Daily Commentary

MarketMinder’s View: This piece argues rising diesel prices, which raise trucking costs, will drive up inflation as manufacturers and distributors pass the increase to consumers. That is the simple point, backed with a lot of interviews and anecdotal evidence. We don’t dismiss the headache higher fuel costs cause, and it seems fair to say some businesses will pass this to customers. But transit costs are a small piece of consumer goods prices, and goods are only 36% of the Consumer Price Index basket (per FactSet). Also, inflation doesn’t mean rising prices in a few goods—it means rising prices across the vast spectrum of goods and services. It is a monetary phenomenon, and absent runaway money supply growth, hot inflation lacks fuel. M4 money supply, the broadest US measure, is presently growing at 5.0% y/y, far short of the mid-2020 30% rate that sparked hot inflation in 2022 (per the Center for Financial Stability). Without galloping money supply, higher costs in some goods generally force households to make substitutions, which reins in price increases elsewhere. Lastly, US distillate production (e.g., diesel and jet fuel) has accelerated since the war began, which should help counterbalance prices. Global oil prices matter, yes, but so do general domestic supply and demand.

MarketMinder’s View: The dollar losing its reserve currency status is an age-old false fear—not just because it isn’t in decline, but because the US doesn’t really get anything from the dollar’s role in international trade or currency reserves. None of this props up the greenback or US debt, contrary to popular myth. Nevertheless, when the fear flares, as it did this week when Iran reportedly allowed tankers to pass through the Strait of Hormuz if they paid a toll in Chinese yuan instead of US dollars, it can hit sentiment. So this piece comes in handy, explaining why the dollar’s status isn’t threatened. “Most monetary economists agree that a reserve currency must be three things: stable, supported by deep and liquid markets and underpinned by the rule of law. The euro satisfies much of this, but lacks depth, and its bond market remains fragmented and cumbersome. The yuan, meanwhile, is stable but constrained by capital controls, a state-driven rulebook, and a reluctance to issue on the scale that safe assets demand from global investors.” The rest of the article goes on to explore this in detail, contrasting the US Fed’s willingness to support liquidity globally with China’s tight controls. “The deeper problem is that because of capital controls, these funds do not circulate freely enough to allow genuine price discovery. It means what emerges is not a market, but an allocation. The beauty of dollar markets is that their depth and reach mean they can be raised almost anywhere, moved freely, and find a price rather than be directed to one.” For more, see one of our many articles on the subject, like 2023’s “The Dollar’s Reserve Currency Status Is No Sure Privilege.”

MarketMinder’s View: As always, MarketMinder is nonpartisan and doesn’t prefer one politician or political party over another. We assess politics’ economic and market implications only. In that vein, this article highlights two useful lessons for investors. The first: Policy, whatever the intent, always carries unintended consequences and creates winners and losers. Politicians, attuned to their constituents, promise to make life better through their legislative proposals—for example, Republicans have floated capping credit card interest rates while Democrats proposed freezing rents and cutting seniors’ property taxes. Those “solutions” may sound lovely (or horrid) depending on your needs and views. But implementing those ideas carries unadvertised costs. For example, “The proposals to freeze seniors’ property taxes? Those could end up raising other people’s tax bills to compensate. Capping credit card interest rates? Some economists predict that rather than saving customers money, that would lead companies to reject credit card applications from low-income customers.” So whenever you consider a policy’s potential economic impact, think past the campaign slogan and consider the downstream effects (which may affect companies’ profitability in unintended ways). The second lesson: Bad policy is bipartisan. Both sides of the aisle are more than capable of pushing ideas that have negative economic consequences—there is no party that produces only “good” legislation. Not that we think any of the policies discussed here are bearish, mind you—they strike us as normal midterm politicking and unlikely to take effect as advertised in this gridlocked climate. We highlight this for the general lesson, not because we think any of this is likely to hurt stocks beyond general pre-midterm uncertainty as campaigns get noisy.