Daily Commentary

MarketMinder’s View: This is an interesting look at US President Donald Trump’s announcement yesterday that he will seek to impose tariffs of either 25% or 50% on selected imports from Canada, citing unfair trade practices. Now, as ever, we think such a move would be a fundamental economic negative—chiefly for the US, because the imposing nation always pays tariffs. But the targeted products here amount to only about $20 billion in imports, a small fraction of US trade with Canada. Beyond this, it also may be a mere negotiating tool, as this highlights: “Monday's announcement comes as the U.S. pushes for significant changes to the Canada-U.S.-Mexico Agreement (CUSMA), changes that would lock any Canadian trade concessions into the text of a trade deal. The Trump administration wants to wipe out as much of Canada’s leverage in those CUSMA talks as possible. Some of that leverage comes from eight Canadian provinces banning the import and distribution of U.S. alcohol products — one of the trade irritants the White House said triggered the new 50 per cent tariff.” These factors make this talk more of the same tariff talk seen since last April’s “Liberation Day” announcement, likely why markets didn’t blink at the news.

MarketMinder’s View: First, this mentions a few individual companies, so please note MarketMinder doesn’t make security-level recommendations—our interest is the higher-level theme. In this piece, that amounts to drawing a parallel between private credit today and in 2008, on the news that insurers are starting to back securitized tranches of private credit, all aimed at alleviating a liquidity logjam, with the insurance requiring little capital to back it. The problem with this is that it pays zero reference to the state of finance today, as banks carry loads of high-quality capital, a sharp contrast with 2008. Two, it misses the key ingredients in 2008’s financial crisis, which were not toxic debt spread throughout the industry. That was the imposition of FAS 157, the mark-to-market accounting rule, which required banks to mark illiquid securities to the last observable comparable trade. This is why writedowns of securities spread like a cascade across the industry, not the insurance backing, which is a footnote to the story. Insured or no, the asset was required to take a mark down when a “similar” security was sold. The omission of this in the story here is glaring. Also glaring: Private credit isn’t suffering a crisis of defaults and missed payments. It is that investors locked up liquidity they want out of as the returns are proving underwhelming. Big difference, folks. Look, we don’t discount the idea that financial alchemy can go too far. But the whole notion of securitized assets causing 2008 was never right and it still isn’t today.

MarketMinder’s View: The rationale behind the titular crisis? “A wave of baby boomer retirements will coincide with smaller cohorts of young people entering the labor market, resulting in a smaller overall workforce. That will lead to an ‘unprecedented situation’ where, for the first time in US economic history, more workers will leave the workforce than enter it, [University of Minnesota Professor Steven] Ruggles said.” The upshot: “With fewer people in the U.S. workforce, AI could end up as a necessary support for the economy. AI is likely to help ‘mitigate the impact of demographic changes on the labor market’ without harming workers, Ruggles said. AI may help firms boost productivity, allowing them to reap profits with which they'll be able to compensate the relatively few young workers they employ.” While we acknowledge this bullish outlook on AI is relatively rare in financial headlines these days and agree it could be a big help in fields with worker shortages, that doesn’t make the possibility actionable for investors today. Not only does the thesis rest on far-future demographic forecasts, which use straight-line math and are subject to major error, but like any other major technological shift, AI is likely to create winners and losers. Predicting which sectors, industries or groups of people will benefit down the line may be fine as a thought exercise for academics, but for investors, doing so can distract from what really matters: how economic reality aligns with expectations over the next 3 – 30 months. How AI will complement the labor force over the next few decades is beyond markets’ scope, and we think investors should couch that thinking accordingly.