Daily Commentary

MarketMinder’s View: Today, US President Donald Trump announced on social media that the US Navy would “guide” stranded ships through the Strait of Hormuz, which could be a big step toward easing the bottleneck and freeing all of the oil and natural gas idling in the Persian Gulf. However, it is unclear exactly what that meant in practice. As the article notes, Iran claims it struck and turned back a US warship. The US denies this and claims it successfully got two merchant ships through. Meanwhile, the industry is taking a cautious view: “Sascha Meijer, the general secretary of the seafarers’ union Nautilus, said: ‘Seafarers stuck in the strait would really appreciate protection to get ships sailing out. But is this protection sure? How about mines? Are the ships insured? Is this offer enough? It is really too soon to conclude if this is good news or creates more danger.’ Her comments were echoed by an oil tanker captain stuck in the strait, Raman Kapoor, who told BBC Radio 4’s World at One programme that he ‘would not take this risk’ of attempting to leave.” As always, we recommend assessing these developments from markets’ standpoint. For stocks, day-to-day developments don’t make or break returns. They can affect sentiment but tend not to meaningfully affect results over the next 3 – 30 months, which is what markets weigh. We think markets have been looking further out for a while, pricing in the high likelihood that the war doesn’t have a lasting effect on energy supply and costs. US efforts to reopen the Strait fit with this even if they take some time to iron out. Lastly, note the evidence here that the industry continues adapting. Trump’s post noted shipping companies don’t plan to send tankers back to the Strait once they are out, which meshes with what the other industry folks said. It also fits with suppliers’ directing more oil to alternate points via pipelines, which are attracting more investment and expansion plans.

MarketMinder’s View: This article mentions several funds, so we remind you MarketMinder doesn’t make individual security recommendations. We bring you this for the broader theme only. This piece discusses the proliferation of active ETFs, charting the category’s evolution from actual passive products like index funds to weird, actively managed ETFs that usually revolve around themes and use complex tactics, derivatives and leverage to juice returns. The focus here is on fees and how the newfangled active products are more expensive, making them a better revenue stream for the issuers. Make of all that what you will, but we think the broader trend is more interesting. People used to think owning the old ETFs, which were mostly passive products, made them passive investors. We found that weird, given the name—exchange-traded fund—tells you they were designed to be liquid and bought and sold instantly, which is the opposite of passive. Now people are proving our point, given a lot of the inflows to these new ETFs come from the old ones. Some are doing so to chase higher returns (and opening themselves to risks they may not understand, given the complexity and leverage involved), while others are doing so to “protect” against market declines (and opening themselves to the same risks, for the same reason). The products may change, but people will always be at risk of making unwise decisions when they let their emotions take control, whether the driving emotion is fear or greed. Whatever the wrapper, we think it is important to understand fully how a security generates its returns, how it works, etc., and what all the risks are. You might find a lot of these fancy things aren’t actually a fit for your personal needs and comfort with volatility, even if they are marketed in a way that hits all the right buttons.

MarketMinder’s View: Set aside a couple tangents and minor quibbles, and this piece shows why a repeat of 2022’s hot inflation is unlikely now despite high energy costs’ return. While conventional wisdom says oil’s spike then ignited an inflation fire, “There is another view, however, that places just about all of the blame for the surge in inflation on the rapid growth of the broad money supply, known as M4. It is certainly true that monetary growth was exceedingly high before the Russian invasion. It peaked at 15.5pc. If this monetarist explanation is accepted then it suggests a clear way forward for the Bank of England in the months ahead. The recent history of monetary growth is very different now. In the past year, M4 has grown only by 4.5pc. This suggests that any short-term surge in inflation reflecting the recent rise in energy prices will not be sustained and that inflation will fall back pretty smartly without the need for any increases in interest rates.” The article then notes double-digit money supply growth during COVID lockdowns coincided with supply shortages, which we think is salient and also downplays that all goods and services production was curtailed as money supply boomed. This created the classic inflationary cocktail of too much money chasing too few goods and services. So yes, we agree there are questions to ask about central banks’ reasoning back then, including why they downplayed money supply growth. But we also think this piece is wrong to downplay how high energy costs affect prices elsewhere. While it is fine to note high energy shows up in headline CPI (especially in the UK, where the price cap adds distortions), that doesn’t negate the substitution effects that help pressure other goods and service prices. That doesn’t mean society gets no inflation, but without red-hot money supply growth, you don’t get broad, lasting inflation outside energy.