Daily Commentary

MarketMinder’s View: While it is a Republican Congress and White House flirting with a diesel export ban today, fuel bans are a bipartisan temptation whenever prices get high, so set aside the politics here, remember MarketMinder favors no party nor any politician, and let us look at the issue itself. This piece does a great job explaining why banning exports of diesel (or gasoline, if that were in politicians’ sights) would be an own goal. “That’s because a ban could prompt U.S. oil refineries to make less diesel, which would cause the fuel’s price to rise again. Restrictions on diesel exports could even reduce the supply of gasoline, jet fuel and other fuels that are made alongside diesel in refineries.” Currently, US refiners produce more diesel than the country consumes, exporting the surplus. That adds to global supply, helping prices worldwide. If refiners couldn’t export excess production, they would produce only what they could sell here, reducing global supply and lifting prices, since global supply and demand determine prices. Adding insult to injury: “Refineries configure their operations to produce various petroleum products from the crude oil they process. Although refineries could produce more of certain products — such as jet fuel rather than diesel — making such changes is expensive and time consuming. It would be far simpler for refineries to cut production of all fuels, causing the prices of gasoline, jet fuel and other products to increase.” Moreover, refineries have been running at full tilt this year and many require shutdowns for maintenance nearly annually. Banning diesel could encourage that to happen, reducing production quite broadly. Markets are familiar with these tradeoffs, and an export ban isn’t guaranteed to happen, but a backfiring ban could hit sentiment temporarily.

MarketMinder’s View: While a lot of writing about scams focuses on what happened and how to avoid them, the psychology is important, too. This is a deep dive on that topic, exploring how scammers thrive on victim-blaming. “Police, psychologists and antifraud groups increasingly see shame as more than an emotional consequence of scams; it’s part of the machinery that helps them work, isolating victims, suppressing reporting and leaving them vulnerable to being scammed again.” It is easy to see fraud as something that happens most commonly in a group that you aren’t a part of, be it elderly people, technologically challenged folks or people who aren’t native speakers of their country’s language. But everyone is vulnerable because scammers play on basic human needs and fears, triggering the fight-or-flight response that makes folks act quickly and thoughtlessly. “Vulnerability to a scam often has less to do with who you are than the circumstances you’re in when you fall prey to it. Scammers rarely find us on a good day. They find us when we’re tired, stressed or distracted — and the scams frequently manufacture urgency of their own: a payment that must be made now, an opportunity about to disappear, a threat of penalties or even arrest. In that moment, we’re expected to recall the many dozens of scams that now exist and spot the deception, even as artificial intelligence makes it easier to produce convincing messages, voices and images.” Instead, you may find it helpful to try to recognize when an unexpected communication puts you in this mental state and use that as a trigger to set it aside, take three deep breaths (or a walk or whatever) and return when you are clearer headed. And if you still fall for a scam, remember it isn’t your fault. It is the criminal’s fault, and they are probably part of a sophisticated international organization. Report it, spread the word, help empower your friends and society to fight the bad guys. For more, see our new feature, “ScamWatch.”

MarketMinder’s View: The headline here is too broad, tarring all bond funds that claim to be outperforming their benchmark. That isn’t an inherently bogus claim. The issue here is that many funds are using a benchmark only as a performance gauge, not a blueprint for portfolio construction, making their portfolios unrelated to the benchmark they claim to be beating. In this case, bond managers are comparing their performance to the Bloomberg US Aggregate Bond Index, aka the Agg. “The Agg consists entirely of investment-grade bonds, with approximately half its market value in Treasury securities, another quarter backed by U.S. government agencies and most of the remainder in high-quality corporate debt. Most mature in 10 years or less. Relative to the Agg, many bond funds have been taking way more credit risk, more interest-rate risk—or both. That’s made their trailing performance look great relative to the Agg. In this new, higher-rate market environment, though, those riskier strategies could go sour. Even so, many funds that zig when the Agg zags still compare themselves to it.” That would be like comparing an Emerging or Frontier Markets stock portfolio to the S&P 500, an index of large US stocks. It is apples and oranges. Proper benchmarking means using your selected index (preferably a broad, cap-weighted one) as a portfolio construction guide as well as a performance comparison. In bonds, that means using the benchmark’s allocation to various bond types and maturities as a starting point, then adjusting your own weightings based on your expectations. Having a small opportunistic exposure to something that isn’t in your benchmark, like a small position in high-yield or municipal bonds, can be ok if conditions warrant, but it shouldn’t be far from your benchmark’s zero percent weighting. That is just risk management. So when it comes to bond funds or any fund, don’t just look at recent returns compared to their chosen index. Look at construction, too, to see how the fund achieved those returns and whether it matches your comfort with risk and volatility.