely followed genius at Merrill Lynch. Wall Street people still speak of him reverently. Some of the greatest traders and investors I know referred to his rules on a frequent basis, and I suggest you do the same. Here are his rules with commentary from MarketWatch’s Jonathan Burton.

1.   Markets tend to return to the mean over time

By "return to the mean," Farrell means that when stocks go too far in one direction, they come back. If that sounds elementary, then remember that both euphoric and pessimistic markets can cloud people's heads.

"It's so easy to get caught up in the heat of the moment and not have perspective," says Bob Doll, global chief investment officer for equities at money manager BlackRock Inc. "Those that have a plan and stick to it tend to be more successful."

2.   Excesses in one direction will lead to an opposite excess in the other direction

Think of the market as a constant dieter who struggles to stay within a desired weight range but can't always hit the mark.

"In the 1990s when we were advancing by 20% per year, we were heading for disappointment," says Sam Stovall, chief investment strategist at Standard & Poor's Inc. "Sooner or later, you pay it back."

3.   There are no new eras -- excesses are never permanent

This harkens to the first two rules. Many investors try to find the latest hot sector, and soon a fever builds that "this time it's different." Of course, it never really is. When that sector cools, individual shareholders are usually among the last to know and are forced to sell at lower prices.

"It's so hard to switch and time the changes from one sector to another," says John Buckingham, editor of The Prudent Speculator newsletter. "Find a strategy that you believe in and stay put."

4.   Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways

This is Farrell's way of saying that a popular sector can stay hot for a long while, but will fall hard when a correction comes. Chinese stocks not long ago were market darlings posting parabolic gains, but investors who came late to this party have been sorry.

5.   The public buys the most at the top and the least at the bottom

Sure, and if they didn't, contrarian-minded investors would have nothing to crow about. Accordingly, many market technicians use sentiment indicators to gauge investor pessimism or optimism, then recommend that investors head in the opposite direction.

6.   Fear and greed are stronger than long-term resolve

Investors can be their own worst enemy, particularly when emotions take hold.

Stock market gains "make us exuberant; they enhance well-being and promote optimism," says Meir Statman, a finance professor at Santa Clara University in California who studies investor behavior. "Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks."

After grim trading days, it's easy to think you're the patsy at this card table. To counter those insecure feelings, practice self-control and keep long-range portfolio goals in perspective. That will help you to be proactive instead of reactive.

"It's critical for investors to understand how they're cut," says the Prudent Speculator's Buckingham. "If you can't handle a 15% or 20% downturn, you need to rethink how you invest."

7.   Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names

Markets and individual sectors can move in powerful waves that take all boats up or down in their wake. There's strength in numbers, and such broad momentum is hard to stop, Farrell observes. In these conditions you either lead, follow or get out of the way.

When momentum channels into a small number of stocks, it means that many worthy companies are being overlooked and investors essentially are crowding one side of the boat. That's what happened with the "Nifty 50" stocks of the early 1970s, when much of the U.S. market's gains came from the 50 biggest companies on the New York Stock Exchange. As their price-to-earnings ratios climbed to unsustainable levels, these "one-decision" stocks eventually sunk.

8.   Bear markets have three stages -- sharp down, reflexive rebound and a drawn-out fundamental downtrend

9.   When all the experts and forecasts agree -- something else is going to happen

As Stovall, the S&P investment strategist, puts it: "If everybody's optimistic, who is left to buy? If everybody's pessimistic, who's left to sell?"

Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.

10.               Bull markets are more fun than bear markets

No Kidding

 
This is not the first time, nor will it be the last, when I bring these rules to your attention. I suggest, when you are feeling particularly bullish or disastrously bearish, pull out this letter and reread it.

Before I go, let me remind you to take our 2019 Investor Survey, which, I believe, is an excellent sentiment indicator and an opportunity to make your voice heard. So please, if you haven’t taken the survey yet, click here to do it now. I really appreciate it.
 
 
Holidays

If you are reading this letter over the weekend, I am most likely still in Dallas. Shane and I fly back to Puerto Rico Sunday, getting in late at night. Just the way American Airlines schedules its flights from Dallas to San Juan. Then I intend to be home in Dorado Beach for the holidays, welcoming guests from time to time, but focused mainly on writing and research.

Thanksgiving is typically the season when we count our blessings. I have so many to count and you are one of them. The time and attention you give my letters and thoughts is extraordinarily valuable, and I try to deliver high value for your precious time. Thank you from the bottom of my heart. I enjoy reading your feedback and working with the rest of Team Mauldin to find ways to make your life better.

I’m especially thankful for those of you who have recommended Thoughts from the Frontline to your friends, helping to grow our family. If you enjoy the letter, maybe your friends will, too. I hope it sparks some fascinating conversations for you.

I recently turned 70, and fully plan to write for at least another 10 years. I am still very involved in my businesses and intend to launch a new business next year. Well, at least, we’re exploring one. I want to make the future happen rather than simply going along for the ride. So many potentially powerful biotechnologies that can improve the aging process (something I am very aware of at this point of my life) are simply begging to be developed. How can we shorten the time and cost of getting them to you (not to mention me!)? It’s worth a little exploration.

And with that, I will hit the send button. You have a great week. I am looking forward to spending the long weekend with family and friends, and hope you get to do so as well.

Your probably still too full of Thanksgiving dinner analyst,
 

 

John Mauldin
Co-Founder, Mauldin Economics

Buttonwood

The case for a falling dollar

Why the dollar’s ascendancy is looking tired




Nobody wants to be called an unthinking optimist. Prospects for the riskier sort of investments are cloudy.

The global economy faces numerous threats. Being even mildly bullish can seem a bit unreflective.

So whisper it, don’t shout it, but the mood has changed recently for the better. Since the start of October, global equity prices are up by around 7%. Bond yields have risen. There has been a move away from the safe or defensive assets that hold up in bad economic times, towards those that do well in an upswing.

Hopes for a preliminary trade deal between America and China pushed the yuan briefly below seven to the dollar last week.

At times like these, thoughts naturally turn to the outlook for the dollar more generally. A weaker dollar would be both a signal and a driver of a broader improvement in risk appetite.

The dollar’s fortunes have not yet shifted decisively. But the conditions for it to weaken are starting to fall into place.




To understand why, consider the forces behind the dollar’s ascendancy since 2014. America’s economy, though sluggish by historical standards, has benefited from an ever-reliable engine: the American consumer. The euro-zone, by contrast, responded to its sovereign-debt crisis by saving more. Its surplus savings, together with those generated in Asia, must find a home.

America’s high-yielding bonds and modish technology stocks have made it the go-to place for global savers. Capital inflows drove up the price of dollar assets. America’s net investment position—the foreign assets its residents own abroad minus what they owe to foreigners—went deeper into the red (see chart).

As industry slumped and trade faltered this year, America still looked the best of a bad lot. But the scales are tilting against the dollar. Global manufacturing may have bottomed out. The purchasing managers’ index for industry compiled by the global economics team at JPMorgan Chase rose for a third month in October.

Growth in output is barely positive, but an improving trend in new orders alongside falling stocks is a sign of a turn in the manufacturing cycle. The improvement is halting. Jobs-rich service industries are still slowing, so it is too early to expect better gdp growth. But hopes are growing of a pickup in 2020, driven by economies beyond America’s shores.

This matters for the dollar. Synchronised global gdp growth opens the door for investors to move capital out of America’s expensive dollar assets to where assets are cheaper, says Hans Redeker, a currency strategist at Morgan Stanley.

Moreover, interest-rate cuts this year by the Federal Reserve mean that the dollar is now receiving less support from elevated bond yields. Central bankers in other places are disinclined to relax policy further. The European Central Bank’s governing council, for instance, was divided on the decision in September to cut interest rates and restart quantitative easing.

A shift in global capital away from America would be a particular boon to emerging markets. A fall in the dollar would make it easier to service their foreign-currency debts. It would also ease local credit conditions, thus helping gdp growth. For investors, emerging markets are where the value is. Equity markets are cheaper. Bond yields are higher. Currencies have scope to make up the ground they lost earlier this year and in the slump of 2013-16.

Apart from such trouble spots as Argentina, Chile and Turkey, emerging-market currencies have started to rally against the dollar. Still, the euro is the gauge by which many people judge the dollar’s vigour, or lack of it. And it has been stubbornly weak.

Sentiment is coloured by the travails of Germany, the currency zone’s largest economy, which only narrowly avoided a technical recession (two quarters of declining gdp) in the six months to the end of September. But the euro at least seems to have found a floor. And if the world economy gathers strength the euro will eventually rally.

That is still a big if. Another breakdown in trade talks between America and China could lead to a renewed slump in global manufacturing and business spending, and kill off any incipient dollar weakness. Other political risks—the protests in Hong Kong; the Democratic primaries in America—are looming larger.

And after a longish expansion, the world economy is lacking vigour. But the dollar’s stint at the top of the currency pile is looking tired, too. People are already whispering. The noises may soon get a lot louder.


On My Visit to the United Arab Emirates


By: George Friedman


I spent last week in the United Arab Emirates, in the city of Dubai. Dubai sits on the edge of the Persian Gulf, which is called the Arabian Gulf by Arab states. This was not my first trip there, but I have never left the city, which means I have only seen the most modern part of the Arab world. I have only had glimpses of how this city interacts with the much larger part of the country that resembles what we think of when we speak of the Arabian Peninsula. Each time I come here I mention this to my hosts, and each time they want to immediately arrange a tour. There is never enough time, and I always promise them and myself to leave the city. I never have.

The meetings I attended this time were convened by the prime minister’s office, which asked me to speak on the shape of the world next year. I spoke to men in flowing white robes and to women in their covering. There is no doubt that power is held by the men, yet there were women who were ministers, and all spoke fluent English. My initial exposure to the idea of an Arab was the movie “Lawrence of Arabia,” made half a century ago about a time a century ago, celebrating an Englishman who thought he had moved beyond what he was born as to become nearly Arab himself. Lawrence was never an Arab; he was an Englishman trying to become one. Still, through the rich landscape of the movie, it was possible to be both utterly enchanted and thoroughly misled by the movie.

A Space Program on the Gulf

At the very least, even the Arab world moves on. In the midst of the pure white robes, a white I have rarely seen in America, I was introduced to a man who was the head of the United Arab Emirates’ space program. The idea that the UAE has a space program is startling, until you look at the city of Dubai. Wedged between the Gulf and the desert is a city of skyscrapers, all of an aggressively modern architecture. Many years ago, when I passed through the UAE on my way elsewhere, there were some buildings and streets, but in a generation, what has emerged is magnificent for its mere presence, and daunting for its almost inhuman size. I can think of no Arab city that approaches it in size, nor in its indifference to Arab style.

What is most striking is that it is a city that was thrown up with the speed of a Texas city, with little sentiment and no apology. Dubai challenges you to accommodate yourself to it, much as Houston does. Arabs are an enormously polite people. In “Lawrence of Arabia,” the prince comments that mercy is a passion for Lawrence (the Englishman) while for an Arab it is simply good manners; the king asks, which is the more powerful force?

The idea of mercy as a matter of custom and propriety is the most striking concept in the movie. While Arabs violate the principle of mercy, as all humans violate their customs, they are as appalled by cruelty as an Englishman is appalled by bad table manners. The manners of those I met were flawless. But they also understand how to wage war, making them very much like the rest of the world.

Therefore, why shouldn’t they have a space program? The Emiratis have one of the most advanced air forces in the world. I also had a nice talk with their minister of artificial intelligence. Few countries have such an air force or such a minister. Why be shocked that they are looking to space, as well? What was interesting about their space program was the reason it began: falcons.

Falconry is a passion of the Arab elite. No matter how well trained, the falcon may choose to go where he will. And finding him is difficult, to say the least. The Emirati space program was started in order to track falcons. Tagging falcons with GPS trackers is one solution. But the Emiratis were more ambitious, wanting to know if the falcon was flying or at rest, and if flying, then at what angle. To do this, they needed to collect data from multiple satellites.

The ancient sport of kings merged with the space age, and the man who made it possible spoke to me about his ambitions to put an Emirati satellite in orbit around Mars. He was quite serious, and is already talking to a private U.S. space company. He was not shy of outsourcing the mission and, as is often the case these days, project management is a bigger hurdle than engineering in going to Mars.

Speaking with a man who was dressed in the flowing robes still common in the Emirates, discussing the subtleties of falcons and planning a space mission in a place that had been regarded as hopelessly backward when I was young, reminded me of my age, and of how geopolitics and tradition intertwine, and take on a life of their own.

The Importance of the Strait of Hormuz

The United Arab Emirates rests on a bulge that juts out into the Gulf at the southern edge of the Strait of Hormuz. The northern landmass is Iran. The Persians and Arabs have had a very ancient feud over this waterway, but in the 1970s the Strait of Hormuz became a global issue. In 1971, I was taking a class in operations research required for my military modeling ambitions.

My professor, well known for his trips to Washington, informed me that my concerns about the Soviets grabbing the city of Hamburg or China dominating Vietnam were all beside the point, not to mention simplistic. The only really significant point on the global stage, according to him, was the Strait of Hormuz and the countries on either side of it. I thought he was buying the cheap Kool-Aid again.





In 1973, Egypt and Syria attacked Israel, launching the Yom Kippur War. In solidarity with them, other Arab states declared an oil embargo. The price of oil soared, and the consumers of Arabian and Iranian oil were plunged into recession. This created a huge and complex problem for the United States. The countries that had imposed the embargo were also critical U.S. allies against the Soviets – including Iran, which would be a U.S. ally for another six years.

Pressuring Arab states on oil prices could give the Soviet Union an opening. Doing nothing might do wonders for oil companies, but would end political careers. The lines waiting for gas at those stations that had any seemed to signal the end of civilization.

The key to this was the Persian (or Arabian) Gulf. The fear was that the oil flowing from Iran (which did not join the boycott but enjoyed the higher prices) and the Arab countries on the Gulf’s western coast (which included the UAE and which were also managing to sell oil at high prices) would have their supply lines cut off at the Strait of Hormuz. If the strait were closed, the effect on the United States’ enclosure of the Soviet Union would be shattered, along with its economy. The only force that could conceivably want to do this and had the ability was the Soviets. So, my professor’s dismissal of Europe turned out to be true. I never asked how he nailed that.





It was at that time that the U.S. became fascinated by both sides of the Strait of Hormuz. After the fall of Iran’s shah, and an early Iranian flirtation with the Soviet Union (or one we thought we saw), holding open the Strait of Hormuz became a central concern for the United States. During the Iran-Iraq War of the 1980s, sinking tankers in the Gulf became a pastime. The U.S. was so concerned that it sent in naval convoys to escort tankers out of the Persian Gulf, and frankly stated that if either side attacked the convoys, it would mean war. Not long after, the U.S. did go to war with Iraq, and to this day is still toying with the idea concerning Iran.

The U.S. and Its Strategic Allies

And throughout this time, to this moment, the UAE and the city of Dubai remained key strategic assets to the United States. If Iran could take Dubai, it could block the Strait of Hormuz with little challenge. Today, the U.S. operates a major air base in Dubai, cooperates with the UAE’s air force and collaborates respectfully with the UAE on many fronts. The respect in this collaboration is important: The U.S. has trouble working respectfully with allies (a problem going far back in time), and while Arab states may fear Americans and Europeans, they have difficulty respecting them all the same. Oddly, the collaboration works. (Likely in part because the elevators work well in towering Emirati buildings, and for Americans, respect starts there.)

I have noted on several occasions that, throughout history, being a strategic necessity to the most powerful country in the region, be it Rome or Britain, carried with it some risk but also great rewards. After World War II, Germany, Japan and South Korea all were strategic assets to the U.S. All became enormously wealthy, not simply because they had favorable access to American markets and guaranteed access to natural resources, but also because of their own assets, particularly their human assets. This was not because of any virtue of the United States, but simply because the United States needed them to be strong because they were strategic.

The evolution of Dubai into a world-class city had something to do with this. But the need for the strategic alliance was mutual. The UAE needed the Strait of Hormuz open to sell the massive amounts of oil it had. And the U.S. needed Dubai to be robust. As with all such alliances, the interest was mutual. But Dubai did something unexpected.

Germany drew on its own assets, intellectual and cultural. Dubai, on the other hand, went against its inherent culture. It retained the falconer aristocracy, the desert wanderer seeking to be free to make his own way with his tribe. But Dubai went in a different direction. It understood that it was at the chokepoint of the world economy. It understood that it would be standing watch so long as the petroleum economy existed. And it understood that it had vast wealth to draw on. It proceeded to add to its oil economy and to use its strategic position to dramatically enhance its economy, beyond exporting oil.

Instead of the Emiratis sending their money to the Swiss, the Swiss came to Dubai asking for the money. In leaving the Dubai airport, there is a sign advertising a well-known private Swiss banking service. But Dubai has spent its wealth on real estate development to facilitate its rise as the Switzerland of the Middle East, not only in financial matters, but beyond Switzerland – in taking its ambitions in space.

It struck me on this visit how similar Dubai is to Israel. Both are in a way invented countries. Both are now financial and technical centers. Both have close ties with the United States and the rest of the advanced industrial world. Both retain and struggle with older traditions. Orthodox Jews and devout Muslims both circumscribe what is possible to women. In Dubai, I met a minister dressed in traditional garb. She was not more than 30, and perhaps younger. It reminded me of the first time I ran into an off-duty Israeli officer in a miniskirt. The struggle to retain and overcome their traditional lives ought to bind them together.

At this point, I should say that unfortunately they are torn apart by religion. But, in fact, that’s not true. They are aligned in many ways, from hostility toward Iran to business interests, and they make no bones about it. At one end of the Arabian Peninsula is the UAE. At the other end is Israel. In between there is wreckage and insecurity. I have watched both UAE and Israeli air force demonstrations. In a world where mass armies are less important than the sophistication of precision-guided munitions and acquisition of targeting intelligence, large forces simply represent ample targets. Agile forces with advanced munitions and intelligence will defeat them.

This points to an interesting geopolitical possibility. If Israel is the major economic and military power on the western end of the Arabian Peninsula, and the UAE is the economic and military power in the east, then collaboration between the two of them could define the region. That is shooting from the hip, of course, ignoring Turkey and Iran, or the U.S. and Russia. But after this visit it is less preposterous an idea than in the past. When you meet a man who is using space-based assets to track falcons, do not dismiss its significance.

The Arabian Peninsula was shaped by desert and a hunger for water which combined to create a sparse population clustered in small groups, distrustful of the intentions of others. To this day, the UAE contains rival emirs, who collaborate with one another but do not fully trust each other. But the eastern shore of the Arabian Peninsula is rich with oil, and the waters of the Gulf allow the peninsula’s states to sell that oil to the world. But to be rich and weak is the most dangerous thing in the world. So the Arab states of the peninsula have sought the ability to defend themselves from the world, mostly through dangerous alliances, and a few by creating their own power.

But to be powerful in the modern world, you must become part of it, and this is what the UAE has done. It has created its own space program. Even if the program was started to find the falcons.

I repeat the saying of Malraux: Men leave their nations in very national ways.

Slower U.S. Consumer Spending Will Cost the Economy Momentum

Sluggish retail-sales growth indicates consumers can’t be the economy’s only engine

By Justin Lahart



U.S. consumers are doing fine, but they don’t look like the force they were earlier in the year.

Retail sales rose 0.3% in October from a month earlier, the Commerce Department reported Friday.

That was better than the 0.2% economists expected, but the details of the report were mixed.

Much of the gain was driven by increased car-dealer and gasoline-station sales, while several categories, such as furniture-store and clothing-store sales, posted outright declines.

It is almost as if when people buy more of one thing, they economize on the other.


Retail sales rose 0.3% in October from a month earlier, the Commerce Department reported Friday. Photo: kamil krzaczynski/Reuters


Control sales—a measure excluding auto and auto-parts dealers, gasoline stations, restaurants and hardware stores, that economists use to gauge the underlying trend in spending—rose 0.3%.

That was solid, though a tad softer than some economists had forecast.

More important, September’s control sales were revised downward and now show a decline of 0.1% from August, compared with an earlier flat reading.

What that means is that the starting point for sales in October was lower than it appeared before the revisions, making the October growth figure less impressive.

Even if sales grow solidly from the prior month in November and December, sales growth in the fourth quarter looks like it will be significantly slower than it was in the third quarter.

Indeed, following the report, a number of economists substantially lowered their fourth-quarter growth forecasts.

At JPMorgan Chase, for example, economists now estimate consumer spending is on pace to grow at a 1.5% annual rate in the fourth quarter, versus their earlier forecast of 1.9%.

That led them to lower their forecast for fourth-quarter gross domestic product, too.

They now see it growing at a 1.25% annual rate, versus an earlier forecast of 1.75%, which would count as the slowest pace since the fourth quarter of last year.

Consumer spending isn’t about to roll over—people have plenty of wherewithal to spend, and the holiday shopping season looks as if it will be good.

But shoppers can’t shoulder the economy forever.

Study Finds Limited Benefits of Stent Use for Millions With Heart Disease

Research shows drugs and healthier lifestyle can be as effective for patients with stable coronary artery disease

By Betsy McKay


Doctors perform a non-emergency angioplasty at a New York hospital. Photo: Mark Lennihan/Associated Press


PHILADELPHIA—Stents and coronary artery bypass surgery are no more effective than intensive drug treatment and better health habits in preventing millions of Americans from heart attacks and death, a large study found, shedding new light on a major controversy in cardiology.

Researchers and doctors have fiercely debated for years how best to treat people who have narrowed coronary arteries but aren’t suffering acute symptoms.

The standard treatment has been to implant stents—wire mesh tubes that open up clogged arteries—or to perform bypass surgery, redirecting blood around a blockage. Those procedures are performed even though these patients either have no symptoms or feel chest pain only when they climb a few flights of stairs or exert themselves in some other way.

The study is the largest and among the most rigorous research yet to suggest that while stents and bypass surgery can be lifesaving for people who are having heart attacks, they aren’t necessarily better than cholesterol-lowering drugs and other changes in health habits for most people with chronic, or stable, coronary artery disease, which affects about 9.4 million Americans.

“You won’t prolong life,” said Judith Hochman, chair of the study and senior associate dean for clinical sciences at the New York University Grossman School of Medicine.

But stents or bypass surgery work better than medicine and lifestyle changes alone in relieving symptoms for people who have frequent angina, or chest pain, the researchers found.

The findings, released Saturday at the American Heart Association’s annual scientific conference, should prompt more discussion between patients and their doctors about treatment, she said. “Statins and aspirin are critically important,” she said. “We need to understand better how to get people to modify their risk factors.”

The results are likely to deepen an already heated debate between interventional cardiologists, who conduct these procedures, and preventive cardiologists, who prescribe cholesterol and blood pressure-lowering drugs and changes in diet and exercise.

It is likely to change medical practice, some cardiologists said. “This shows the safety of not panicking when you see a positive stress test,” said Jay Giri, a practicing interventional cardiologist and associate director of the Penn Cardiovascular Outcomes, Quality, and Evaluative Research Center at the University of Pennsylvania Perelman School of Medicine.

He said he expects fewer patients to be referred to him who have a positive stress test, but mild or no symptoms.

At issue is how best to prevent heart attacks or other events. Cardiologists implant stents or perform a bypass to remove blockages in coronary arteries that reduce blood flow to the heart.

Yet these large blockages, while frightening, don’t generally cause heart attacks, some research shows. They are caused instead more by ruptures in smaller, softer pieces of plaque that aren’t always visible on a scan.

Medicines have improved over the past several years and shrink those dangerous small plaques, said Steven Nissen, chief academic officer of the Heart and Vascular Institute at the Cleveland Clinic. “The reason medical therapy is triumphing is that it’s treating the entire artery,” he said. “This is a systemic disease, not a local disease.”

The results show “there is no compelling benefit to proceeding with these invasive procedures in people with stable symptoms as opposed to people with a heart attack,” he said.

The federally funded study, called “Ischemia,” follows two earlier clinical trials that found similar results. The Ischemia trial included 5,179 high-risk participants from 37 countries identified in stress tests as having moderate or severe ischemia, a condition in which not enough blood flows to the heart muscle.

About three-quarters of the participants had a scan of their coronary arteries to make sure they had obstructive coronary disease. Those without narrowings in their arteries or in a main artery that supplies blood to a large portion of the heart were excluded, Dr. Hochman said.

The participants then underwent a stent or bypass procedure along with intensive medical and lifestyle therapy, or were put on intensive medical and lifestyle therapy alone. That included cholesterol- and blood-pressure-lowering drugs, smoking cessation and changes in diet. Modern drug-eluting stents, which slowly release drugs to decrease the chances that blockages will recur, were used.

Researchers monitored participants for any of five events: a cardiovascular-related death, heart attack, resuscitation after cardiac arrest or hospitalization either for unstable chest pain or heart failure.

There was no difference in the rate of those five disease-related events in both groups over four years after treatment began, Dr. Hochman said. The result was the same when comparing results for two serious events: heart attacks and a cardiovascular-related death, she said.

There were differences between the groups at certain points within those four years, the results showed. Six months into their treatment, the group with invasive procedures suffered a heart attack or other event at a higher rate— 5.3%—than the group receiving medical therapy only, at 3.4%, suggesting complications from the procedures, Dr. Hochman said.

Four years after starting the study, the group that had had invasive procedures fared better.

They had a lower rate—13.3%—of heart attacks and other events than the medical-therapy group, at 15.5%. Dr. Hochman said.

Half of patients who had invasive procedures for frequent chest pain were free of their symptoms a year after their treatment, compared with 20% who reported improvement after medical and lifestyle therapy alone, the researchers found, citing a likely benefit of modern, drug-eluting stents.

Overall, the rate of cardiac events, and death rates from any cause were low for both groups, Dr. Hochman said. The trial investigators are seeking funding to continue following participants, she said.