Daily Commentary

MarketMinder’s View: This piece mentions several companies, so please note, MarketMinder doesn’t make individual security recommendations. Our interest here is in the broader topic, which is the attempt to answer how investors should approach the so-called titular AI revolution. Because AI is supposedly disrupting the market and economy at record speeds, the counsel here is to stay calm, don’t chase heat and focus on fundamentals (e.g., invest in “no-brainers,” emphasize cash flow, don’t rush and consider “second-order” effects). Those are generally sensible ideas, though we disagree with characterizing any investment as a “no brainer.” A company may appear bulletproof, but as economies and markets evolve, today’s winners won’t remain that way tomorrow (as the article’s review of the FTSE 100’s original constituents from 1984 illustrates). Plus, if something is a “no brainer,” your thesis to own it could be long since priced in, creating better opportunities elsewhere. The conclusion suggests investors, “… bide your time, wait for the first boom and bust to run its course and then seek out the survivors. The companies that will still be here in 40 years will be a lot clearer then.” Our issue with this is the application of an investment thesis well beyond the 3 – 30 months stocks care about. When it comes to time horizon, sure, it makes sense for folks to have a plan to generate the long-term returns they may need to meet their personal goals. But when it comes to choosing AI winners and losers, or any stock, basing the decision on anything beyond 30 months is largely unknowable, in our view—too much can change, so trying to identify the winners and losers of 2036 or even 2031 is not helpful for investors’ portfolios today. We think it is far more sensible to narrow your focus to what is likely to happen over that 3 – 30 month window and diversify globally as well as across sectors and industries. For more, see last week’s commentary, “Have the Latest ‘AI Trades’ Jumped the Shark?”

MarketMinder’s View: According to the ever-loose-lipped anonymous sources, European Central Bank (ECB) President Christine Lagarde is considering stepping down before her term ends next year. That news has sparked speculation about the monetary policy implications, including concerns about ECB independence. The rationale: “By leaving early, possibly in late 2026 or early 2027, Lagarde could help secure a mainstream successor. This approach aims to future-proof the ECB against rising populist pressures all over Europe. … Even so, the speculation introduces uncertainty around succession and could affect perceptions of the central bank’s long-term credibility.” That rationale also presumes the right-wing National Rally will win substantial power (perhaps even the presidency), leading to a euroskeptic French leader who, “…might advocate for a more unconventional ECB leader, potentially steering the bank away from its present centrist, pro-European stance.” We think these speculations reflect a bias that euroskeptic populist parties will lead to radical change—even though recent history (see Italy) argues against that. Moreover, the article’s back half acknowledges that one leader’s influence is limited: “A single country’s leader cannot dictate rates or policy. Even if France elected a Euroskeptic president, they could not force through radical changes, like scrapping inflation targets or loose policy for growth.” Regardless of the political bent of whoever leads the ECB, they head a monetary policy committee where all national central bank heads participate, and their job remains to balance the needs of 21 countries with 21 different economies moving at various speeds. It is already a hard and inherently political job. To us, the handwringing over a lot of possible political and monetary policy changes highlights the more-prevalent skepticism overseas—and higher wall of worry.

MarketMinder’s View: There has been a lot of chatter recently surrounding the Reserve Bank of Australia (RBA) after its rate hike earlier in the month, as RBA Governor Michele Bullock argued the “tighter” policy seeks to prevent inflation from galloping away again. We think that vastly overrates what a single hike will do to Australian money supply—inflation is always and everywhere a monetary phenomenon—and some of the data here show how households actually navigate higher prices: with higher wages. The RBA, like most central banks today, misinterprets rising wages as an inflation driver. That is wrong, as we have detailed—wages follow inflation, not the other way around. Economies have historically overcome inflation through higher wages that restore households’ purchasing power, and that appears to be playing out in the Land Down Under. “The Wage Price Index advanced an annual 3.4% in the three months through December, matching economists’ estimate, Australian Bureau of Statistics data showed Wednesday. On a quarterly basis, it grew 0.8%. Public sector wages rose at a faster annual pace than the private sector for a fourth consecutive quarter, the report showed.” That wage growth admittedly comes at a lag and not everyone experiences it to the same degree, which can be frustrating for many households. But inflation worries, whether in Australia or elsewhere, miss that the war on inflation is over—it is time to move on. And that people see the solution (wage growth) as a problem shows this bull market’s wall of worry has plenty of bricks. For more, see our recent commentary, “Don’t Sweat the Rate Hike Down Under.”