Daily Commentary

MarketMinder’s View: We bring you this with the giant caveat that the agreements in question were sealed before the Supreme Court struck down President Donald Trump’s blanket and reciprocal tariffs Friday morning, raising questions about the validity of all the trade deals where countries received lower rates in exchange for various investment and trade commitments. Setting that aside, we are starting to get some clarity on what some of these pledged investments will entail. Not just what the projects will be, but where the investment is coming from. In Japan’s case, three new projects have now come to light as part of the $550 billion in investment commitments agreed to in last year’s deal: a gas-fired power plant in Ohio, a crude oil export terminal in Texas and a synthetic diamond manufacturing facility in Georgia. All will be overseen by Japanese companies, and as for funding and profits: “To execute the three projects, Japan and the United States will establish a special purpose entity. The Japan Bank for International Cooperation will provide funding, while three major Japanese banks will extend loans with a loan guarantee from Nippon Export and Investment Insurance. The U.S. side will contribute land and other tangible assets, while the U.S. federal government will help with construction permits and approvals. Profits from the projects will be split 50-50 between Japan and the United States up to the amount covering Japanese loans and interest, and 90% of any profits beyond that will be received by the United States and 10% by Japan.” The article mentions several of the companies involved, and as always, MarketMinder doesn’t make individual security recommendations. We highlight this for the broader theme, which is that gradually falling uncertainty remains a tailwind even if these deals are unlikely to move the needle for either country’s economic growth.

MarketMinder’s View: Well how about that! Conventional wisdom these days says the UK economy is struggling under the weight of high living costs that leave households no wiggle room for fun spending, which in turn hurts the legions of small businesses comprising much of its economy. Yet retail sales volumes jumped 1.8% m/m in January, cruising past expectations for a 0.2% rise. And the 4.5% year-over-year growth rate suggests this isn’t just skew from seasonal adjustment, which is always a risk in January. “Business ‘continued to pick up in the new year following a weak November’ for retailers, said Grant Fitzner, the [Office for National Statistics] ONS chief economist. ‘Motor fuel sales increased a little across the period, while sales of artworks, tech retailers and furniture stores also performed well.’” Now, we wouldn’t seize on everything in the report as a sign all is hunky dory, as there were some quirks. Jewelry stores’ 2.5% m/m surge probably reflects the mad dash for gold as prices spiked last month, for instance, as the article notes. But even then, growth was pretty strong across the board, and sentiment is taking it in stride, perhaps a sign the UK economy is starting to shake its gloom. Rising sentiment as growth beats expectations can be a swift tailwind for stocks.

MarketMinder’s View: This is a link wrap type thing that includes some individual stocks in some of its later nuggets, so we remind you MarketMinder doesn’t make individual security recommendations, and we are bringing it to you solely for the short article that leads it off. This makes an argument near and dear to our hearts: There is no such thing as cash on the sidelines flooding into stocks, and the $7.7 trillion in money market funds isn’t dry powder just waiting to rocket stocks higher. This is principally because for every buyer, there is a seller. “The next time a pundit cites [cash on the sidelines] as a positive factor, though, ask them what happens with cash when it runs onto the metaphorical field? If Peter has $1,000 in his money-market fund and decides to buy four shares of IBM with it, someone else has to feel like selling. Say it’s Paul, who now has that $1,000. The same amount of money is ‘on the sidelines.’ It could go into a checking account instead—there’s cash in those, too—but no net money ‘went into’ the market.” Plus, the reason why people hold cash matters, too. Chances are, not all of that $7.7 trillion is something people want to expose to higher risk of loss. We have some quibbles with some of the examples used here, but it makes the general point: “When short-term interest rates are artificially low, conservative people might choose to take slightly more risk and lock in higher rates through bond funds. Others allocate more to stocks. Those who already own a lot of shares might choose riskier ones with more-distant and less-certain payoffs—speculative, unprofitable companies.” Heck, a lot of that money is in money market accounts because people sought higher-paying alternatives to bank accounts. If their time horizon for that money is short and they can’t expose it to volatility, it isn’t going into stocks (where, again, it wouldn’t push up prices anyway).