Daily Commentary

MarketMinder’s View: Here is one of several programs China is implementing to defuse an allegedly long-looming financial crisis that headlines have warned spells hard landing for the economy. “The Inner Mongolia region issued three ‘refinancing’ bonds worth 66.3 billion yuan ($9 billion), with maturities between 3-7 years, the Shanghai Securities News reported, citing an official document. Bloomberg reported earlier that Beijing will allow provincial-level governments to raise about 1 trillion yuan via bond sales to repay the debt of local-government financing vehicles and other state-owned off-balance sheet debt issuers. ‘This means that this year’s special refinancing bond issuance has officially kicked off,’ Huachuang Securities analyst Zhou Guannan said, adding that the program will help resolve debt risks in areas with high debt pressure, and more issuances will follow. The program is being closely watched because debt servicing costs are increasingly limiting local governments’ ability to deliver fiscal support to the economy, dragging on China’s growth. The risk of an unexpected default by local-government controlled financing vehicles also raises financial stability risks.” While refinancing 1 trillion yuan isn’t close to the IMF’s estimated 66 trillion yuan of off-balance sheet financing vehicles local governments are saddled with, it could be a step to a larger program—similar to 2015’s 12 trillion yuan debt swap. While this shifts debts onto provincial governments’ balance sheets, we think the transparency, likely lower interest rates and greater fiscal flexibility can help reduce investor uncertainty. Although Chinese economic growth is slowing amid real challenges, we think this shows that China’s government has the tools and willingness to make a hard landing an unlikely outcome, contrary to fears.

MarketMinder’s View: Everyone’s personal situation and financial circumstances are different, and there is no “one-size-fits-all” when it comes to people’s decision to work. But with many Americans living longer—and healthier—than ever before, their options have broadened, and some are charting their own path. This article opens with a former city manager who, not satisfied with “fly fishing and hiking filled” days in his golden years, decided to “unretire” and find more fulfillment teaching high school. To each their own and more power to them! But apparently he isn’t alone—according to one money manager’s research, “Some 20% of those who consider themselves retired are actually working full-time or part-time, and another 7% are actively seeking employment, the report said.” An executive from the outfit added, “Things have opened back up—and some people have realized that not only do they like the financial benefits of working, but the mental stimulation and social benefits as well.” If you are considering non-traditional retirement, the article offers some advice, including the pros of delaying Social Security for bigger benefits, the social and emotional benefits of working longer and how “Many in-between options are possible, especially since working from home has become routine. You can create your own schedule with part-time work, project-based gigs, or consulting—remotely or in person.” We think the findings here also dampen an investment-related worry. Many think aging populations are auto-bearish for markets because it supposedly makes the economy less productive. As this shows, “unretirement” trends suggest otherwise.

MarketMinder’s View: As the market truism goes, the cure for high prices is high prices—because they limit demand and invite more supply, luring producers with potential profits, which (eventually) brings prices down. So it goes with oil. “Despite the fact that U.S. oil producers are now deploying the lowest number of drilling rigs in more than a year and a half, America’s crude oil production is set to hit a monthly record in September—at 13 million barrels per day (bpd), according to estimates by Rystad Energy. Production growth has slowed due to the discipline U.S. shale producers have shown in the past two years, but a slower increase still means that output is headed higher, the energy research firm says, as carried by The Wall Street Journal. The expected monthly record in September will match the record output from November 2019, the only other month in which U.S. production hit 13 million bpd—just a few months before the pandemic crippled demand, sank oil prices and led to production cuts across the board. U.S. crude oil production is set to increase even more until the end of the year, with October and four-quarter output estimated to average 13 million bpd-13.1 million bpd, according to Rystad Energy’s analysis based on regulatory filings, satellite imagery, and pipeline flows. Even at a slower pace, American production is growing and offsetting part of the OPEC+ cuts, although the extended Saudi and Russian supply reductions are set to tighten the global oil market more than previously expected.” That doesn’t mean oil prices will fall overnight, but this underappreciated source of supply shows why extrapolating ever-higher oil prices—and Energy outperformance—is an error, in our view.