Daily Commentary

MarketMinder’s View: First, to be clear: Our interest in this piece has zero to do with long-range environmental projections or anything of that ilk, which is far removed from the world of investing. But this is a fairly sensible look at the price tag of shifting toward intermittent, renewable power sources like wind and solar, which is timely given household electricity costs are a key driver of the UK inflation rate’s ups and downs. Those inflation fluctuations have sparked a debate over whether the Bank of England (BoE) can and should cut rates, and this piece indirectly shows that debate’s baselessness—the policy issues here are outside central bankers’ control. Despite many claims, renewables’ costs are likely higher than alternative sources today—and won’t get much cheaper. It cites the costs of upgrading the grid to handle these sources: “Ofgem last week backed £24bn of spending on gas and electricity networks as the first part of a package that, for electricity alone, will reach £80bn over five years. That will add £104 to annual network charges on bills, the regulator said, although it also offered a net figure of £24 that includes the savings from keeping a lid on ‘balancing costs’, meaning costs associated with paying windfarms (usually in Scotland) not to generate when the system is overloaded.” But also, bill-payer-funded contracts establish price floors for power that are designed to foster investment in generation—but those floors keep rising and many project a jump at the next auction. A lot of this really boils down to how government policy picks winners and losers. In this case, the wind and solar industries are winning—while British consumers, who are paying more than wholesale prices for power—seem on the losing end. So while none of this tells us what the BoE will do, it demonstrates inflation rate wiggles alone aren’t enough for investors to judge the likelihood or merits of rate cuts.

MarketMinder’s View: This is a fairly technical and, in our view, excessively overcomplicated article arguing stocks are presently overvalued—especially US stocks—based on a variety of measures, especially in light of what this post deems very high uncertainty over geopolitics and economic policy. While we agree uncertainty is elevated, especially on the economic policy front, the two measures used at the beginning of this piece are highly, highly questionable: They both cite mentions of uncertainty in newspapers as the core metric, and even this uses a fairly narrow sample. In this, it looks like it could easily be an echo chamber, in the sense that uncertainty fuels mentions of uncertainty indexes, which then could feed back into the index later. Regardless, even if you look at the geopolitical uncertainty gauge, a truth emerges: 9/11 sent the gauge surging. But even that swayed stocks for only about two weeks. The Iraq War had no lasting, identifiable effect on markets. Ukraine in 2022 may seem bigger but was only one of a cornucopia of fears—and that coincided with a very shallow, brief bear market. Point being: These things really aren’t as huge of market events as this presumes. Now, as for the balance, it uses various valuation measures from forward price-to-earnings ratios to price-to-book to the fatally flawed Shiller “cyclically adjusted price-to-earnings ratio,” which compares a decade’s worth of strangely inflation-adjusted earnings (using an uncommon wholesale price index) to nominal stock prices, a mismatch. But as the piece admits after going through a series of busy charts, “Over the last decade valuations have been incidental to returns.” We think you can take it back much further than that. Valuations, friends, have little actual history of predicting future results. Expensive stocks, as in the late 1990s and most of the 2000s, can get pricier. Cheap stocks can get cheaper.

MarketMinder’s View: First, this article deals with political matters, so please note that MarketMinder favors no politician nor any party, assessing developments solely for their potential market, economic or personal finance effects. After President Donald Trump’s April 9 decision to postpone “reciprocal” tariffs for 90 days to allow for dealmaking, many circled July 9 as the deadline—wondering whether it would be extended. After much chatter and uncertainty over this, we got clarity today, as Trump issued a new executive order delaying reciprocal tariffs’ implementation to August 1 and started sending trade partners letters informing them what rate will apply then. This effectively recycles the news flow, with many now speculating this three-ish week extension will prove insufficient to strike very many deals, necessitating another extension later. And already, Trump has both said the deadline is a) flexible and b) won’t be extended, which seems very contradictory and likely prolongs some lingering uncertainty over this. Nevertheless, what this does show is the following: The administration is willing to strike deals and actively seeks to do so, while retaliation from trade partners appears limited. While the outcomes thus far do suggest tariffs will be higher even if deals are reached (see China, UK, Vietnam for examples), this all hints that the eventual results should be less bad than the worst-case scenario stocks pre-priced back in April. And that is fairly bullish!