Daily Commentary

MarketMinder’s View: This article offers a nice summation of Q1’s newsflow on private credit fund withdrawals and companies’ limits on them. In doing so, it touches on a few public companies’ funds, so please note that MarketMinder doesn’t make individual security recommendations. A lot of news on this subject approaches private credit as if it is another 2008 in the making. This piece doesn’t go all the way there, but it does overhype the handful of private credit defaults as indicating where the industry is going writ large, which we don’t really buy into. Fear of defaults is likely behind most of the withdrawal demands, which brings us to the positive aspect of this piece: the highlighting of withdrawal gates. Private credit aims to match funding time horizons with loan maturity, which differs greatly from traditional banking and renders it less prone to runs, which was a central issue in 2008. But it also means investors have a liquidity mismatch, because individual investors often need or want more access to their assets than these vehicles allow for. If you are weighing allocating funds to private assets, it is vital that you consider liquidity risk up front. This story is a good reminder of just that.

MarketMinder’s View: This piece doesn’t have any direct market implications, but it hints at a potential risk of an inflationary Wild West, so we think some context is beneficial. It features a Bank of England report on the potential implications of electronic supermarket pricing—think replacing those stick-in thingies with an LED panel—and warns “surge pricing” could be at hand. “It could see the price of ice cream rising during a heatwave, or higher prices if a shop is busier than usual. … Dynamic pricing allow [sic] companies to rapidly change prices based on supply and demand. It first came to prominence through Uber’s surge pricing feature, which raised prices for taxis at times when demand was high.” It then segues into a long discussion of whether Ticketmaster used this during sales of the recent Oasis reunion tour, which reminds us MarketMinder doesn’t make individual security recommendations and features this for the broader discussion only. But also, those two company-specific examples largely defang the broader thesis. Uber uses surge pricing during periods of high demand to encourage more drivers to hit the road and pick up fares—increasing supply, which then lowers prices while helping people get where they need to go quickly. Ticketmaster’s broader aim in raising prices is deterring resellers who would jack the price even higher. Consider the more benign ways supermarkets might use this technology, like deterring hoarding of water and toilet paper during a natural disaster. Or reducing prices when demand is low or there is a supply glut—think quickly cutting prices of strawberries or avocadoes if they are starting to look extra ripe and at risk of turning. Companies have always adjusted prices to try to better match demand trends. It isn’t all bad, and it isn’t always about raising said prices. In effect, it probably extends the status quo of some prices rising as others fall and netting out to little change. Just, faster, and maybe with more responsive supply and less food waste.

MarketMinder’s View: This piece provides some sensible context around Social Security’s overall health—a refreshing change from headlines’ usual doom and gloom. Namely, it highlights a recent paper that found most Americans assume Social Security is “going broke” tied to Trustees’ forecasts, politicians’ comments and public discourse more generally. Yet this is off base for several reasons. Yes, the program is currently in a deficit—more money is going out than coming in. But as the article notes, this doesn’t equate to total insolvency or default. “When the reserve runs out, if nothing is done, the federal agency will have sufficient funds to pay only about 81% of full benefits, according to an estimate from AARP. There’s a big difference between 81% and zero, but many Americans don’t see it.” Yep. On Social Security’s so-called “insolvency date,” the program would still pay out the lion’s share of benefits even if nothing changes policy-wise. It wouldn’t be a total freeze. Plus, as also noted here, payroll taxes fund most of Social Security, making it a pay-as-you-go system and rendering the depletion of the trust funds less of an issue than headlines commonly portray. The issue from there is a mismatch between incoming revenue and outgoing benefits, which Congress can easily address with tweaks to payroll taxes, the retirement age or something similarly small. Congress has already proven its willingness to adapt tax policy and keep benefits flowing in full, albeit acting at the last minute. (It could also make changes that aren’t about taxes to improve its health.) We doubt that changes, given angering voters by cutting benefits hurts their re-election chances. Secondly, these insolvency forecasts are highly imprecise, making straight-line projections around economic activity and wage growth—two inputs into future tax revenues. But none of that is knowable now, so take these estimates with a grain of salt. In concert, worries around Social Security’s health are a long-running false fear, more a political talking point than reason to do something different with your retirement investments.