Daily Commentary

MarketMinder’s View: By now, many may be aware “Saudi Arabia and the United Arab Emirates [UAE] have diverted a sizeable portion of the 20mn-plus barrels a day of crude that previously transited Hormuz by maxing out existing pipelines.” For example, the former’s East-West pipeline is now handling seven million barrels per day (mbpd)—about 70% of daily production—more than doubling from two mbpd (or less—some reports put it at 800,000 bpd) pre-war, while the UAE is looking “to enlarge Abu Dhabi’s pipeline to Fujairah, outside the Strait of Hormuz” (and pump even more now that it is also outside OPEC). The eventual result: “Completing all planned oil links would lift Hormuz ‘bypass’ capacity from 40 per cent to perhaps two-thirds of prewar flows—enough to make a future closure less calamitous.” But that isn’t all: “for the one-fifth of global liquefied natural gas, mostly from Qatar, that transited the strait ... exporters are improvising workarounds and fast-tracking new connections. Plans are being dusted off for gas pipelines from Qatar to Turkey via Saudi Arabia, Jordan and Syria, or through Saudi Arabia, Kuwait and Iraq, and another to Egypt.” Then, beyond oil and gas, “other commodities, often reliant on specialised port terminals and container shipping, are being transported instead by rail and truck to Omani and Red Sea ports [with] expanding capacity at ports away from the strait, accelerating rail links and potentially building dedicated chemical pipelines.” This won’t happen overnight, but it does mean energy and commodity transportation is becoming more stable longer term. All this goes to show what global stocks spied well before a potential peace deal was making headlines: Regional conflict typically doesn’t disrupt for long—reality 3 to 30 months ahead is likely better than many currently fathom. As for the rest of this article, which advocates launching similar projects to address “the vulnerability of other maritime chokepoints” (e.g., the Red Sea’s Bab al-Mandab Strait, the Southeast Asia’s Malacca Strait and East Asia’s Taiwan Strait), it is a matter of opinion whether that is “an economic and geopolitical necessity.” We suggest not getting bogged down with such speculation from an investment standpoint, as markets move most on probabilities, not possibilities. This largely seems like an early example of investors fighting the last war, in the sense they are applying Hormuz logic to other places.

MarketMinder’s View: This article focuses on Australia’s superannuation funds—similar to America’s 401(k)s—and whether loading up on alternative assets and concentrating in recent hot categories is wise, which is a discussion we think is generalizable to investors everywhere. In the Lucky Country’s case, “1.2 million Australians manag[e] a roughly A$1 trillion pool of retirement savings entirely by themselves. They do so through a so-called self-managed superannuation fund (SMSF), which allows individuals the freedom to invest in practically any asset class, from stocks and property to cryptocurrencies and antiques, with earnings typically taxed at just 15% a year, which usually drops to zero in retirement. ... A majority of Australia’s individual investors still keep their retirement money in conventional, tightly regulated and professionally managed institutional superannuation funds, often called super funds—a market worth about A$3.3 trillion—but wobbly markets and growing investor impatience have driven a shift into SMSFs, with total balances jumping by more than 40% over the past five years, according to Australian Taxation Office (ATO) data.” While that isn’t inherently problematic, the motivation hints at some underlying trouble: The funds they are fleeing “have delivered average annual returns of about 8% over the past decade,” which isn’t far off global markets’ long-term returns, depending on currency and other factors. To us, that suggests an aging bull market is creating unrealistic expectations. Underscoring this, investors are flocking to cryptocurrency, seemingly chasing earlier hot returns there. There is also a big push to lure retirement savings to commercial property development. There are a lot of risks here, including overconcentration and loading up on assets that don’t match your goals. Maintaining realistic expectations and keeping your goals (and cash flow needs, time horizon and comfort with volatility) forefront can help pull you to a better path.

MarketMinder’s View: We point out the titular transfer because it highlights how folks are living longer, extending their investment time horizons—and the myriad more options they can pursue given what their greater wealth affords. “The two generations that hold the most wealth are baby boomers, who are between age 61 and 80, and Gen X, who are between 45 and 61. ... Many of these people bought stocks or started businesses long ago, and those have soared in value over the years. In the fourth quarter alone, boomers gained over $1 trillion in wealth, more than any other group.” And because many of them have decades of life left, “Older Americans may keep accumulating wealth.” Meanwhile, even when they die, “many will leave their money to their spouses, who are often in their same generation. This year, around $1.3 trillion is expected to be passed onto spouses, compared with about $2 trillion to heirs in Gen X and younger generations, according to projections from research firm Cerulli Associates. The age that people are inheriting money from older generations has risen.” We think this speaks to the growing importance of financial planning. With greater longevity and wealth also comes greater responsibility in managing it all. While some are “spending more on themselves with luxury travel and upscale retirement communities,” others are “parceling out their riches in smaller doses to children and grandchildren, helping them with home purchases, college tuition and vacations.” This is why we stress identifying your time horizon (it may be longer than you think!) and specifying all the goals you want to accomplish for yourself and your loved ones within that horizon when planning for your financial future. The sooner you take stock, the more you will know about what you can do with your finances in the future—and be better prepared to bring them about.