Daily Commentary

MarketMinder’s View: So many useful lessons in one little story! This piece documents the effects of tariffs—specifically the higher rates on Vietnam and Brazil—on your morning cup of joe (or, if you are like some of us, cups). The annual coffee inflation rate surged to 20.9% in August, and there is an anecdote of one New York café upping its prices on a standard drip coffee from $2.50 to $3.75. That is a 50% increase, otherwise known as yowza. So what do we learn? One, while tariffs are purportedly about boosting US production, whether or not you think that is a likely outcome, the charges have ensnared everyday essentials that the US can’t viably produce. Coffee is primarily a tropical crop, making Hawaii and parts of California the only viable locations. Acreage is already pretty much maxed out, and US beans can service only about 1% of the coffee drinking market according to industry estimates. Two, it creates huge headwinds for the legions of individually owned cafes and roasters, who don’t have the national chains’ scale and clout to negotiate with suppliers, cut costs elsewhere in the business or use industrial breakfast sandwich operations to cover slimmer coffee margins. This makes tariffs more of an economic headwind, given small businesses’ big role in everyday commerce, than a stock market negative (where large corporations are more represented). Three, it is a reminder that big cost increases in one product aren’t synonymous with broad inflation, as coffee is just 0.1% of the Consumer Price Index (CPI) basket of goods and services, per the Bureau of Labor Statistics. And four, it is an excellent reminder that CPI may not match your personal expenses, which may be rising faster depending on what you spend more on. Those of us who drink a few cups a day are feeling this much harder than our caffeine-free pals.

MarketMinder’s View: The titular worry here is that Fed rate cuts will hit money market fund rates, hurting returns for the folks who have stashed $7.6 trillion there. That worry, which isn’t actually the point of this article, is an alleged boon for stocks, which many argue will benefit as people jump from money market funds to higher-returning assets. Now, we have never bought this thesis, as every stock purchase is also a sale, so money going into stocks is matched exactly by money flowing out. It cancels. But also, as this article discusses, it is a fallacy that all the money in cash right now is just waiting to go elsewhere. The competition for money market funds isn’t stocks, but other forms of cash. Reason being, people who hold their funds in cash are typically seeking stability for their emergency fund or money earmarked for a short-term purpose. Stocks, meanwhile, which are higher-returning in the long run, face the risk of short-term declines. So they generally aren’t a wise place to park money you may need tomorrow. There is a lot more than that in this article, which discusses the yield tradeoffs between money market funds and their main competitor, bank accounts, and highlights the long-term history of money market fund assets rising over time despite interest rate fluctuations. All interesting, if a little long-winded, but it hammers home the point that cash competes with cash, not stocks. The idea of a wall of cash rushing to buy stocks from the sidelines has always been flawed and remains so today.

MarketMinder’s View: This piece mentions several companies, and as always, MarketMinder doesn’t make individual security recommendations. We are here for the broader discussion only. And that discussion makes it quite clear, once again, that in addition to “initial public offering,” IPO stands for “it’s probably overpriced.” This week, a couple companies included larger-than-usual allotments for individual investors in their IPO, but make no mistake, this was not so that the proverbial little guy (and gal) could benefit. Instead, it was to finagle higher offering prices, which limit post-IPO gains. People think of booming IPOs as success stories, but to the early investors and underwriters, they are a sign of failure—a signal the offer price was too low and they could have reaped more for their stake in the previously private firm. So just because you can participate in an IPO as a retail investor doesn’t mean it is beneficial to do so. Most IPOs don’t do great (see the excellent research by University of Florida Professor Jay Ritter for lots of good data on this), which is something those who focus on the handful of high-profile rocket rides miss. Investing isn’t a get-rich-quick endeavor. It is all about having a diversified portfolio tailored to your goals and needs, enabling you to reap the rewards of compound growth in the long run.