MarketMinder

Headlines

Here we analyze a selection of third-party news articles—both those we agree and disagree with.

Please note: Though we make every effort to source articles from freely available sites, we will also regularly include articles on sites that have limited content for non-subscribers. Doing so is increasingly unavoidable, as more and more financial media is published behind paywalls.


It Will Take Time to Dig Out of This Consumer-Spending Hole

MarketMinder’s View: Hole? Yes, retail sales fell -1.9% m/m in December, but it is hard to say the combination of shortages and supply chain jitters pulling holiday spending into November is really some massive, lasting economic headwind. Moreover, retail sales are only part of total consumer spending, most of which is services. We won’t have data on that for another week. Context is key, friends. Furthermore, the thesis, as best as we can discern it, is that consumer spending will be blah for a few weeks and Q1 results might trail Q4’s. Ok maybe, but there really isn’t much for investors to do with that information. Stocks look 3 – 30 months out, and they are probably pricing in events well beyond Q1 (not to mention last quarter) at this juncture. Myopia just doesn’t serve investors well, in our view.

UK Economy Back to Pre-Pandemic Levels in November

MarketMinder’s View: UK GDP grew 0.9% m/m in November, bringing it above its pre-pandemic peak and making the country the latest to complete the round-trip journey. Growth was broad-based, with services strong and construction contributing for the first time since May. All good! But as we would expect in this environment of dreary sentiment, the general reaction amounts to nice but it won’t last because Omicron is already hitting activity. November also got a boost from early Christmas shopping, which might have pulled some demand from December. These are fine observations, and we don’t think GDP is likely to soar this year—moderating to pre-pandemic growth rates always seemed likely once the initial reopening bounce faded. Critically, however, a triple-dip recession looks unlikely, even with Omicron keeping people out of work for a spell and work-from-home policies reducing foot traffic in urban areas. Society has gradually figured out how to live with the virus, and today’s situation is a world away from the lockdowns that reigned a year ago, which we think were responsible for that GDP contraction. Stocks don’t need perfection—just a reality that goes modestly better than expected. Expectations seem overall dim right now, making that positive surprise easier to attain.

Price Controls Set Off Heated Debate as History Gets a Second Look

MarketMinder’s View: To be clear, the titular debate is academic, as policymakers haven’t proposed capping prices in the US. But it is a rather politicized debate, so we remind readers that we prefer no party nor any politician and assess such things for their potential economic and market impact only. With that said, we do think price controls are highly unlikely to achieve their purported aim of lowering prices—and history agrees with us. This piece does a good job of running through theory and evidence to show why. The theory: “In a free market, prices naturally settle at the point that balances out [supply and demand]. In that model, when the government imposes an artificial cap on prices, supply falls (since companies won’t make as much money) and demand rises (since more people will want to buy at the government-imposed lower price). As a result, supply can’t meet demand, resulting in shortages.” Not to mention black market activity and, when the caps eventually lift, prices skyrocket. You can see the latter in the UK right now, with “capped” electricity prices rising astronomically every time regulators reset the ceiling. Meanwhile, during the Nixon administration’s dalliance with price caps, “almost as soon as the government began to ease the restrictions, prices shot back up, leading Mr. Nixon to impose another price freeze, followed by another round of even more stringent controls. This time, the controls failed to tame inflation, in part because of the first Arab oil embargo.” Some argue price controls work best when paired with rationing, pointing to WWII, but we don’t see it. One, prices rose swiftly after caps and rationing went away. Two, price caps and rationing are a dual incentive for companies to limit production, making the supply shortages even worse. So in our view, we will all probably be better off if this idea stays confined to the ivory tower.

What Biden’s Fed Nominations Mean for Policy

MarketMinder’s View: This pithy look at President Joe Biden’s nominees for the Fed Board of Governors’ three open seats makes some good points and one we quibble with. The good: It (rightly, in our view) acknowledges that the Fed is a “consensus-driven institution,” making it unlikely that any 1, 2 or even 3 people has outsized influence on the 12-member Federal Open Market Committee that determines monetary policy. It also points out that the confirmation process will probably be rather slow, keeping these folks out of the rate-hike debate in the near term. Where we disagree, however, is with the notion that Fed nominees’ political leanings, past writings and recent statements make their monetary policy votes predictable. In our experience, they don’t. Fed members often act differently than their resumé suggests, with supposed “hawks” cutting rates and “doves” preferring to raise them. Heck, the Fed often doesn’t even follow its own forward guidance, instead moving the goal posts until the consensus is ready to act. If you need any evidence here, just consider the “hawkish” turn the Powell Fed just supposedly took late last year. Monetary policy just isn’t predictable, in our view, and investors’ time is probably better spent on other endeavors.

Profits for S&P 500 Companies Rose 22% in the Fourth Quarter and Nearly 50% in 2021, Estimates Show

MarketMinder’s View: Here is a concise summation of the mood entering Q4 2021 earnings season: “Fourth quarter earnings for the S&P 500 are expected to be up 22.4%, according to Refinitiv, capping off a remarkable 2021 where overall earnings will be up approximately 49%. Don’t expect that to last. Investors will be dealing with three major issues that will affect corporate profits: consumer demand, profit margins, and Fed policy. Two of those factors — profit margins and Fed policy — are likely to be serious headwinds.” On those alleged headwinds, experts worry higher commodity and labor costs will drag on businesses’ profits in 2022 and that companies are overlooking possible Fed rate hikes—perhaps leading to a nasty surprise. While companies with the biggest gross profit margins can likely handle rising costs better than their smaller counterparts, we also think businesses in general are resourceful at finding ways to maintain profits. Besides raising prices, they could choose to cut costs elsewhere or use their margins to absorb costs today on the expectation future sales will replenish their buffers. As for Fed hikes, they are neither preordained nor automatically bad for the economy or stocks. The rest of the article discusses brewing “early warning signs” ranging from higher analyst estimates to early-reporting companies not beating projections by as much as they used to. That skepticism in the face of generally fine news provides a snapshot of muted sentiment today, which we think is a sign this bull market has some wall of worry to climb in 2022.

Stock Market Normality Returns, and It Hurts

MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations. Any companies or funds mentioned here are incidental to two broader themes we wish to debunk. The first: that securities’ performance in the first six trading sessions of the year means anything for markets going forward. According to this article, penny stocks’ and meme stocks’ struggles—and value stocks’ strong start—show markets are returning to “normal.” We think that is a stretch, not least because a “normal” market doesn’t exist, especially in the short term. As legendary investor Benjamin Graham put it, in the short run, the market acts like a voting machine—i.e., sentiment and feelings can have a big influence on returns. Over the longer term, though, the market is a weighing machine, caring most about economic fundamentals. We don’t recommend investors treat one week’s or two weeks’ performance as indicative—doing so implies past returns are meaningful to forward-looking stocks. The second misperception highlighted here: “When 10-year Treasury yields rose above 1.8% for the first time since January of 2020 it prompted an intraday 3% selloff in growth stocks—before Treasury yields started to fall and growth stocks tore ahead again. This pattern could be part of a broader shift back to how stocks used to behave before the dot-com bubble of the late 1990s, when higher bond yields were generally bad for stocks, and lower yields were good.” Besides again reading too much into short-term movements, this “pattern” doesn’t exist. Take big Tech and Tech-like companies as a proxy for growth stocks—they have fared just fine during periods of rising interest rates. The lack of meaningful connection stems from the difference in stocks’ and bonds’ demand drivers. Inflation and inflation expectations matter most for the latter. In contrast, stocks care more about the economic, political and sentiment factors influencing profits. There is some overlap, to be sure, but not a fundamental connection.

Europe Power Costs Hit Longest Falling Streak Since Early 2020

MarketMinder’s View: Some minor relief appears to be on the way as Europe endures a wintertime energy crunch. “Europe’s longer-term power prices were pulled lower for the seventh session as milder weather and improved gas supplies brought down nearer-term prices. It’s getting cheaper to power homes and factories across the region as more liquefied natural gas arrives in Europe to fuel power stations, and windy weather bolsters renewable output. Power costs still remain historically high, with Germany’s year-ahead price, a benchmark for the continent, more than double its level this time last year.” As that last sentence suggests, energy prices likely continue to sting European households’ wallets now and in the near future, and we don’t dismiss that headwind. But the combination of milder-than-expected weather and energy producers responding to price signals (e.g., half of America’s record-high liquefied natural gas exports went to Europe in December) has led to a reality that hasn’t been as severe as many feared several months ago—some evidence, in our view, of the market’s ability to find solutions to society’s problems.

‘Britcoin’ Project Mocked by Lords as a ‘Solution in Search of a Problem’

MarketMinder’s View: Central bank digital currencies (CBDC) have been in and out of headlines over the past couple years, with different countries at different stages of the development process. While proponents tout their benefits (e.g., lower transaction costs), others have some doubts. Count a committee in the UK Parliament’s upper chamber (the unelected House of Lords) in the latter camp. “‘Personal privacy is at risk from payments data being made available to the state or the private sector, and without pretty robust protections a CBDC system would be a data magnet for those who control it,’ said [committee chair] Lord Forsyth, adding that it could be a target for hackers from a ‘hostile nation state’. ‘Financial instability could be exacerbated during a financial crisis, as people would be motivated to exchange their bank deposits for a CBDC.’” These risks are firmly in the distant possibility phase right now, as a Treasury spokesperson quoted here said a decision on a UK CBDC hasn’t been finalized yet. However, while we aren’t for or against CBDCs, we do think the unintended consequences of a broad rollout are worth exploring. Besides the aforementioned privacy issue, what about the impact on the private banking system? Would the Bank of England become the primary lender to households and businesses? We suspect committees are holding many meetings with fancy slide decks to address these issues and more. For investors, though, remember: Just because something has loose ties to new technology doesn’t mean it requires a ton of your attention today. For more, see our 7/22/2021 commentary, “A Primer on Digital Currencies.”

China Credit Improves on Government Bond Sales Short-Term Loans

MarketMinder’s View: As the chart shows and the article notes up top, China’s “stock of outstanding credit grew 10.3% to 314 trillion yuan, faster than the 10.1% expansion in November. Broad M2 money supply grew 9% in December, up from 8.5% in November.” The pickup in credit growth is likely tied to the government’s recent efforts to support economic growth. Now, there is some question as to how much of that credit is making its way to households and businesses that need it. “Chinese banks were likely lending to each other in December as they rushed to meet government credit quotas. However, since the start of this year they look to have scaled back loans to each other in a sign that they are lending more to companies and households as they tend to do at the start of each year.” But as one economist quoted here says, Chinese financial authorities seem intent on making “overall credit expansion more stable” to support the economy and ensure social stability. In our view, government officials have the ability and incentive to avoid the long-feared economic hard landing, and we think reality likely exceeds dour expectations for China in 2022.

U.S. Oil Producers Ramp up Fracking in Sign of Stronger Output Gains

MarketMinder’s View: As crude WTI oil prices approach last year’s high of $85.64 a barrel—and pundits project them going higher—here is something to keep in mind: “The number of pressure pumping units at work in the Permian rose 5% in December, over the previous month, analysts at Tudor, Pickering, Holt and Co said. Pressure pumping is one of the last steps required to complete a well. ... Pressure pumping units, also called frac spreads, use water, sand and chemicals to break up shale rock and release trapped oil and gas. Oil companies have slashed a backlog of drilled-but-uncompleted wells and the rise in frac spreads indicates faster activity.” Oil supplies may be somewhat tight now, but markets look forward and reflect the outlook 3 to 30 months ahead. In that timeframe, as the US Energy Information Administration noted yesterday, America’s crude oil production is set to pick up from 2021’s levels this year—and projected to hit record levels in 2023. While this is just a forecast, an uptick in production wouldn’t be shocking to us—it would reflect American producers’ response to price signals. Oil producers worldwide don’t appear to be sitting still, either. As the article mentions at the end, “Bank of America analysts this week forecast global spending on drilling and completion will rise 22%, the strongest year-over-year gain since 2006.” Rising supply is one reason why extrapolating ever-escalating oil prices into the future doesn’t seem wise to us.

Analysis: Rise in Real Bond Yields May Slow but Not Stop Stock Market Bulls

MarketMinder’s View: This article pushes the widespread—and massively overhyped, in our view—connection between bond yields (real or otherwise) and stocks. The argument relies on the “there is no alternative” thesis, in which very low (and negative, when adjusted for inflation) bond yields force investment flows into stocks rather than bonds. The seemingly logical conclusion is that if bond yields rise—like they have recently—money will leave stocks and go back to bonds, undercutting the bull market. But is it true? The article cites analysts saying this hasn’t really ever happened historically: “Above all, equities have performed well during many previous episodes of rising real yields, provided economic growth held up. [Investment management firm] Bernstein notes for instance that during five past real rate ‘normalisation’ cycles in 1975, 1980, 2012-2013, 2016 and 2020-2021, global stocks returned between 2.3% and 51.8%. ... Separately, data from Truist Advisory Services shows the S&P 500 enjoyed positive returns in 11 of 12 real rate rise cycles since the 1950s.” The article then segues into several other long-running fears: Positive real yields will be bad for the economy and markets; higher yields will spur a rotation out of Tech and into more value-oriented sectors; and they will lop high price-to-earnings multiples down to size. We have encountered—and countered—these misperceptions before. When real yields flipped positive in July 2013, nothing untoward happened—stocks had a terrific year. Tech often rallies alongside rising rates. There is no set relationship between bond yields and stocks’ valuations. When confronted with some supposedly ironclad market relationship, asking and answering the question “is it true?” can cut through the noise and hype.

Vertical Integration Is Making a Comeback at US Companies

MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations, as the companies here—both present and past—illustrate a broader theme we think is worth highlighting. Supply bottlenecks have posed headwinds to many businesses worldwide for the past 12 months. However, companies adapt to evolving economic conditions, and this article highlights a strategy available for larger firms with the resources and capability to deploy it: vertical integration. As discussed here, this approach’s roots go back to the 19th century, when it was employed by meatpackers, steel producers and automakers alike. “As the business historian Alfred Chandler Jr. observed, firms rarely integrated backward in the supply chain out of a desire to squelch the competition. Rather, he wrote, the ‘primary motive for vertical integration was to assure a steady supply of materials into the enterprise’s production processes.’ It was a way of imposing order and predictability on the chaos of economic forces around them.” Today, some of the world’s biggest businesses are implementing the practice in an effort to control their own costs and profitability. We aren’t here to opine on the merits or drawbacks of the strategy, which may eventually prove to be inefficient investment—a sign of excess to watch for, although we don’t think it is bearish now. For now, in our view, vertical integration’s comeback illustrates businesses’ uncanny ability to adapt—a benefit owning stocks conveys on investors.

Bank Stocks Set for Big Gains Ahead of Potential Fed Rate Increases

MarketMinder’s View: Sure, to the extent interest rates rise—and the spread between long and short rates widens—that could buoy banks’ loan profits, increasing the appeal of their stocks. As the article notes, “… [H]igher interest rates would help with their bread-and-butter business. Banks make money by charging higher rates on their loans compared with what they pay out on their deposits, and they tend to raise interest rates on their loans before increasing them on deposits, too.” But here is the thing: Nearly everyone expects higher interest rates now, so it is likely the performance in the chart at the top of this reflects those expectations now. If they don’t come to pass, it is more likely investors’ disappointment could drive bank stocks to lag. In our view, that looks likely. Since 1933, 10-year yields have risen less than a quarter of a percentage point in the 6, 12 and 18 months following an initial Fed interest rate hike. Why? Pretty simple, really. Long-term rates are market-set and hinge on inflation expectations. Rate hikes counter inflation, all else equal. We are even more skeptical today that rates rise materially from here, given it is widely expected and the fact inflation pressures tied to base effects, reopening and the supply chain should ebb by around midyear seems underappreciated (or flat dismissed by most investors).

Global Supply Chain Pressures Ease, but Crisis Isn’t Over

MarketMinder’s View: This article is a fairly even-handed look at supply-chain issues, exploring the decline in the US Federal Reserve’s new Global Supply Chain Pressure Index, which combines 27 variables including established measures of shipping costs, and the renewed lockdowns affecting Chinese ports. The upshot: While supply chain pressures have eased, there will likely be some volatility in shipping costs and times, given China is still pursuing a “Zero COVID” strategy utilizing draconian lockdowns to manage virus outbreaks. That seems about right to us, although we are quite sure stocks know it, as this is front page news everywhere from Sydney to Seattle and beyond. That said, this article loses us a bit at the end by speculating these issues will mean not only that firms increase inventories, but that they will recoil from globalization. The former seems likely, at least in some cases, and it could be a modest drag on profitability, we guess. The latter is sheer speculation, and really just echoes speculation from 2019, when former President Donald Trump’s tariff use was the alleged cause. In our view, trade patterns—particularly in goods trade—are so deeply entrenched in the global economy that they will be very difficult to disengage. In reality, that is good—as legendary economist David Ricardo argued, countries and regions should specialize in producing what they have a competitive advantage at and trade for everything else. That maximizes productivity, logic that holds in pandemic times, too.

Fed’s Powell Pledges Inflation Fight in Renomination Hearing

MarketMinder’s View: First, to be crystal clear, inflation is an increasingly political issue of late, as is the renomination of Fed head Jerome Powell. Our comments on rising prices are not ideological and reflect solely our interpretation of the economic factors underpinning it and the potential monetary policy responses to it. That said, Powell told the Senate Finance Committee, “‘I think that inflationary pressures do seem to be on track to last well into the middle of next year. And if they last longer than that, then I'll just say that our policy will continue to adapt,’ he said.” The article goes on to note that Powell has U-turned after calling inflation pressures “transitory,” but that quote seems a lot like he hasn’t really changed too much. Regardless, we suspect an outlook for cooling inflation in the second half of 2022 is likely correct. By then, lingering base effects and reopening pressures should fall out of the data, muting year-over-year rises. Furthermore, there are signs in surveys like the Institute for Supply Management’s purchasing managers’ indexes that supply chain crunches are easing. To the extent that holds true, inflation metrics should slow their rise by midyear. If they don’t, and supply-side inflation stays hot, Powell’s policy moves probably couldn’t do anything material about it. After all, no matter how many rate hikes the Fed implements, it wouldn’t put Europe’s natural gas market into balance, mass produce semiconductors or yield more bacon.

Bitcoin Death Cross Is Staring Down Bulls After a Painful Retreat

MarketMinder’s View: Does technical analysis—the use of chart patterns to predict future price movement—work in crypto? This piece is sort of on the fence on that issue. It notes that, after bitcoin’s rough start to 2021, the 50-day moving average of its price is close to dropping below the 200-day moving average. To chartists, this is a bearish sign that near-term momentum has diverged from the longer-term uptrend, a sign of more declines ahead. This is traditionally most often cited for stocks, and it doesn’t work. While there isn’t much history to really ironclad prove it hasn’t worked for bitcoin, either (a major issue for those interested in buying crypto-assets, in our view), this article gives some evidence that it isn’t effective. “[Bitcoin] marked the grim-sounding pattern in June of last year, and another one in March 2020 proved no impediment to gains as it turned higher and formed a golden cross (when the pattern is reversed) two months later. But a death cross in November 2019 saw the coin trading lower one month later.” This shouldn’t shock, considering the trouble with the death cross—and all technical analysis—is they depict past price movement, which never predicts. Toward the end of this piece, the article takes a nonsensical turn by alleging modestly positive correlations between stocks and bitcoin support the IMF’s recent warning that cryptocurrencies move in tandem with stocks, which we figure is supposed to mean a bitcoin death cross is bad for stocks. Folks, just, no. And not just because the death cross doesn’t work—but because this viewpoint is flawed. All you need to do is look back at 2021, when bitcoin went on a wild ride up and down with no bearing on equity markets. The fact they tend to move together modestly more often than not during bitcoin’s brief history doesn’t mean bitcoin swings matter one iota to stocks’ direction. Stocks move based on how economic and political fundamentals compare to sentiment. Bitcoin is basically a sentiment-based, greater-fools-theory speculation that isn’t proven to have any relationship to fundamentals.

Updating My Favorite Performance Chart for 2021

MarketMinder's View: The titular chart is a “quilt” ranking annual performance of 11 assets and investment styles, best to worst. We enjoy this because it shows some key points, some of which the accompanying commentary highlights. Among them: Within stocks, no one style or region (or, we would add, sector) is best for all time. Sometimes the US leads (the box labeled “large cap” is an S&P 500 index fund) international stocks, sometimes the rest of the world leads. Large and small cap also tend to trade leadership—and despite calls for smaller, more cyclical companies to dominate as the economy recovered last year, large cap more than held its own. That, in our view, is a sign this bull markets is behaving like a late-stage cycle, which is when larger and growth-oriented stocks usually lead. Speaking of which, the past decade-plus proves that remaining in stocks during a brutal bear market needn’t be a permanent setback as long as you are fully invested for the bull market that follows. “The 37% loss for the S&P 500 in 2008 is the second worse [sic] calendar year return over the past 100 years. Yet even with that downright awful year included, the S&P 500 is still up well over 300% or 11% per year from 2008-2021. You could have invested your money going into the worst financial crisis since the Great Depression and still seen above-average returns in the stock market if you held on.” We aren’t saying it was easy, but hopefully it is a note of encouragement. Lastly, always keep your expectations in check: If you are adequately diversified, your performance probably won’t match the extreme outliers at the top or bottom of the list. “This is the trade-off you make when trying to control for risk. Being diversified means always investing in both the best and worst performers but never having the best or worst performance in your portfolio.” Remember this if anything on the list triggers your greed.

Mario Draghi Brought Political Stability to Italy, Now a Key Election Threatens It All

MarketMinder's View: Between November's midterms and pending national elections in Australia and France this spring, political uncertainty looks set to reign for much of 2022's first half. Adding to the jitters, as this article demonstrates, is the potential for some messy fallout in Italy's parliament if Prime Minister Mario Draghi wins the upcoming election for the largely ceremonial presidency (in which lawmakers and regional representatives, not the broad population, vote). While few expect a snap election, most anticipate a messy coalition-building process, as no party holds an outright majority, and the four main groups have deep divisions and little ideological overlap. The coalition preceding Draghi's unity government blended a left-leaning anti-establishment party with a right-wind nationalist group--and created lots of gridlock. But it also spurred many fears of extreme action, which this piece revives. That turned out fine for Italian stocks and bond yields alike, as gridlock blocked radical campaign proposals and limited parliament's ability to pass new laws creating winners and losers. That gridlock likely remains no matter the next government's makeup, which should ease many of the fears espoused here. In our view, it wasn't Draghi's steady hand that helped Italian yields stay tame, but markets' simple realization that the country's debt load was more manageable than feared, thanks to Italy's having refinanced debt at lower rates for nearly a decade now. So while protracted coalition talks may spike uncertainty in the near term, the eventual result should be gridlock and falling uncertainty. Patience along the path there will be key, in our view.

Labour Proposes Windfall Tax on North Sea Oil and Gas to Reduce Energy Bills

MarketMinder’s View: As always, MarketMinder prefers no party nor any politician, and we assess political developments for their potential economic or market impact only. So when we explain that a windfall tax on UK Energy firms’ profits during the energy crunch likely won’t be a net benefit, it isn’t to take sides with one party over another, but to show why these proposals probably won’t have the desired impact on household heating and electricity costs. Simply, they mess with the price signals that would otherwise lead Energy companies to boost production and drive consumers to manage energy use, which are necessary to alleviate the shortage and bring costs down. A windfall tax saps the incentive to produce more oil and natural gas, and if it is retroactive, it likely discourages future investment as well. Cutting VAT may make energy more affordable, but it also reduces the motivation for consumers to curtail use. Moreover, had the UK not capped certain retail energy prices in the first place—a bipartisan policy—then price spikes likely wouldn’t have driven dozens of power suppliers out of business in the first place, as these companies would have had more options for absorbing their own rising costs. Adding a windfall tax probably just adds headwinds for UK Energy firms without addressing the underlying problem. Always remember: If you tax something, you will get less of it—and cutting taxes has the opposite effect. Dissuading supply growth while subsidizing demand isn’t a great strategy, in our view.

The Fed Can Neither Suffocate You, Nor Elevate You

MarketMinder's View: This is a creative, well-reasoned take on why Fed interest rate decisions aren't anywhere near as huge of an influence on the economy or stocks as people think. As it explains, the notion of the Fed having tight control over US money supply is laughable when you consider how many dollars are circulating internationally, creating arbitrage opportunities to repatriate them when rates are higher here (and to send more dollars abroad when rates are higher elsewhere). Indeed: All else equal, money flows to the highest-yielding asset and its most productive use. This also goes a long way toward explaining some of our historical observations about the yield curve, namely, that shallow US yield curve inversions often aren't red flags for the economy and stocks. The yield curve is a powerful indicator because it best approximates whether banks' core business--borrowing at short rates and lending at long rates--is profitable enough to make risk-taking worthwhile. If short rates jump above long rates, inverting the curve, it can turn banks' business model upside down, freezing credit. But in a world where dollars "cross the globe at the click of a mouse in order to liquefy movement of actual resources," what matters isn't rates in the US, but whether rates are sufficiently low elsewhere to create profits for those with the means to borrow cheaply abroad and lend more profitably here. In 2019, for example, the US yield curve spent several months inverted, but it was shallow, and this global arbitrage thrived--as did the US economy and stocks. As the article sums up: "The Fed is a rate follower, not a rate setter. And it yet again can't rewrite reality. In a global marketplace defined by globally produced credit, good ideas are a powerful magnet for credit. The Fed can neither suffocate nor elevate you." Read it twice, soak it in and enjoy.