Daily Commentary

MarketMinder’s View: We agree with part of this screed about Fed communication (e.g., more transparency is generally fine), but this argument is guilty of vastly overrating “forward guidance’s” usefulness. On the first point, this article provides interesting history about the transparency movement, as Texas Democrat Henry B. Gonzalez pushed for the release of Fed transcripts in 1993—an effort that led to the FOMC releasing those documents (albeit, at a five-year lag). Transcripts detail what participants actually say at a FOMC meeting and can provide useful context about officials’ decisions. If you want more transparency, why not release the transcripts sooner than five years after the fact? That aside, most of the article frets how Fed head Kevin Warsh is allegedly using his “guidance allergy” to avoid answering other questions about the economy and monetary policy, worrying that, “If central bankers don’t have to explain their thinking, the public will struggle to hold them accountable when they are wrong, much less isolate exactly where the mistake originated.” Look, we aren’t saying the public should blindly trust policymakers, but there isn’t a ton of evidence that more detailed central bankers’ verbal explanations are better educating the people. For instance, a study from 2019 found nearly 40% of those surveyed thought the Fed targeted an inflation rate of 10%(!) or more. The PCE price index—the Fed’s preferred gauge—didn’t even hit that rate in the early 2020s, during the recent hottest inflation stretch in 40 years. Pundits often don’t even seem to know what inflation rate the Fed targets. And, in reality, nobody holds the Fed accountable for errors—many still celebrate the Bernanke Fed’s actions in 2008, when the transcripts make clear it erred in dramatic fashion, likely exacerbating the scope of that downturn as it failed to act as lender of last resort. Moreover, with forward guidance, the Fed is judged frequently for saying one thing, then doing another. Without that pitfall, the Fed could be judged simply on whether it fulfils its mandate. We just don’t see a case that more forward guidance is better for investors and the public at large. For more, see our June commentary, “Kevin Warsh and the Magical Delete Button.” 

MarketMinder’s View: Here is yet another example of nations’ adapting to the fighting in the Middle East, which has disrupted popular shipping routes. “A 35,000-ton container vessel will leave the Chinese port of Ningbo on Friday at the start of a journey to the UK that promises to herald a new era in world trade. … If the experiment goes to plan, it will establish the Northern Sea Route – as the new trade lane is known – as the quickest maritime link between East Asia and north-west Europe. The sailing from Ningbo, south of Shanghai, to Felixstowe, Suffolk, Britain’s biggest container port, is expected to take 20 days. That compares with between 32 and 40 days for the established China-Europe route via the Suez Canal.” Now, as the article explains, polar sailings aren’t new—shipping companies have researched the journey for years, and as one expert notes, “… year-round operations will be required before the Arctic can be viewed as a genuine alternative to traditional sea lanes. ‘There’s no doubt that the sailing time on the northern route is shorter, and that’s enticing,’ [executive Lars Jensen of Vespucci Maritime] says. ‘But last year there was really only one week when the Arctic was genuinely ice-free and there was no need to rely on icebreakers and favourable conditions. ‘So if I was a shipper, I’d be sceptical about whether things will actually arrive on time. In reality, you are looking at least a decade into the future to have fully reliable conditions.’” So while the benefits may not show up overnight, it is a development that highlights the shipping industry’s ability to innovate in a dynamic global economy.    

MarketMinder’s View: Please note, MarketMinder is nonpartisan and doesn’t prefer one politician or political party over another. Our analysis focuses solely on politics’ economic and market effects, and in this case, our interest is with a broader theme: the issues with polling. As this piece and others have pointed out, the election results from two recent Democratic primaries (for governor in Wisconsin and for a Senate seat in Michigan) have diverged bigly from polls—in the case of the Democratic gubernatorial primary in Wisconsin, a candidate with a 22-point polling deficit won the race. Polling misses aren’t new—remember how national polls didn’t reveal which presidential candidate had an Electoral College advantage in 2016?—and we think investors benefit from keeping a few nuances in mind, especially as midterm campaigning heats up. Besides candidates’ popularity (or lack thereof) outside their most ardent supporters, polling itself faces a unique set of challenges—especially when it comes to primaries. “With randomised poll response rates in the low single digits, calling people is often prohibitively expensive and time-consuming, so most pollsters increasingly rely on online, typically opt-in, methods to reach people. These are cheaper, but they come at a cost. The type of person who responds to an online poll is often more politically engaged than the average citizen. With the proliferation of large language models, they can also be bots. … As a result, pollsters have to estimate how many people will show up on election day and reweight their answers based on their assumptions. This is especially hard to do in primary elections since the traditional model of a polarised Democrat-Republican split does not hold.” We don’t envy pollsters’ position, as trying to predict whether the youth will turn out or how voters will respond (or not) to an unexpected controversy is a tall order. That is perhaps doubly true in a race like Wisconsin’s, where the field was split among multiple candidates until days before the vote, when dropouts (and Crowley’s re-entrance) narrowed the field. While we aren’t advocating for completely ignoring polls since they are information that helps set consensus expectations, investors should keep their limitations in mind and avoid extrapolating any one local vote into a national trend. Reality is often more complex than headlines portray it, which is worth keeping in mind with November’s midterms looming. Lastly, we would note that these polls got heaps of attention because people were focused on candidates’ personalities and ideologies. Markets generally set these things aside, focusing simply on policies and whether gridlock keeps radical change at bay regardless of which party pushes it. Midterms typically increase bullish gridlock, and we doubt this time is different.