Daily Commentary

MarketMinder’s View: When markets get bouncy, many investors feel tempted to act—doing something in the face of volatility is one way to feel in control of a tumultuous situation. However, as this article correctly counsels, doing nothing is often the optimal strategy, frustrating as it might seem in the moment. Now, to be clear, we aren’t advocating for a “set it and forget it” approach to investing. If you see a little-noticed negative brewing—one capable of destroying trillions of dollars in global GDP—it can make sense to reduce your equity exposure if you believe there is much deeper, longer downside ahead. That said, participating in bear markets needn’t derail your ability to reach your long-term investment goals—but missing bull market returns can. To instill discipline, consider the scenario presented here: “… Timing the market requires not one but two decisions. We have to get out of the market, and then we have to get back in again. The first of these is relatively easy; the second is difficult. It requires us to swim against the tide, to go against the prevailing mood. What is worse, the longer you leave the decision to get back in, the harder it becomes. If you think losing money hurts, try sitting on the sidelines watching others make it.” It may not sound flashy, but to quote the great Lucien Hooper, “Sometimes you make more money sitting on your hands than you do dancing on your feet.” For more, see yesterday’s commentary, “Six Years On, Lessons From the COVID-Lockdown Low Endure.”

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.

MarketMinder’s View: Do you remember “Fedcoin”? If you don’t, let us go back to the early 2020s, when America’s Federal Reserve mentioned it was researching digital currencies—spurring a bunch of speculation about how a central bank cryptocurrency would change the currency landscape—and perhaps end the dollar and other major fiat currencies. At the time we thought those projections were vastly overrated, as most major central bankers were exploring the technology to facilitate transactions. As this article details, EU policymakers are still discussing the project, and the lead European Parliament member (MEP) on digital currencies Fernando Navarrete has apparently changed his mind and now fully supports a digital euro (before, he advocated for a scaled-down version). Yet even this doesn’t mean a “EuroCoin” is coming to an app any time soon. The proposal basically amounts to a payment system that would be a homegrown alternative to US payment platforms. “Navarrete’s shift in position increases the chances of a majority of parliamentarians backing the project during a vote scheduled before summer recess, although it is still opposed by conservative and far-right parties. If it does pass, the parliament would still have to negotiate the rules underpinning the project with EU member states before it can be signed into law.” Whether you fear or cheer central bank-sponsored digital currencies, any changes aren’t likely to come overnight—this will play out over years—and the product probably looks a lot more boring than fanciful headlines implied. A new mobile payment app … whoopdeedoo. For more, see our 2020 commentary, “Facts and Fiction of Fedcoin.”