Reader Mailbag: Arctic Blast Edition

Brrrrrrrrrrrr! Dear readers, we hope you are staying warm and snug during this wicked cold snap, with warm woolen blankets, crackling fires and all the cozy creature comforts after you shovel the front walk, build your snowmen and maybe enjoy some sledding.^[i] And for extra coziness, here is our latest mailbag! Enjoy.

Why have Europe’s stock markets been doing better than their economies?

We think you can look at this a few different ways. The high-level reason: Stocks move most on the gap between reality and expectations, and expectations for European economies were pretty dim a year ago. Lackluster overall growth, with pockets of strength (Spain, Portugal) and some weakness (Germany), wasn’t a massive disappointment. It met expectations in some quarters and exceeded them in others, amounting to a bullish cocktail of positive surprise. The same story unfolded on the political front, with gridlock being a positive surprise in the face of fears of instability. And where those fears seemingly did come true, as with France’s government collapses, it wasn’t a surprise. Reality turning out better than expectations, with an added dose of falling uncertainty, is good enough for stocks. By contrast, consider India. It had among with highest GDP growth rates among major economies in 2025—and yet MSCI India returns were a mere 2.6%, as high sentiment entering the year made positive surprise harder to attain.^[ii] Never presume economic growth alone dictates market returns.

You can also look at this in sector terms, as most European markets are concentrated in one or two sectors. Financials and Industrials play a heavy role in many. The former benefited tremendously from Europe’s steeper yield curves. Banks borrow at short-term rates and lend at long-term rates, so a steeper curve means a wider spread between the two—signaling bigger profits on new loans. It is an easy earnings growth serum. That had secondary benefits for European Industrials, where firms finance a lot of their expansion with bank lending.

How reliable are China’s economic data?

All economic data have some holes, and China’s are certainly no exception. Not because we think any country has ulterior motives or that their statisticians poison the well, but because economies are big and complex and hard to measure. A lot of data collection is survey-based, and many countries are dealing with declining response rates that make accurate assessments difficult. Using models to impute results from a limited response won’t get you very far. Then, too, a lot of cash-based activity doesn’t get captured. Seasonal adjustments add another layer of trickiness, as do inflation adjustments. In the end, every country’s GDP growth rate is a best guesstimate.

We know why people single out China in particular here. One former Premier famously cast doubt on China’s data many years ago and suggest the world look at narrow proxies like electricity generation to get an accurate read of whether the country’s economy was trending up or down. This fueled rampant speculation about politicians meddling with the data, which you may speculate about if you like, but we think a major issue then was the lack of mature seasonal adjustment processes. Over time, China has begun releasing more and more seasonally adjusted monthly readings, and they haven’t shied away from releases with negative numbers. Make of that what you will. But overall, we think skepticism is always in order, regardless of who is releasing the data, and investors benefit from looking at all sources, public and private, and weighing the full picture. It will still be a mere pencil sketch, but a more filled-in one than official releases alone will give you.

What do you think the main effect of the “Trump accounts” for US newborns will be?

Maybe this is the idealist in us, but we suspect improved financial literacy will be the big one. We would love it if these would give every young American a little nest egg to get a head start on college tuition, apprenticeships, starting a business or a down payment, but the amounts in question are probably too small to make a meaningful dent.

But the habits and knowledge these accounts could foster? That is where we see strong potential. When we were in school eons ago, we learned about compound growth, but it was only ever theoretical. We loved the concept, but it was hard to wrap our heads around when our Tootsie Roll banks didn’t pay interest and we couldn’t reap the rewards in action. Kids who have these accounts will have that real-world experience of seeing their account grow with the market and watching percentage returns morph into bigger and bigger dollar-based returns as their principal grows. They will probably also learn about managing this money, which is great for character-building as well as financial awareness. What better way to learn patience, delaying gratification and all the rest? 

What are your thoughts on rare earths as an investment?

Generally, that they are commodities. Rare earths have a rarefied (sorry) reputation, partly because of their name and partly because they are in-demand for computer chips, batteries and many other things that make the world go. They aren’t actually rare in the physical sense. It all kind of creates the perception that they are a one-way street, and that one way is up.

But commodities are cyclical. Prices rise as demand exceeds supply. Those high prices are a signal to explore for new deposits and open new mines, but this is time-intensive and carries high up-front costs, which means supply stays short for quite a while, pushing prices up and fueling more investment. Eventually all those new mines come online, flooding the market with new supply and prices fall, which stalls investment as the world works through the supply glut until the cycle eventually starts anew.

Which means commodities are in-season at some times and out-of-season at others. Right now, the developed world is in a major investment push for rare earths, which is especially intensive given the complicated process of isolating them from the other minerals and metals they attach to in the wild. This isn’t a recommendation for or against, just encouragement to consider the entire big, messy picture.

Who is your ideal Fed head?

Probably a robot, but maybe Taylor Swift, because she has a lot going on and probably wouldn’t try to get too involved. Maybe she would just put Milton Friedman’s mythical computer program on autopilot to ensure the money supply grows at a stable and predictable pace that will fuel the economy without overheating it.

We kid, of course. The truth is that, for the most part, the Fed head is inconsequential. They are 1 vote of 12 of the Federal Open Market Committee (FOMC), and there is so much groupthink on that committee that no single voice matters much. The Fed head’s main job is to be the institution’s public face—testifying to Congress, holding press conferences, that sort of thing. That, and perhaps trying to persuade others to follow their lead on policy. They do chair meetings, but that mostly involves saying it is so-and-so’s turn to speak, presenting the Fed staff economists’ reports and recommendations, taking FOMC votes and steering debate over the policy statement’s wording. It actually seems like a thankless role. You spend the bulk of your time herding cats and fielding inane questions from politicians, and then you get blamed for everything that goes wrong in the economy. So for pure entertainment, maybe a stand-up comedian. But from a policy standpoint, we just don’t think it matters. Even someone with a glittering resume that ticks all the right boxes can oversee a monetary mistake.