Daily Commentary

MarketMinder’s View: This argues traders think Fed officials’ projections of rate cuts delayed until late next year and only minor in scope (based on the latest “dot plot” economic projections) are hooey. It cites three drivers of this view: Easing inflation will persuade Fed head Jerome Powell and co. that prices are under control and tightening is no longer necessary; slowing economic growth will require policy easing; and the Fed’s forecasts are uncertain, so their current rhetoric of “higher for longer” interest rates may be off, too. We are of two minds about this argument. On the general outlook, we agree cooling inflation should irregularly persist and broad economic growth likely slows. Fed economic outlooks are imperfect, but most outfits’ are—nobody has a crystal ball that perfectly reveals the future. That said, our main quibble here is with the practice of trying to predict Fed action—or even that the “dot plot” constitutes a Fed plan, something Powell expressly rejected in that meeting, arguing officials can and will change this based on incoming data. He is saying the Fed itself isn’t trying to predict Fed action, and if they don’t know, how can analysts who aren’t in the policy discussions? Beyond that, even if inflation cools and GDP growth slows, what if an unexpected event complicates the economic picture and changes policymakers’ views? (See March’s regional bank scare.) Trying to assess how a cadre of officials will interpret data and act a month from now, let alone a year, is a fool’s errand, in our view. Not that investors need to do so these days, considering markets appear to have pre-priced rate hikes. For more, see last week’s commentary, “Pessimism and the Fed’s ‘Hawkish’ or ‘Careful’ Pause.”

MarketMinder’s View: The investment takeaways here are limited, but this piece nicely runs through Greece’s economic progress and turnaround over the past 10 years. While the eurozone’s sovereign debt crisis of the early 2010s affected several nations, “… Greece had it the worst, requiring three rescue packages from 2010 to 2015, totaling 320 billion euros, or $343 billion, with bitter austerity terms. Household incomes and pensions were slashed. The economy shrank by a quarter, and hundreds of thousands of businesses collapsed as banks shuttered. By 2013, nearly a third of Greeks were unemployed.” Things didn’t get any easier from there—“Grexit” drama hit a fever pitch in 2015—but despite myriad doomsday predictions, the country didn’t crash and burn. Rather, populist politicians compromised and implemented some reforms, and the Greek economy recovered. “Greece exited the bailout programs’ strict fiscal controls in 2018, and the government’s actions since then have earned confidence from the European Union.” The rebound has been so noticeable that even late-lagging credit ratings agencies have acknowledged it (and updated their sovereign debt ratings accordingly). That doesn’t mean all is well—as the anecdotes here point out, many businesses and households are still struggling amid high prices, like so many globally. But from a high level, Greece’s odyssey from the economic abyss to the titular “booming” shows how far the Hellenic Republic (and the eurozone broadly) has come since the region’s crisis days.

MarketMinder’s View: Please note, this analysis wades into some climate change chatter, which isn’t our focus—sociology doesn’t materially impact the economic conditions stocks care about over the next 3 – 30 months. Putting that discussion aside, we think this piece raises some useful points on long-term forecasts, particularly as they pertain to energy consumption. According to the International Energy Agency’s (IEA’s) latest, demand for oil, coal and natural gas is set to peak before 2030—but hitting a peak doesn’t mean demand will evaporate. While long-term forecasts have their limitations—reliably estimating conditions many years out is near-impossible, in our view—we think this perspective is useful. “The history of fossil-fuel consumption suggest the years after the peak wouldn’t be the expectation of a quick descent. Take coal. The IEA initially thought that demand for the world’s dirtiest fuel had reached an apex in 2013. Since then, consumption has largely leveled off and last year started climbing again, setting a fresh peak. Under current trends, demand is likely to set a fresh all-time high in 2024 and 2025. The gap between the most likely consumption path after reaching the crest and the net-zero models is incredibly wide — so broad that discussing the exact date of the peak is redundant.” It is a similar story for oil, as recent trends suggest that even if demand peaks by 2030, consumption isn’t likely to fall off a cliff in the subsequent years. Of course, something could change and throw off the current calculus. But successful investing is based on probabilities, not possibilities—and trying to call the “peak” in something while also predicting the related downstream effects is, at best, a guessing game, in our view. For more, see our March commentary, “On the Return of Peak Oil and Other Long-Term Forecasts.”