Daily Commentary

MarketMinder’s View: White House economic adviser Kevin Hasset (one of the Kevins in the running for Fed chair, incidentally), announced in a television interview that next week, the administration will announce a plan “letting Americans tap their 401(k) retirement accounts for a down payment on a home” and put that portion of the house’s equity in your plan account as part of its push to address cost of living concerns. As always, we are politically agnostic, focused on a policy’s implications rather than the people and party pushing it—markets tune the partisan and personality sides out, and so should investors. And from that standpoint, we suggest not getting terribly excited about this. One, given 401(k) withdrawal rules are established in 1974’s Employee Retirement Income Security Act, it is highly unlikely the White House can change the rules by Executive Order. Legislation is likely a must, and Congress looks quite gridlocked. Two, even if this were to pass, we doubt it would suddenly put homes within reach. The US housing market has a severe supply shortage, especially in the highest-cost urban areas. Measures like this and others telegraphed so far focus on the demand side. If you boost demand without raising supply, prices rise. The UK learned this last decade via its “Help to Buy” plan, which gave first-time homebuyers government assistance. Homes ultimately became less affordable, not more, and politicians largely agreed it was a failure. Lastly, everything has a tradeoff, and if you are ever tempted to raid your 401(k) for real estate, remember why you are investing in the first place. Your long-term goals and time horizon should drive these decisions. Future retired you may wish you had that money in the market, reaping long-term compound returns to fund spiraling late-life costs, and not locked up in a singular, illiquid asset with risks like repairs, undiversified local economic exposure and more.

MarketMinder’s View: We guess this is a fine rundown of why some central banks say they are hoovering up gold, but we think there is a bigger-picture issue: Their leaders are human, falling for the same golden myths as retail investors. Read this and you will see them calling gold the world’s oldest store of value, seemingly ignoring the long stretches where gold prices fell. You will see talk of needing a foreign exchange reserve replacement for the dollar, something they can deploy to firm up exchange rates as needed. But when you consider how illiquid gold is, this becomes suspect. Forex reserves are supposed to be liquid so central banks can sell them in a hurry. No moving the market, no having to accept bargain basement prices. What happens if Pretendsylvania is having a currency crisis and has only gold to sell? We can see a scenario where the Central Bank of Pretendsylvania tries to stabilize its currency by selling gold and buying Pretendonari (fake currency, go with it) with the proceeds. That is a very visible transaction that would probably ratchet up concerns, making the problem worse—especially if they can’t liquidate at the price they want. Illiquid doesn’t mean stable. It means hard to sell at the price you want in the time you want it. Currencies, whether the dollar, pound, euro, yen or what have you, tend to ripple sideways over time. That is a pretty stable situation. Gold swings hard on sentiment, making it a less predictable reserve asset. Seems to us people are making a mountain out of a molehill when it comes to dollar volatility, committing the age-old mistake of saying “this time is different” because the US presidential administration says a lot of things. But the dollar was unusually strong when this administration took office and, even after some volatility, is still pretty strong historically. The dollar also normally sags in Republican presidents’ first years. This piece pokes at Gordon Brown for selling a lot of the Bank of England’s gold reserves at a cyclical low 25 years ago, but maybe he will have the last laugh after all if today’s central bank gold bugs end up changing their minds at a loss years from now.

MarketMinder’s View: If the headline didn’t give it away, there are lots of politics here, so bear in mind MarketMinder is politically agnostic. We prefer no politician nor any party and assess developments for their potential market implications only. That mindset is critical for this article, which posits that investors are living in some new wild west where White House proposals and actions shift stocks on a dime—sometimes companies, sometimes sectors, sometimes the broad market. The article shows its work, citing numerous examples (e.g., military actions in Venezuela affecting Energy stocks, chatter about credit card interest rate caps hitting Financials), but it makes a critical error: It doesn’t look back to prior administrations to see if this is truly new. Do so, and you will find it isn’t. It is totally, completely normal for presidents from both parties to spout policy ideas in public and for markets to react quickly, pricing in the projected consequences (good or bad) if those proposals became actual rules. Presidents Obama, Biden, Bush, you name it—all posed ideas that had at least temporary affects on sentiment and returns. More broadly, “buy the rumor, sell the news” is a maxim for a reason: It refers to markets pre-pricing developments in the “talk” stage, then doing something different than everyone expects in the “action” stage. Investors’ task has always been to sift the news from the noise and discern between short-term sentiment moves and longer, actionable trends. To illustrate the importance of this, consider: Just last year, all the hype around the Trump administration spurring a boom in crypto and fossil fuels led to … crypto declining on the year and fossil fuel stocks lagging global markets while renewables led. Nothing has changed. We live in the same old normal. It is still an error to presume first-order effects form political talk are bound to manifest in market outcomes.