MarketMinder Daily Commentary

Providing succinct, entertaining and savvy thinking on global capital markets. Our goal is to provide discerning investors the most essential information and commentary to stay in tune with what's happening in the markets, while providing unique perspectives on essential financial issues. And just as important, Fisher Investments MarketMinder aims to help investors discern between useful information and potentially misleading hype.

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‘It’s All Happening Again.’ The Supply Chain Is Under Strain.

By Peter S. Goodman, The New York Times, 6/24/2024

MarketMinder’s View: This article claims ongoing Red Sea attacks, a Panama Canal drought and other longstanding shipping concerns threaten to snarl vital cargo flows around the world. “The intensifying upheaval in shipping is prompting carriers to lift rates while raising the specter of waterborne gridlock that could again threaten retailers with product shortages during the make-or-break holiday shopping season. The disruption could also exacerbate inflation, a source of economic anxiety animating the American presidential election.” But as the piece itself acknowledges, businesses are accustomed to potential disruption—and have adapted. The proof? One, as the article shares, “Since October, the cost of moving a 40-foot shipping container from China to Europe has increased to about $7,000, from an average of roughly $1,200, according to data compiled by Xeneta, a cargo analytics company based in Norway. That is well below the $15,000 peak reached in late 2021, when supply chain disruptions were at their worst, but it is about five times the prices that prevailed for the years leading up to the pandemic.” Yes, we are still well above prepandemic levels, but today is a far cry from a couple years ago. Also, the Institute for Supply Management’s latest May readings show manufacturing supplier delivery times below 50, indicating shortening waits. Meanwhile, the New York Fed’s Global Supply Chain Pressure Index is subzero, meaning supply constraints are below their historical average. The benchmark Baltic Dry Index is also trading around its historic average and less than half its October 2021 high (per FactSet). Of course, all this is backward looking. It is possible unforeseen global supply disruptions await, spiking prices as the holidays roll around. But the constant attention on well-known issues affecting supply chains today likely mitigates the probability they become major problems in the future. There is every incentive for businesses to work around such obstacles, raising the likelihood their profits are better than expected.


These Hot New Funds Are ‘Boomer Candy’ for Retirees

By Jack Pitcher, The Wall Street Journal, 6/24/2024

MarketMinder’s View: Please note MarketMinder doesn’t make individual security recommendations. Products mentioned in this piece serve only to illustrate the broader investment theme: supposedly earning equity-like returns without taking the commensurate risk by investing in the titular (and questionable, in our view) “boomer candy.” As the article relates, the growth of exchange-traded funds (ETFs) that use derivatives to produce extra dividend income or protect against losses follows the adoption of SEC rules in 2020 that made it easier for asset managers to use derivatives in ETFs, which “helped to open to the masses a number of strategies previously reserved for Wall Street pros or wealthy individuals.” But just because you can doesn’t mean you should. Why? For some options, “The funds generate higher dividend income than is typical in a stock fund—sometimes 8% to 10%—but they also cap investor gains and carry chunky fees. Buffer funds, another popular strategy that uses derivatives, claim to guard against investor losses, up to a point, while limiting potential gains as well.” Yep, there is no free lunch—a “guaranteed return” comes at a price, and in our view, capping or limiting stock gains could be a big setback. Most of the ETFs noted here vastly trail the underlying indexes cited as benchmarks since their debuts. Rather than trying to sidestep uncomfortable short-term volatility by owning complicated products, we think a more effective approach is a mind shift: accepting that the price of stocks’ higher long-term returns is short-term volatility. Moreover, if you have short-term cash flow needs and can’t stomach equity volatility during the interim, we think bonds offer a far better cushion. Paying more for likely less total portfolio returns doesn’t strike us as the optimal option for retirees.


Here’s What Retirement Looks Like When Real Estate Is Your 401(k)

By Veronica Dagher and Anne Tergesen, The Wall Street Journal, 6/24/2024

MarketMinder’s View: Except for non-traded REITs, we have few issues with real estate investing. But as this article helpfully reminds would-be property investors, for most, “Holding real estate does mean work in retirement. Rental units sometimes sit vacant. Urgent repairs and tenants who miss payments or cause damage bring headaches. From property taxes to insurance, the costs of owning property are also rising. ‘If you’re a landlord, it can be difficult to feel like you’re truly retired,’ said Daniel Johnson, a financial planner in Winston-Salem, N.C., who specializes in retirees with multiple real-estate holdings.” The article shows examples of four people who successfully retired thanks to their property holdings, highlighting their trials, tribulations and eventual rental income payoffs. But what struck us about all four was that they had some professional experience in the real-estate industry: realtor, construction project manager, commercial real-estate developer and building supplier. These are all just anecdotes—which can be insightful but are indicative of only one specific experience. Unless you know what it takes and don’t find it too onerous, real estate investing may not be an easy fit for many entering their golden years. This is especially true when you consider the trade-offs to property ownership, which include a lack of liquidity and the difficulty in truly diversifying, given potential exposure to local economic trends.


‘It’s All Happening Again.’ The Supply Chain Is Under Strain.

By Peter S. Goodman, The New York Times, 6/24/2024

MarketMinder’s View: This article claims ongoing Red Sea attacks, a Panama Canal drought and other longstanding shipping concerns threaten to snarl vital cargo flows around the world. “The intensifying upheaval in shipping is prompting carriers to lift rates while raising the specter of waterborne gridlock that could again threaten retailers with product shortages during the make-or-break holiday shopping season. The disruption could also exacerbate inflation, a source of economic anxiety animating the American presidential election.” But as the piece itself acknowledges, businesses are accustomed to potential disruption—and have adapted. The proof? One, as the article shares, “Since October, the cost of moving a 40-foot shipping container from China to Europe has increased to about $7,000, from an average of roughly $1,200, according to data compiled by Xeneta, a cargo analytics company based in Norway. That is well below the $15,000 peak reached in late 2021, when supply chain disruptions were at their worst, but it is about five times the prices that prevailed for the years leading up to the pandemic.” Yes, we are still well above prepandemic levels, but today is a far cry from a couple years ago. Also, the Institute for Supply Management’s latest May readings show manufacturing supplier delivery times below 50, indicating shortening waits. Meanwhile, the New York Fed’s Global Supply Chain Pressure Index is subzero, meaning supply constraints are below their historical average. The benchmark Baltic Dry Index is also trading around its historic average and less than half its October 2021 high (per FactSet). Of course, all this is backward looking. It is possible unforeseen global supply disruptions await, spiking prices as the holidays roll around. But the constant attention on well-known issues affecting supply chains today likely mitigates the probability they become major problems in the future. There is every incentive for businesses to work around such obstacles, raising the likelihood their profits are better than expected.


These Hot New Funds Are ‘Boomer Candy’ for Retirees

By Jack Pitcher, The Wall Street Journal, 6/24/2024

MarketMinder’s View: Please note MarketMinder doesn’t make individual security recommendations. Products mentioned in this piece serve only to illustrate the broader investment theme: supposedly earning equity-like returns without taking the commensurate risk by investing in the titular (and questionable, in our view) “boomer candy.” As the article relates, the growth of exchange-traded funds (ETFs) that use derivatives to produce extra dividend income or protect against losses follows the adoption of SEC rules in 2020 that made it easier for asset managers to use derivatives in ETFs, which “helped to open to the masses a number of strategies previously reserved for Wall Street pros or wealthy individuals.” But just because you can doesn’t mean you should. Why? For some options, “The funds generate higher dividend income than is typical in a stock fund—sometimes 8% to 10%—but they also cap investor gains and carry chunky fees. Buffer funds, another popular strategy that uses derivatives, claim to guard against investor losses, up to a point, while limiting potential gains as well.” Yep, there is no free lunch—a “guaranteed return” comes at a price, and in our view, capping or limiting stock gains could be a big setback. Most of the ETFs noted here vastly trail the underlying indexes cited as benchmarks since their debuts. Rather than trying to sidestep uncomfortable short-term volatility by owning complicated products, we think a more effective approach is a mind shift: accepting that the price of stocks’ higher long-term returns is short-term volatility. Moreover, if you have short-term cash flow needs and can’t stomach equity volatility during the interim, we think bonds offer a far better cushion. Paying more for likely less total portfolio returns doesn’t strike us as the optimal option for retirees.


Here’s What Retirement Looks Like When Real Estate Is Your 401(k)

By Veronica Dagher and Anne Tergesen, The Wall Street Journal, 6/24/2024

MarketMinder’s View: Except for non-traded REITs, we have few issues with real estate investing. But as this article helpfully reminds would-be property investors, for most, “Holding real estate does mean work in retirement. Rental units sometimes sit vacant. Urgent repairs and tenants who miss payments or cause damage bring headaches. From property taxes to insurance, the costs of owning property are also rising. ‘If you’re a landlord, it can be difficult to feel like you’re truly retired,’ said Daniel Johnson, a financial planner in Winston-Salem, N.C., who specializes in retirees with multiple real-estate holdings.” The article shows examples of four people who successfully retired thanks to their property holdings, highlighting their trials, tribulations and eventual rental income payoffs. But what struck us about all four was that they had some professional experience in the real-estate industry: realtor, construction project manager, commercial real-estate developer and building supplier. These are all just anecdotes—which can be insightful but are indicative of only one specific experience. Unless you know what it takes and don’t find it too onerous, real estate investing may not be an easy fit for many entering their golden years. This is especially true when you consider the trade-offs to property ownership, which include a lack of liquidity and the difficulty in truly diversifying, given potential exposure to local economic trends.