Daily Commentary

MarketMinder’s View: Please note, MarketMinder is nonpartisan and prefers no political party or politician over another. Our interest here is solely with the notion that a government funding package can sustain a given business or industry over the long term. First, the details: “The funding package would provide more than $425 million to upgrade 13 existing coal-fired power plants. Another $185 million would be used to match corporate funding for coal projects in Alaska, Maryland and West Virginia, while $75 million would support construction of the long-proposed West Gateway coal export terminal in Northern California, according to the White House official.” These figures are subject to change, but what hasn’t changed: coal’s dwindling importance as an energy source for America. “Coal generated more than half of U.S. electricity in 2000. Today, it accounts for less than one-fifth of power generation, according to data from the U.S. Energy Information Administration, as utilities have increasingly shifted toward natural gas and renewable energy sources.” Despite pledges from both parties to support the coal industry and/or coal-dependent communities, government policies haven’t been able to change coal’s downward trajectory. Rather, other energy replacements (namely, natural gas) and market economies have been the primary culprit. Even Emerging Markets, long a source of export demand for US coal, are shifting gears gradually. Keep that in mind whenever a politician promises they can “save” an industry through government support. For more, see our still-relevant 2020 commentary, “Coal’s Continued Decline Defies Political Narratives.”

MarketMinder’s View: The headline is correct but requires critical context. First, the titular Irish GDP contraction (-12.1% q/q, much sharper than a previously estimated -2.0%) would be for Q1—ancient news for markets, given we are in Q2’s final month. Second, should eurozone GDP actually have contracted in Q1, that is less a reflection of the 21-member bloc and more illustrative of Ireland’s uniqueness. “Irish economic data is very volatile, since it is affected by the activities of a small number of very large U.S. companies. … The CSO [Central Statistics Office] said the contraction was largely confined to the activities of U.S. businesses based in the country, with the output of what it calls the MNE (Multinational Enterprise)-dominated sectors down 27.1% during the quarter. While U.S. technology companies are included in that category, the decline appears to have been led by pharmaceuticals, with industrial production down 35% on the previous quarter.” This is why the Irish statistics office publishes a specialized statistic to track the economy, called modified domestic demand, or MDD. MDD grew 0.6% q/q in Q1, which utterly shatters the notion that Irish economic activity is a drag on the whole. (Source: Central Statistics Office of Ireland) Besides, as the article explains, US tariffs last year prompted American businesses domiciled in Ireland for tax purposes to build up inventory—which buoyed exports (and made Irish GDP one of the fastest-growing last year). That activity is now cooling as things return to normal, so Irish GDP’s slowdown is no surprise. Though more recent data have indicated soft patches in Europe, mixed growth isn’t a negative for global markets, especially with expectations toward non-US markets relatively cool. For more, see last month’s commentary, “A May Global Economic Check-In.” 

MarketMinder’s View: This article focuses on the UK experience, but we find its takeaways applicable to America, too, as it explores several drawbacks of relying on residential real estate as your main nest egg. (Also our interest here is only in the titular discussion; the news roundup following it is beyond our scope.) While many view real estate as a tried-and-true ticket to wealth, the data paint a different picture: “Over the past five years, the average UK house price has risen by 3.3% a year. That’s significantly below inflation, at 5.1%. Global equities by contrast have returned 10.9% a year, even before you consider reinvested dividends. Over 20 years, the contrast remains. If you’d bought a home for £100,000 in December 2005, and its price had grown in line with the average UK house price, then by December 2025 it would be worth £182,000. The equity portfolio would have been worth £450,000, again without dividends. With reinvested dividends, the equity portfolio would be worth £728,000.” Sure, a national average housing price isn’t necessarily indicative of every investor’s experience, but even after adding in rental income, real estate lags. Also don’t forget maintenance and repair costs, homeowners’ insurance and property taxes when making (after-tax/fee) comparisons to stock returns—keeping in mind many dedicated retirement accounts also carry tax advantages that physical real estate usually doesn’t. Then, too, managing a property portfolio properly can be a full-time job, which might be the last thing you would want to undertake in retirement: “If you are looking to invest for retirement in a relatively low-effort way, there is simply no comparison. Investing via your pension or ISA [British equivalent of a 401(k)] is just so much easier, while giving you returns that—based on history—are at least as good. I have no ideological bias against investing in property. There are good and bad landlords, but I don’t think landlordism itself is to blame for our dysfunctional housing market. But being a landlord is a business, and you have to treat it as such. Relative to a portfolio of equities, it is simply much harder and more time intensive to manage.” While a house is great for living in, its benefits as a long-term investment are frequently overstated.