Daily Commentary

MarketMinder’s View: When indeed. For several months now, headlines have talked of a K-shaped economy where, allegedly, wealthy households are doing well and driving growth while lower-income folks are slipping. (To date, no one has told us what the K’s vertical line would be.) This piece traces the etymology, crediting a college lecturer with popularizing the term in 2020 after he saw it on Twitter. That is kinda fun. But we would appreciate it more if someone would interrogate the veracity of the basic assumption, which this piece fails to do, instead taking it at face value that only one small economic subset is doing well, with most evidence amounting to consumer surveys. We have taken this on with data before, so let us do it more qualitatively this time, because there is a basic problem with trying to parse the economy by income levels and put people into buckets: Costs of living vary nationally. Per the St. Louis Fed, the Bureau of Labor Statistics pegged the average annual pre-tax income for the top 10% of Americans as $353,318. Someone making that would have a very, very high living standard in much of the inland and southern US. But in New York, Los Angeles, San Francisco and other metro areas, they are probably pinching pennies and rationing coffee in order to afford housing. So are they the upper or lower line of the K? Fact is, the US has a much broader spectrum of income than the letter-based metaphor implies, and those incomes’ mileage will vary depending on ZIP code. You could have low-income Baby Boomers spending like it is going out of style while high-income Millennials live like post-grads. And a whole lot in between. Most importantly, this is all a sociological issue, not the sort of thing markets get bogged down with.

MarketMinder’s View: We have long reminded readers that “not listed” doesn’t mean “not volatile.” Instead, it just means fewer pricing points, which pokes a giant hole in the private equity industry’s boasts of high returns with low volatility. Proving the point often relied on anecdotal evidence and digging into funds’ filings. Now the evidence pool has broadened, thanks to several private equity funds’ decision to become publicly traded. This article documents several, noting that their market price is now well below what they claim is their net asset value (NAV), including one whose price is a 40% discount to NAV. Now, MarketMinder doesn’t make individual security recommendations, so we aren’t offering an opinion on those listed here—just commenting on the broader point. Which is: Private assets aren’t inherently stable. They are simply illiquid. “You can have the mild price fluctuations of nontraded assets, or you can have access to your money whenever you want—but it’s turning out that you can’t have both.” Falling prices also exemplify a key trend we have followed: private funds’ difficulty in attracting and retaining capital. Simply, eagerness to get out exceeds eagerness to get in, which is forcing those selling to accept a lower price. “But it’s hard to overlook the irony here. For years, the managers of many of these funds have been marketing them as a way to escape the volatility of public markets. ‘And now, they’re just throwing them onto the [stock] exchange,’ says [one industry participant].” And thus the low-volatility myth is shattered.

MarketMinder’s View: This piece basically debunks itself, which is fun. UK retail sales volumes fell -0.1% m/m in November, missing expectations for a 0.4% rise and causing a lot of gloom about holiday discounts and cheer failing to lift retail spending. Only: “Supermarket sales fell for the fourth consecutive month, down 0.5% month on month, while online jewellery sales also suffered. Non-food stores – the total of department stores, clothing, household and other non-food retailers – rose 1% month on month. Department stores, footwear and leather goods retailers reported an increase in sales.” Sooooooo … people pulled back on groceries while indulging in a lot of holiday shopping? Seems to us things went largely fine in terms of discretionary goods. Note, too, this all happened against a backdrop of Budget uncertainty, with Treasury leaks and rumors rattling Brits until the Budget’s November 26 debut. We aren’t saying the UK economy is firing on all cylinders, but this seems like another example of downplaying a report that is just kinda meh. For more, see Wednesday’s commentary, “UK Inflation Cools More Than Expected … Raising Fears?”