Daily Commentary

MarketMinder’s View: Sometimes, you get interesting, seemingly big and consequential developments that turn out to have few economic and market implications. We suspect this is one of those things. The UK’s Office for National Statistics (ONS) has long warned of declining data quality due to falling response rates for the Labour Force Survey (LFS), which underpins its flagship employment data and feeds into a lot of other series, including inflation data. There are also rumblings about seasonal adjustment methodology difficulties, which reportedly contributed to this week’s delay of July retail sales data (now scheduled for September 5). It is a well-known problem and one the ONS is working to fix. But folks are now concerned about the fiscal policy implications, as ONS data feed into the Office for Budget Responsibility’s projections, which determine whether the government needs to adjust taxes and spending each year. Some warn bad data could lead Chancellor of the Exchequer Rachel Reeves to needlessly raise taxes or cut spending this October—effectively an own goal. We guess that is possible, but it is also possible the data err the other way. But the larger issue here is the assumption that if only the starting data were foolproof the forecasts would be spot-on and policy perfectly tuned. We doubt it. The US Congressional Budget Office’s forecasts haven’t had those same data issues over the years, and they haven’t been great, which means US fiscal policy has probably been scored inaccurately at times. This is all a moving target, and we think it mostly just highlights the trouble with letting forecasts dictate policy. That is a global issue, not a UK-specific one. So yes, interesting. But not really a game-changer. 

MarketMinder’s View: The titular test: ensuring a portfolio has the necessary liquidity. In discussing this pickle, the article notes the brouhaha over private universities’ federal funding, so we remind you we are politically agnostic, preferring no politician nor any party and focusing on developments that have actual economic and market implications—not pure sociology, which is outside markets’ purview. But it is true that university endowments have loaded up on private equity, putting them in a troublesome spot if they need to raise cash in a hurry. These are largely nontraded assets, which are tricky to get out of without taking a steep haircut, especially if you can’t wait around for a good deal. This article notes endowments perhaps shouldn’t have been in this position, giving many institutional investors had illiquid assets during the 2007 – 2009 financial crisis and had to sell at deep discounts. But memories are short, and this is a very common issue: “In good times, investors give no thought to liquidity, because cash is plentiful and the need for it isn’t pressing. In hard times, liquidity becomes the only thing investors can think about, because cash is scarce and the need for it is desperate. And when you have a sudden, urgent need for cash, good luck selling your alternative assets.” Yep. We think all investors, regardless of size, should consider an investment’s liquidity and what would happen if they needed to sell unexpectedly.

MarketMinder’s View: Most discussing of transshipping focuses on Chinese goods re-routing through countries with more favorable US tariff rates, keeping commerce flowing and costs manageable for US customers. But it goes the other way, too, as China has a retaliatory 10% tariff on all US goods. China is also one of the biggest buyers of US scrap copper, sending the industry scrambling to prevent US sellers from losing revenue and Chinese processors losing a key input. And that scrambling appears to have led to some creative solutions: “Officially, Chinese imports of copper scrap from the US have plunged this year, falling from 39,373 metric tons in January to below 600 tons in July, the lowest monthly total according to Chinese customs data going back to 2004. Shipments from other nations have largely filled the gap, since China’s overall imports of 190,000 tons last month was little changed from the start of the year. Shipments from Japan and Thailand have more than doubled since January, while imports from Canada climbed 29%. US export data, meanwhile, shows that Thailand, India and Canada were the top three destinations for American scrap copper in the second quarter.” We see this as another example of industries adapting, a big reason tariffs haven’t taken as big a bite as feared, helping stocks move on.