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: 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.

MarketMinder’s View: Despite the deal reached earlier this summer, uncertainty still hangs over the US’s trade relationship with the EU. Not only are the US and EU negotiators still trying to hammer out a final statement, but the European Parliament—which must ratify any deal—is pushing for changes to the terms announced thus far. “Members of the European Parliament [MEPs] are pushing to insert a sunset clause that would limit the duration of tariff cuts on American industrial goods, and to adjust duties on specific products, according to people familiar with the matter.” Meanwhile EU negotiators want tariffs on steel and aluminum cut below the extant 50%, while MEPs “have also expressed concern about the list of more than 400 products that have been included under the punitive 50% metals tariffs.” So negotiations will continue, and this could yet fall through—one piece of the uncertainty businesses continue dealing with.