Daily Commentary

MarketMinder’s View: After sharing a few fun anecdotes from Holland’s tulip mania of 1636 – 1637, this analysis looks at some of the more speculative corners of today’s market, including cryptocurrencies and “meme” stocks, arguing the theses for owning these assets is based less on fundamentals (e.g., future cash streams) and more on appearances (i.e., being a part of the latest investing fad). “All of this raises the question of why such surreal financial assets are popular now. I think the answer is technological—but the technology is not blockchain, it’s social media and the trading app. It has never been easier for retail investors to egg each other on, and to trade in haste around the clock.” Now, we aren’t painting in broad brushstrokes and calling every meme-stock or crypto investor a heat chaser—some probably do have fundamental reasons underpinning their reasons to buy. Nor do we think this sort of investing is as commonplace as this makes it seem. The article fairly notes that the ease in trading today (low costs, easy technological access, etc.)—which we think is generally a plus—has drawbacks. It is much easier to act on an emotional impulse when all you have to do is pull up an app and push a few buttons, and many studies like those referenced here suggest more trading equals lower returns. Similarly, more information has pluses and minuses. Successful investing requires constantly challenging yourself and considering ways you could be wrong. You can find that online, no doubt. But you can also find loads of things that confirm your biases and thereby lead you astray—and many people will struggle to overcome the desire to see that as pure validation. While we aren’t against cryptocurrencies and meme stocks per se, the typical rationale for owning them seems based more on hype and what just happened than a logical assessment of conditions going forward.    

MarketMinder’s View: We found this long article mixed. It is heavy in some parts on geopolitics, diplomatic relations and some sociology, but our focus isn’t on those topics given their limited direct market implications. The analysis does raise some global economic developments worth addressing, but first, a couple quibbles. The “steepest US tariff wall since the 1940s” sounds like an insurmountable trade barrier, but it is riddled with exemptions. Commerce disruptions aren’t great, but they are nowhere near as airtight as the piece makes them seem—never mind whether they even stand up to legal scrutiny. (The article also lists some specific companies, so we remind readers MarketMinder doesn’t make individual security recommendations, focusing only on the broader theme.) Second, in making the case “America is cutting itself off from a region set to comprise almost 60% of the global economy by 2050 versus just 11% for the US,” it relies on long-term forecasts whose veracity is unknowable today—so take them with a few grains of salt. And while the article overstates America’s isolation on the world stage, it does highlight how non-US countries are strengthening their trade ties—an underappreciated global market tailwind. One example here is thawing relations between India and China, which should increase trade opportunities, as well as expanded Chinese trade with Southeast Asia—an underappreciated side effect of US tariffs that helps the global economy’s resilience.

MarketMinder’s View: As the article mentions some specific companies and investment funds, please understand MarketMinder doesn’t make individual security recommendations. Any mentioned here are for illustrative purposes only. Now, we don’t think valuations are a useful guide for investors, so the titular claim here that UK stocks are “cheap” doesn’t hold any water for us fundamentally. Our interest here is from a sentiment perspective. From that point of view, consider these two observational nuggets: “The first is that although the dominant macroeconomic narrative in the UK is pretty gloomy, especially in the run-up to the Budget next week, what happens in the economy isn’t necessarily a good guide to what happens in the equity market, which is full of internationally focused stocks. [Second,] there’s a good reason why UK stocks have been cheap for so long, and it’s not because of the impending Budget. It’s because overall UK corporates have been producing anaemic earnings growth while the US corporates have seen double-digit, AI-infused earnings growth. ... Look at the US markets and you will see that its stock markets are filled with, yes, you guessed it, AI-influenced tech and telecom companies. … However, representation in the UK is much weaker by comparison. If we examine the 350 largest companies in the FTSE All Share index, technology and telecoms account for, wait for it, less than 5pc of the index’s total value. In simple terms, our market comprises sectors and stocks that don’t excite ...” This argument hits a key overlooked point about UK markets: They skew more toward value-oriented sectors (especially Financials and Energy) than American markets, so their trailing US stocks isn’t shocking considering growth has led for the better part of the past decade. However, all sectors and styles have periods in the rain as well as the sun. UK stocks’ time will come eventually, and judging by the still “gloomy” sentiment surrounding UK stocks, reality has a low bar to clear to exceed today’s low expectations.