Daily Commentary

MarketMinder’s View: This is a great explanation of why the long-term winners from new technology are impossible to predict and often aren’t the primary purveyors of the technology itself. But we think it misses on the portfolio implications. The immediate application is to AI, but it is generally true of all new major developments. Whenever something groundbreaking emerges, the initial hype surrounds the developers, then it shifts to the companies that build the infrastructure to spread it far and wide. But in the long run, the real winners are the creative users who dream up ways to apply that technology to solve everyday problems, bringing new or better goods and services to market. And those are always a giant unknown in the early days. So this seems like a reasonable hypothesis: “It will only be when everyone’s computer is running Claude or Perplexity, and we’ve all worked out how to use it, that AI will be transformative. When that happens, the gains accruing to the chip-makers and the builders of the data centres won’t disappear. But an increasing share of the economic value might migrate to the businesses and individuals using cheap and abundant intelligence.” (Which reminds us, MarketMinder doesn’t make individual security recommendations and features this for the high-level themes only.) The article spends most of its pixels on examples from the advent of railroads, electricity, automobiles and the internet. All good stuff! Our only beef is with the parting advice to start planning for all this in your portfolio now. If all the history highlighted here is a reliable guide, all those potential winners are way too far out to identify now, and it will be a long, long time before it starts showing up in their returns. Even those who craft the ETFs mentioned are just guessing, as the tumult around a recent hedge fund run by an AI “expert” illustrates. Markets pre-price the foreseeable future, about 3 – 30 months ahead, not far-flung possibilities.

MarketMinder’s View: As always, our discussion of politics is nonpartisan—our interest is with policies’ market and economic implications, if any. Recent bond market volatility has heightened concerns about what is to come in Chancellor John Healey’s late-October Budget, as Prime Minister Andy Burnham’s statement to Parliament on Tuesday—which included promises of more public control of utilities and government interventions to address the cost of living—has roiled nerves. As this analysis rightly points out in the opening paragraphs, this week’s spike in gilt yields isn’t a solely domestic phenomenon. Rather, bond yields spiked globally—likely a short-term sentiment reaction over inflation and government deficit fears. However, as the second half of this article reveals, many UK observers worry the Burnham government may make the country’s public finances even worse. Even economists friendly and/or sympathetic to Burnham’s ideas think the Labour government needs to get serious about “excessive” welfare spending. If not? “It is also easy to imagine an alternative script in which hard decisions are deferred and the UK-specific action in the bond market turns uglier – especially if, say, disruption to global energy markets looks likely to last the winter.” We don’t know how developments between now and the end of October will influence what is and isn’t in Healey’s Budget, but the amount of fear today indicates even watered-down tax proposals and modest welfare and public spending reforms could positively surprise investors. For more, see this week’s commentary, “The UK’s Budget Hot-Air Ballooning.” 

MarketMinder’s View: While we quibble with a few points made here (e.g., we think the government’s contributions to growth are overstated), this rundown of Germany’s economic situation nicely highlights the improvements that headlines, thinktanks and analysts are now noticing. “Germany's exports and industrial base have powered GDP growth, with new orders increasing for the third month in a row, leading to the strongest production growth since early 2022.  … many German manufacturing firms, especially in energy-intensive sectors such as chemicals, have benefited from the closure of the Strait of Hormuz. They have increased orders and taken some market share from Asian suppliers who were more severely dependent on Middle Eastern oil.” That better-than-appreciated outcome is a far cry from concerns that early-year volatility in energy markets would roil Europe and Germany, long dubbed “Europe’s Sick Man,” in particular. Another astute observation: that Germany’s rebound reflects cyclical forces. “For some analysts, the recent positive data reflects a sense that things had reached a natural ‘bottoming out’ and that a return to growth was inevitable. ‘It could hardly have gotten much worse,’ said [ING analyst Carsten] Brzeski. ‘We're bouncing back from low levels. This is not wirtschaftswunder ["economic miracle"] 3.0, we have to keep that in mind.’” That implied skepticism—along with the fretting here over structural issues and domestic demand—hints at a still-high wall of worry for the global bull market to climb in Europe’s largest economy. For more, see our July commentary, “Can Germany Engineer Faster Growth at Last?”