Daily Commentary

MarketMinder’s View: Moods are thawing in Europe’s largest economy, according to the Ifo Institute’s latest survey of around 9,000 German businesses. The think tank’s business-climate index ticked up from May’s 85.0 to 85.6 in June, beating analysts’ expectations and rising for a second straight month. That is all fine and dandy, but note this simply extends May’s crawl off April’s multi-year lows following the Iran war’s start. Ifo’s gauge remains markedly below its roughly 100.0 long-term average, so fears that higher energy prices may knock German industry are still present. Still, June’s warming suggests some improvement in moods. “‘Firms perceive the business environment as less uncertain. German companies are hoping for geopolitical tensions to ease,’ Ifo President Clemens Fuest said. Companies saw their current business situation more positively, while firms’ expectations especially in manufacturing and retail trade for the next six months were also somewhat less skeptical, he added.” Surveys don’t predict economic activity, but they can provide a rough sentiment snapshot. So in this case, it seems businesses in Germany are recognizing the war’s proverbial dark clouds aren’t as threatening as initially feared.

MarketMinder’s View: As headlines fret over the prospect of inflation heating up again, gold prices are slipping—prompting a worthy reminder for investors. As the article notes, though gold has posted double-digit gains in each of the last three years, some worry possible Fed rate hikes (in response to rising prices) may end the rally. But wait—isn’t gold supposed to be a safe haven when inflation picks up? If this thinking were true, gold prices and inflation rates would have a strong positive correlation (meaning they tend to move simultaneously in the same direction). But as we have covered in droves, this just isn’t the case. History shows gold lacks this relationship with inflation, and the shiny metal’s recent tumbling further illustrates the lack of connection. Gold is still just a commodity, moving chiefly on short-term, unpredictable sentiment swings. For more on this, see last week’s commentary: “Gold Fails the Safe Haven Test Again.”

MarketMinder’s View: As commentators worldwide consider the legacy of late Fed head Alan Greenspan, this piece zeroes in on one frequently miscast item: The “Greenspan put,” which morphed into the “Fed put”—the supposition that when markets fall, the Fed will step in and prevent further trouble. This article takes the view that this a) existed, b) is on ice because higher inflation prevents rate cuts and c) will probably return when the next downturn arrives. But we think the evidence that this was ever a thing is spotty, chiefly because it reads far much into the Fed doing its day job of setting monetary policy and serving as lender of last resort in a crisis. Yes, the Fed cut rates after 1987’s Black Monday, but the stock market wasn’t the only financial system ringing alarm bells that day. There was already abundant evidence that money markets globally were far too tight, which we think the volatility was in response to. (For more, revisit Fisher Investments founder and Executive Chairman Ken Fisher’s Forbes columns from 1987.) Calling banks that evening to ensure the Fed would backstop their emergency loans to brokerages and clearing houses sounds to us like normal lender-of-last-resort stuff. Orchestrating the purchase of failing hedge fund Long-Term Capital Management’s assets in 1998, another example cited here, always struck us as a sideshow more than a meaningful driver of stocks’ recovery from that year’s correction. As for the rate cuts, plenty of market corrections (sharp, sentiment-fueled drops of -10% to -20%) came and went without Fed action, and rate cuts in 2008 didn’t prevent that bear market from becoming one of history’s worst. People have always given the Fed far too much credit for whatever happens in the stock market, regardless of who is running the show. We think it remains best to keep things simple: Weigh monetary policy decisions as they are made to see if they could have unintended consequences people aren’t thinking through. This is vital at all points of the market cycle, not just when volatility strikes.