Daily Commentary

MarketMinder’s View: This is a valuable read for any American investor. Nobody wants the headaches and heartaches associated with IRS scrutiny of their tax returns—especially given the agency is taking longer and longer to resolve them of late. There are some common and basic issues that drive many of the IRS’ inquiries which you can easily avoid. Things like consistency in who is listed as the taxpayer and who is the spouse on joint filings or reporting anything listed on a 1099—even if it isn’t a taxable action—are two of several detailed herein. Additionally, this offers some useful counsel for those who do receive inquiries from the IRS and how to manage your communications with them to ensure efficiency and documentation. Read the whole thing.

MarketMinder’s View: Well, we sure have a lot of quibbles with this piece. It argues the inflation pressure stemming from rising oil prices means the Fed, Bank of England and other central banks won’t “look through” potentially temporary inflationary pressures to support markets and the economy with easier policy, which it deems problematic as “Modern markets have gotten used to central bank support whenever the global economy wobbles.” But hold the phone. Give us an example from the last 20 years of a central bank stepping in to actually arrest a market decline. Didn’t happen in 2008, when the Fed and others cut rates and launched quantitative easing (QE) that autumn. The bear market intensified and ran through March 2009, with a recession continuing to Q2 2009’s end. In 2022, Fed hikes were part of the negative shock cornucopia that drove the bear market, which ended in October 2022—and the Fed kept on hiking dramatically for months thereafter. Ditto for other global central banks. Where was the “help” then? In the 2000 to 2002 bear market, most Fed cuts fell between January 2001 and January 2002. The bear market ran through October 2002. Even in 2020’s odd, COVID-lockdown induced bear market, the Fed was cutting for months before the crisis began. That didn’t forestall the market decline and sudden recession. Point being: Central bank intervention or action can help economies at times of stress. It isn’t necessary or some all-important factor assured to blunt a decline. It may do nothing more than foster panic! So whatever central bankers decide to do with respect to the Iran war, the key is to not overrate the importance. While a monetary policy error could be negative, the absence of easing in the face of perceived market pressure doesn’t really qualify as such.

MarketMinder’s View: Please note, this article mentions several specific banks, and MarketMinder doesn’t make individual security recommendations. Those referenced here are coincident to a broader theme we wish to highlight. First, a little background: Back in 2023, US regulators proposed updating capital rules for financial institutions—the headliner being a 20% increase in banks’ capital requirements. While the news wasn’t a shocking development—banks had known something like this was coming for years as part of global “Basel IV” capital standards—the industry pushed back hard against the seemingly aggressive interpretation (while also increasing their capital in preparation for the potential regulations). Now regulators are scrapping the proposed capital requirements while tightening asset valuation standards, which this article finds mostly sensible. As it notes, the upshot will likely be to bring more commercial lending back to traditional banks, reversing the move toward private credit since 2008, and it might also give banks more latitude to implement share buybacks. The article also sensibly notes that while banks may get back into the residential mortgage game, this isn’t likely to help with home affordability, as more widely available mortgages tend to lift house prices by boosting demand. Where we disagree is with the headline fear, which the conclusion touches on: that there is a significant risk the biggest banks may deploy all this spare cash in a hurry, potentially overheating the economy and housing markets since freeing up $200 billion in capital could add $1.7 trillion to the financial system (based on how banks risk-weight assets). While that is possible, we think it underestimates these firms’ risk management capabilities and their ongoing tendency to be more judicious than the rules require. Bankers are also aware the political winds could shift and the next White House could push stricter capital requirements. Uncertainty discourages risk taking, and policy on this front has flipped every four years since 2016. We can’t predict what the future holds, but banks aren’t blind to potential political and regulatory risks, and any overheating isn’t going to happen overnight. Investors have time to watch and weigh things as they play out. For more, see Fisher Investments Research Analyst Davis Zhao’s 2023 commentary, “Those ‘New’ Bank Capital Rules? Old, Slow-Moving News.”