Daily Commentary

MarketMinder’s View: As always, we are politically agnostic, preferring no politician nor any party and assessing developments for their investing implications only. And our opinion on this executive order, which directs the Labor Department to study regulatory changes necessary to open 401(k)s to private equity, cryptocurrency and other alternative assets, would be the same: Just because you can invest in something, should said regulations go through, doesn’t mean it is wise or beneficial to do so. Investors should always think through the basics—not just volatility risk and return, but other risks, like liquidity. Consider private equity, which typically has long lock-up periods and capital calls in funds geared toward qualifying sophisticated investors. Lowering the qualification bar to bring private equity into everyday retirement accounts generally means adding privately held securities and private equity to retail funds, which seems to be what fund managers are prepping for now. The problem is, all these assets are illiquid, yet the funds holding them are meant to be liquid—a big mismatch. That mismatch can come with redemption gates, making it hard to get out if everyone else wants to sell. “That means if an emergency crops up, investors can’t easily take their money out, said David Robinson, a professor of finance at Duke University. ‘If you don’t like the performance of the mutual fund, you can sell your mutual fund shares that same day,’ Robinson said. ‘This ability to sort of vote with your feet and walk away is greatly constrained in the private market.’” Yuuuup. Indeed, there is a multiyear court battle underway in the UK about this very thing, with a fund manager and administrator at odds over who was responsible for fund liquidity when investors were trapped in a crashing retail fund that had loaded up on private assets. We aren’t rendering an opinion there, just showing the minefield investors ought to consider. For more, see our recent commentary, “Inside Wall Street’s Private Equity Push.”

MarketMinder’s View: In our ongoing tariff coverage, we have frequently noted offhand that the new 40% charge on transshipped goods—items routed through a low-tariff third-party country—seemed unenforceable. This deep dive on the subject highlights why, with a key reason being, no one is even sure what the tariff is meant to do. “Here’s the confusing part. It is already illegal to pass something off as originating in, say, Vietnam when it was made in China. So why would a tariff apply to something that’s not supposed to happen in the first place? ‘Importers are scratching their heads,’ said Stephen Lamar, the executive director of the American Apparel and Footwear Association. ‘The new rules that appear to legalize, but tax, currently prohibited transshipment activities fly in the face of common sense enforcement.’” So is the goal, as some surmise, to tax a final good’s components based on country of origin? The White House says it is “exploring” new rules to do this, which seems to imply that isn’t what the transshipment tariff is about. (And which also reminds us to remind you we are politically agnostic, setting personalities and parties aside to assess developments’ economic and market implications only.) Hence, uncertainty continues, but most seem to agree none of this can be vetted presently. So it is probably business as usual, with companies doing everything they can to manage the hassle while minimizing costs, dotting their Is and crossing their Ts. It may not be ideal from an administrative standpoint, but it is something markets are familiar with by now, sapping surprise power.

MarketMinder’s View: This first-person account from someone who fell prey to a financial scam illustrates a key point: There are many kinds of scams, and being an expert in the red flags of one type doesn’t make you immune. After being targeted by a scammer online, this woman became an expert in “trauma bonding” fraud, which targets people who share about going through difficult times on social media. It is often romantic in nature, with the goal being manipulating victims into sending money or gift cards. “I was working full-time as an NHS healthcare worker, but when I wasn’t at work I’d spend hours helping to track down scammers – and I’d post about the stories to warn other people on my TikTok account … As my followers grew to more than 10,000, I started to become a target for scammers myself. I began to enjoy leading them along to the point they’d ask for money and send me their bank details – then I could report their bank or crypto account to the police.” But there are other kinds of fraud, and when she received a letter purportedly from the tax authorities saying “they’d added extra security to my account and I needed to send a copy of my passport and driving licence to confirm my identity,” she complied. “It sounds ridiculous now, but because the letter looked identical to ones I’d always received, I sent pictures of my documents to the email provided.” By the time internal alarm bells started ringing a few days later, it was already too late, with her tax rebate stolen and the thief borrowing money and starting a business in her name. The lesson here? Everyone is potentially at risk, no matter how savvy or well-versed in fraud techniques. The pervasive myth that it is only technology neophytes or the elderly who get scammed is just that: a myth. No matter who you are, it is always necessary to go slowly, think critically, ask questions and pay close attention to requests for personal information, however official-looking the request. Make a red-flag checklist and run everything past it before you respond.