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.


Oil Merchants Troubled by Trade Norms That Don’t Fit the Cap

MarketMinder’s View: Group of Seven (G7) nations implemented a price cap of $60 a barrel on Russian oil starting Monday. Ostensibly, this means any company looking to use G7 services (e.g., European insurance or shipping) to move Russian oil can do so only if they pay $60 a barrel or less. But in practice, reality is more complicated based on how oil markets actually operate. “Buyers today will often have to wait several weeks to learn the final per-barrel price they have to pay. In that period, it could have risen to an above-cap level, causing all sorts of complications. … Typically, purchases of Urals, ESPO and Sokol –three top Russian grades—are priced on a forward and floating basis. That means their final prices aren’t known until several weeks after the cargo has been bought.” As an example here shows, Chinese refiners purchased a Russian oil futures contract for delivery in February—yet the price will be calculated at the end of December. That means traders or middlemen could end up with non-compliant cargo, limiting their access to European services. However, while this complicates the calculus for traders, the cap won’t necessarily stop Russian oil from making its way to the global marketplace. As the conclusion here points out, many Asian refiners, which aren’t participating in the G7’s move, have snapped up Russian crude at a discount and are showing no signs of changing their behavior—and have confirmed the cap won’t affect their ability to continue buying. While the price cap may cause some market distortions, it isn’t likely to be a meaningful game-changer, as Russia has found buyers even as many Western nations have ceased their purchases.

Confusion Reigns on IRS Penalty Waiver for Missed RMDs, Advisors Say

MarketMinder’s View: The topic covered here is a bit niche—certain inheritors of retirement accounts—but very important for those affected. In February, the IRS proposed regulations that non-eligible designated beneficiaries (most children or grandchildren inheriting tax-deferred retirement assets) would have to take annual required minimum distributions (RMDs) during the first 9 years of a 10-year period—and any missed RMDs were subject to a 50% excise tax penalty. As the article notes, the IRS has now said it will waive the penalty for certain missed 2021 and 2022 RMDs, sparking questions among financial advisors. “Observers have noted that the latest IRS notice mentions a waiver of the penalty but doesn’t mention if the RMD requirement itself was waived. ‘The IRS notice does not affect lifetime RMDs, inherited IRAs by eligible designated beneficiaries [like spouses] and RMDs by beneficiaries who inherited before 2020,’ said Kristi Borglum, an advisor at Moneta in St. Louis.” As another expert suggests, it is critical to confirm what type of beneficiary someone is, as that will impact their eligibility for an IRS waiver. There are also other unknowns—e.g., if Congress makes changes to the RMD age, which could further delay regulations. As always, we suggest consulting with your tax advisor to determine whether these rules apply to you and what actions make the most sense for your personal situation. For more, check out last month’s commentary, “A Few Personal Finance Housekeeping Items as Yearend Nears.”

UK Retailers Boosted by November Sales of Winter Coats and Hot Water Bottles

MarketMinder’s View: This piece highlights a couple of recent UK retail sales metrics, courtesy of the British Retail Consortium (BRC) and credit card provider Barclays. For the former, “Total sales rose by 4.2% in November compared with the same month a year ago, up from an annual growth rate of 1.6% in October. However, the BRC warned much of the rise was down to sky-high inflation pushing up the value of goods being sold, masking weaker sales volumes.” Per the latter, “Separate figures from Barclaycard showed the colder weather led more households to switch their heating on for the first time this season, causing spending on utilities to grow 40.1% – above the 36% growth rate in October. Spending on takeaways and at discount stores also rose.” Now, as the BRC acknowledges, its data reflect retail sales values, not volumes, so elevated prices are likely adding to the year-over-year growth. However, Barclaycard’s report indicates people are changing behavior to adapt (e.g., hitting up discount stores), so sales volumes could yet prove more resilient. Either way, the Office for National Statistics will report November retail sales volumes on December 16, so we will get further detail next week. Now, the second half of this article frets over a potential slowdown in sales, as surveys suggest consumers will cut their holiday spending this year due to high energy bills, knocking already struggling retailers. That is possible. But considering economists have been forecasting weaker holiday spending for months—not just in the UK but in the US, too—tepid expectations are likely baked into stock prices at this point. If reality turns out to be even a smidge less bad than anticipated, the surprise may buoy investors’ spirits—confirmation that worst-case forecasts aren’t coming to pass. For more, see last week’s commentary, “On Consumer Spending, Look Past Sentiment Surveys.”

We’ll All Pay for Uncle Sam’s Cheap Debt Fantasies

MarketMinder’s View: Please note, MarketMinder is nonpartisan, and we do not vouch for or oppose any particular fiscal policy decision—our focus is on a policy’s economic and market impact only. As this analysis argues, the US government took on a lot of debt in recent years, and “… the clear policy error was choosing to finance that spending with short-term debt while rates were at record lows. Now that rates are rising, so are the costs of financing all this debt. … The government might have reduced its risk by locking in the low rates and issuing more long-term debt. A 20-year Treasury was yielding only about 1% in 2020. Instead, the government mostly financed its spending with debt that would mature in less than five years.” Indeed, pushing out the average maturity of US debt would have reduced debt service costs’ vulnerability to rising interest rates—and we agree interest costs are the best barometer of whether debt is sustainable. However, we also think some of the handwringing here over the long-term costs is overstated. Yes, if the Congressional Budget Office’s (CBO) forecasts hold true, debt service costs will be higher: “The Congressional Budget Office calculated that if 10-year rates gradually rise to 4.6%, then servicing the debt will cost 7.2% of GDP by 2052. It was only 1.6% of GDP last year and hasn’t exceeded 3.2% since 1960. … Interest rates already far exceed the CBO’s 2021 forecast, and are going up much faster. If rates rise to their historical average — above 5% — servicing the debt will cost far more.” But besides the unknowns inherent with long-term forecasts, the CBO’s projections rely on a lot of straight-line math. Yet what if economic growth is faster than estimated today, leading to higher-than-projected tax revenues? What if long-term interest rates—which are already down from recent highs—don’t rise and stay there, enabling the Treasury to refinance today’s higher-yielding short-term debt with longer-term maturities? More broadly, while anything can happen (good or bad) over the next decade and beyond, markets care most about the foreseeable future, which is about 3 – 30 months out. In that window, US debt doesn’t look problematic. For more, see our October commentary, “Addressing the Latest on Rising US Debt.”

US ISM Services Gauge Rises Unexpectedly on Business Activity Surge

MarketMinder’s View: The Institute for Supply Management’s (ISM’s) services purchasing managers’ index (PMI) for November rose to 56.5 from October’s 54.4. Much of this came from a big jump in the output subindex, which surged from 55.7 to 64.7. Since readings over 50 indicate expansion, these show an accelerating services sector, with most industries under this umbrella reporting improvement. This all bodes well for the largest sector of the US economy, as does the continued moderation in the inflation component. Yet it also is a jarring contrast with S&P Global’s Services PMI, not covered in this article, which slipped from October’s 47.8 to 46.2, implying a deeper contraction. This headline figure isn’t an aggregate of the main subindexes, as ISM’s is, but the “business activity index,” which corresponds to ISM’s output reading. So there is a nearly 20-point gap between the two. What to make of this? We don’t think you can pin the differences on the surveys’ coverage, as they come to very different conclusions about services industries. ISM says all but Finance and Insurance reported growth, while S&P Global says Tech and Health Care were the only positive segments. Our guess is that this comes down to the nitty gritty of methodology and differences in the number of businesses surveyed. Time will tell which is right, but it is worth noting that ISM’s has a longer history and tends to mesh pretty well with US business cycles overall.

UK Faces Recession and Lost Decade Without Growth Plan, CBI Says

MarketMinder’s View: There is a lot—and we mean a lot—of political talk here, considering the vast majority of this economic forecast is a not-so-veiled attempt at pushing for various economic policies. Please set all of that aside and remember that MarketMinder is politically agnostic—we prefer no politician nor any party and don’t push for or against legislation. Our issue here is specifically with the claims that, absent pro-growth policies, the UK is doomed not just to a near-term recession but a “lost decade” echoing Japan in the 1990s (and 2000s). As to the recession forecasts, they could indeed come true, but that wouldn’t sneak up on investors considering the Bank of England, Office for Budget Responsibility and others have been forecasting one for several months now. Yet UK stocks have rallied with the world since October 12. While it is too early to argue that is the bear market’s low, this could suggest markets have digested the warnings and are moving on. As for the lost decade forecast, we agree there is probably room to make the UK tax code and regulations more competitive, but if UK businesses have managed to get on fine with the status quo for many years, we fail to see why it would be a problem now. Besides, even the best-intentioned changes risk creating winners and losers, and tax cuts don’t have a pre-set economic or market impact. We see this piece mostly as an indication of sentiment, as lost-decade forecasts are common near market lows, and they tend to reflect analysts’ feelings about the recent past more than an objective analysis of the future. And besides, the far future isn’t predictable anyway, as too many variables could change between then and now.

Wall Street Grows Pessimistic About Holiday Season, but Record Profit Still Expected

MarketMinder’s View: This piece mentions several companies, and as always, MarketMinder doesn’t make individual security recommendations—and we aren’t commentating on the company-specific analysis that comprises the “This Week in Earnings” report that follows the actual article. Our interest here is in the broader theme of S&P 500 earnings expectations. Analysts have trimmed their Q4 earnings per share forecasts by -5.6% during October and November—more than the average -2.9% cut during the first two months of a quarter over the past 20 years, per the FactSet data quoted in the article. In our view, this is a good sign that stocks’ wall of worry remains quite high despite their rally since October 12. Now, while it may be tempting to read these reduced estimates as signs of worse to come, it is normal for analysts to reduce their forecasts as earnings season approaches. And actual results pretty regularly beat estimates, so take them with a grain of salt. Moreover, in our experience, analysts tend to be very late in shifting from bullish to bearish (or vice versa) as market cycles turn, and shifts like this tend to be more of a lagging indicator of past market movement. Increased pessimism nearly a year after a bear market began isn’t unusual. Meanwhile, forward-looking markets are probably looking beyond Q4 to 2023 and 2024, as stocks usually look 3 – 30 months out, making it noteworthy that analysts still expect record profits this year and next. Even if that proves a tad optimistic, consistent with analysts’ tendency to overestimate earnings one year out, continued earnings growth in general would probably be sufficient to surprise all those who feared the strong dollar, high energy costs and other headwinds destroying corporate profitability.

From Chicken Wings to Used Cars, Inflation Begins to Ease its Grip

MarketMinder’s View: We have seen numerous signs of easing inflation in recent weeks, and this piece offers a deep dive into one of them: global supply chain improvement, including freight costs and supply shortages. On the former: “The cost of sending a standard 40-foot container from China to the U.S. West Coast is $1,935 — down more than 90 percent from its September 2021 peak of $20,586.” Meanwhile, goods once in short supply—including the titular chickens and used cars—are now more abundant, helping earlier price spikes start to reverse. Other goods prices are also falling as companies continue working through inventory gluts by discounting merchandise. In short, earlier pressures are working their way through the system. Now, that is all on the goods side of things, and this article rightly points out that services prices haven’t eased as much. However, we don’t agree that services are set to be a lasting source of high inflation, as some allege. Shelter is a major component of services prices, and—as the article shows—costs are starting to ease. Considering home prices tend to lead rents by about 15 months and have started rolling over, rents should follow. Reopening-related hiccups, including short-staffed services companies, should also improve much as they did on the goods side of things. Most importantly, as inflation eases, it should help one of the biggest fears weighing on sentiment this year to fade, which should boost stocks. For more, see our recent commentary, “Leading Indicators Point to Slowing Inflation Ahead.”

Cash-Hungry Companies Get Creative Raising Capital

MarketMinder’s View: Remember how everyone said higher long-term interest rates meant companies—especially privately held firms—wouldn’t be able to access capital this year, causing investment and economic growth to fizzle? Didn’t happen. Actually, it turns out financing had a banner year as companies simply shifted how and from whom they raised money. “Dozens of companies have recently raised money through so-called structured private funding rounds, and bankers and lawyers say there are many more in the works. A number of companies with depressed stocks and limited access to traditional financing are doing so, often adding sweeteners like extra dividends or preferred-note status to lessen the risk and make the deals more attractive for investors. … Creative deal-making among private companies has helped push U.S. venture-capital investment activity to $195 billion this year through Sept. 30, higher than all other prior full years except 2021, according to PitchBook Data Inc.” Much of this comes from private equity and sovereign wealth funds, who have stepped in where other traditional financiers might have pulled back. We are sure people will debate how wise many of these investments are, and we think there are some glaring misperceptions about downside risk, which can’t be erased no matter how much financial engineering is involved. Also, as we wrote yesterday, presumptions about these private investments being less volatile than publicly traded stocks are quite wide of the mark. But from a stock market standpoint, the continuation of financing and investment is proving one of this year’s big fears false, showing the wide gap between sentiment and reality today.

World Food Price Index Ticks Lower in November -FAO

MarketMinder’s View: FAO being the UN’s Food and Agricultural Organization, not a defunct toy store that featured in several classic films. Its world food price index ticked down -0.1% m/m in November, a slight decline that brings prices now just 0.3% higher than a year ago. That means much of the food inflation we have all experienced over the past year has faded once you average the most food commodities together. In November, for instance, “lower readings for cereals, meat and dairy products in November offset higher prices for vegetable oils and sugar.” While some food prices are still elevated, overall, food is contributing less to inflation, which is one of many signs (including easing shipping rates, falling energy prices and slower money supply growth) global inflation rates should moderate looking forward, helping relieve one of the major fears hitting stocks this year. You may not see this at stores yet, but it is largely a leading indicator of what likely lies ahead.

Western Allies Move to Cap the Price of Russian Oil at $60 a Barrel

MarketMinder’s View: At long last, EU dignitaries agreed to cap the price of Russian oil at $60 per barrel, which in practice means companies based in participating nations will face penalties if they finance or insure shipments of Russian crude selling above the ceiling. This looks set to take effect Monday, alongside the implementation of the EU’s ban on importing seaborne Russian crude oil, which some expect could prompt Russia to retaliate by ceasing pipeline shipments to Europe. Sooooo what does it all mean for oil prices globally? As this shows, probably not much. The cap on Russian oil is above where Russian crude currently trades, making it symbolic and preserving the incentive for Russia to continue selling crude oil to non-participating nations including India and China. They and others have increased their purchases of Russian oil as the West has pulled back this year, keeping global supply much steadier than most expected when the conflict broke out in February. This probably continues as the new EU ban kicks in. Meanwhile, global supply has exceeded demand lately, so even if Russian output drops a bit, it probably won’t be sufficient to send prices skyward again. Overall, we see this as more evidence sanctions don’t impact much, which is frustrating on a geopolitical level but limits the creation of winners and losers from a market standpoint—which we think is what stocks care most about.

Blockchains, What Are They Good For?

MarketMinder’s View: Setting aside one tiny tangent into political bias toward the end of this piece, which we overlooked and suggest you do too, this is a very, very good exploration of the chasm between crypto hype and crypto reality. It isn’t just the spectacular boom and bust in prices—it is that the thesis to invest in crypto never really made sense and most proponents couldn’t even articulate the benefits of the underlying technology, which is a decentralized digital ledger called blockchain. As the collapse of FTX and other exchanges has shown, most who speculate on crypto are surrendering blockchain’s benefits entirely, preferring to hold their tokens on centralized exchanges—where they give up custody—instead of locally stored digital wallets. “The original rationale for Bitcoin was that it would do away with the need for trust — you wouldn’t have to worry about banks making off with your money, or governments inflating away its value. In reality, however, banks rarely steal their customers’ assets, while crypto institutions more easily succumb to the temptation, and extreme inflation that destroys money’s value generally happens only amid political chaos.” Meanwhile, companies are backing away from using blockchain to track transactions, showing that it hasn’t proven “to offer a lower-cost, more secure way to keep track of transactions and stuff in general.” Australia’s stock exchange just canceled a five-year-old plan to use blockchain in trade settlement. A big shipping company is abandoning plans to use blockchain to manage supply chains. In the end, crypto and the blockchain have all the hallmarks of a classic bubble, with a hyped technology that couldn’t stand up to reality flying spectacularly before crashing hard. The psychology is age-old, “with the very incomprehensibility of crypto discourse acting, for a while, as a selling point. And then, as prices soared, fear of missing out — plus large outlays on marketing and political influence-buying — brought many others into the bubble.” Lesson: If no one can answer the general question of “what is the point” in plain and simple terms that are grounded in the real world, there probably isn’t a there there.

What Energy Crisis? European Industry Is Showing Its Adaptability

MarketMinder’s View: Good news has been in short supply this year, so here is a development worth highlighting: the resilience of European industry in the face of a feared energy-related calamity. As the output data discussed here show, “The EU as a whole has never produced greater volumes of manufactured goods than today. The same is true for the eurozone, although its volumes have twice before reached similar magnitudes but only briefly (in late 2017 and the spring of 2008).” On a country level, consider this interesting nugget out of Germany, which was purportedly to be the hardest-hit nation in a European energy crunch: “Last week the Ifo Institute published a survey showing that out of the 59 per cent of industrial companies using gas in the production process, an astonishing 75 per cent reported that they had been able to reduce gas use without having to cut production. … Nearly 40 per cent reported they had room for manoeuvre to consume even less gas without production suffering. Since gas not used in production is gas that can be used to generate power, this amounts to a high degree of adaptability to high energy prices.” And “… Ben McWilliams, of the Bruegel think-tank, has posted numbers on Twitter showing that while Italy’s industry had recently used 24 per cent less gas than the 2019-21 average, its industrial output had held up completely.” Adapting hasn’t been painless, and it is of course possible things weaken from here. But it does highlight how innovative people find solutions when there is sufficient incentive—a big reason Europe’s feared wintertime energy crisis may not be as dire as first projected. 

The Weak Yen Is a Mixed Blessing for Japan Inc.

MarketMinder’s View: According to this take, since the Fed appears set to slow its interest-rate hike campaign, the yen will likely strengthen versus the US dollar—benefiting Japanese stocks. Set aside the monetary policy speculation—and note rate hikes don’t have a predetermined impact on market returns anyway—as our focus is on the claim a stronger yen will buoy Japanese companies. As argued here, “… a weaker yen has also brought home higher material costs, especially since prices of energy and other commodities were driven higher by Russia’s invasion of Ukraine this year.” Ergo, a stronger yen will help offset those costs. True enough! But a stronger currency will also take away some advantages for Japanese exporters, many of which earned more yen for every dollar of goods sold overseas and took profits on the currency conversion. The upshot is that currency strength or weakness largely offset each other, especially since companies apply currency hedging to limit the impact on earnings. And, contrary to the claims herein, none of this is new. This is literally how the global economy works, considering very few multinational firms use inputs from one nation alone. At a higher level, consider: If a country’s relative currency strength drove returns, it would be easy to determine which nation would lead or lag. That isn’t the case, as we discussed in our October commentary, “What to Make of This Big Table of Currency Swings, Stocks and Inflation.”     

 

Russian Oil Sanctions Are About to Kick In. And They Could Disrupt Markets in a Big Way

MarketMinder’s View: That titular disruption is possible, but the events and details highlighted in this article show why it is far from probable. First, some background: In June, the EU agreed to ban Russian crude oil starting on December 5. As analysts here argue, “an outright ban could be ‘really disruptive,’” which is why G-7 countries are discussing implementing an oil price cap in lieu of an outright ban. The aim: Cutting Russian oil revenue without sending oil prices skyrocketing. But those discussions, as this article details, are rife with disagreement. A “proposal discussed earlier this week suggested a limit of $62 a barrel, but Poland, Estonia and Lithuania refused to agree to it, arguing it was too high to dent Russia’s revenues. These nations have been among the most vocal in pushing for action against the Kremlin for its aggressions in Ukraine.” Yet many of the other nations don’t want to carry it too far, for fear of supply effects. A $62 cap would be only modestly below current Russian oil prices, which trade at a steep discount to global oil prices. That fact also supports the discussion in the latter half of this piece: What if China and India don’t support a cap? Both Asian nations have increased their purchases of Russian oil this year and show no signs of stopping. “India’s petroleum minister, Shri Hardeep S Puri, told CNBC in September he has a ‘moral duty’ to his country’s consumers. ‘We will buy oil from Russia, we will buy from wherever,’ he added.” While that may be frustrating from a geopolitical perspective, this is a reminder, in our view, of sanctions’ limited impact on global markets and commerce.

India GDP Growth Halves in September Quarter as COVID Distortions Pass

MarketMinder’s View: Given the widespread backdrop of global recession fears, we found this news out of the second-largest Emerging Market economy interesting: “India posted annual economic growth of 6.3% [y/y] in its July-September quarter, less than half the 13.5% growth in the previous three months as distortions caused by COVID-19 lockdowns faded in Asia's third-largest economy. Gross domestic product growth for the full fiscal year, which ends on March 31, is likely to be 6.8% – 7%, the government’s chief economic advisor V. Anantha Nageswaran said after the release. That would be broadly in line with pre-COVID rates before pandemic lockdowns triggered wild fluctuations.” Despite this, the economists cited here unsurprisingly focused on the potential negatives (e.g., rising interest rates worldwide will weigh on external demand, thereby hurting Indian exports). Of course, there are headwinds confronting India and other major economies, and a recession is possible. But it is so widely discussed that virtually every release is seen through this lens, part of the pessimistic sentiment dominating today. If economic activity in India and elsewhere proves resilient or merely slows versus contracting, that should deliver positive surprise—great for stocks. 

Here’s What to Do If a Payment App Reports Your Cash Gifts to the IRS

MarketMinder’s View: News you can use! Stricter tax reporting requirements are in effect this year: “As of 2022, all third-party payment processors in the United States, including Venmo and Cash App, must report payments of more than $600 a year received for goods and services. This isn’t a new tax, just the IRS trying to catch people who are underreporting gig or self-employment income. Even if you hadn’t previously received a Form 1099-K, you were still required to report any taxable income received through these platforms on your tax return. Before the reporting change, the app companies were required to submit a 1099-K only for transactions totaling more than 200 a calendar year with gross payments exceeding $20,000. Now a single transaction or multiple payments that exceed $600 can trigger a 1099-K. It’s harder to avoid having the IRS find out your earnings when there’s a digital trail.” So what happens if you get a 1099-K in error from your payment processor for non-taxable non-business-related transactions? As this article helpfully relays from the IRS: “‘Those who receive a 1099-K reflecting income they didn’t earn should call the issuer,’ the agency said in a year-end tax tip. ‘The IRS cannot correct it.’ ... My advice: Keep good records. Go to irs.gov and read ‘Steps to Take Now to Get a Jump on Your Taxes.’ Scroll down to the explanation about the new reporting for payment platforms. Should you receive an incorrect 1099-K, contact the company immediately to protest.” And to head off similar errors in the future, spread the word to your pals to code reimbursements and other non-taxable payments correctly.

‘We Were Too Gloomy’: Europe’s Business Leaders Turn More Upbeat

MarketMinder’s View: Bull market beginnings can be identified only in hindsight, so we don’t know if one is underway now. That said, we think the conditions for one—when expectations overshoot reality far to the downside, teeing up positive surprise—are ripe. As this article relates, for example, “The [German business association] BDI told the Financial Times it had been ‘too gloomy’ and was likely in January to raise its forecast from September for the German economy to grow 0.9 per cent this year. The Ifo Institute’s index of German business confidence bounced from 84.5 in October to 86.3 in November, while the Munich-based think-tank also found three-quarters of companies that use gas in production had reduced their consumption without cutting output. Most economists still expect the eurozone to slide into a mild recession — defined as two consecutive quarters of falling output — and central bankers are warning they will have to raise borrowing costs again in December. Yet, after resilient third-quarter growth of 0.2 per cent in the 19-country bloc, there are signs many may have overestimated the drag on consumer spending and industrial output from high inflation and underestimated the boost from lifting Covid-19 restrictions.” Multiply this over myriad fears and worst-case scenarios discussed globally this year—from stagflation and rising rates to supply chain issues and geopolitical turmoil—and we see the wall of worry markets climb stacked high. Conditions don’t have to be great for stocks to rally. Results just have to be better than most imagine, even if those results aren’t terribly good.

Global Debt Costs Are Soaring. Here’s Where It Will Hurt Most

MarketMinder’s View: This long article is critically flawed, in our view, because it fails to properly scale debt costs’ affordability. It notes, “The total owed by households, businesses and governments stands at $290 trillion, up by more than one-third from a decade ago, according to research by the Institute of International Finance. ... many borrowers face a relentless increase in their interest payments, as the Federal Reserve and other central banks raise rates at the fastest pace in decades to subdue inflation.” The problem? Not all that debt is tied to those rates. Even more critically, the article doesn’t compare debts’ actual costs to borrowers’ incomes—their debt service abilities. Per the Bank for International Settlements, as of Q1 2022 (the latest available data), debt service ratios (debt payments relative to income) for households and non-financial corporations remain mostly below pre-pandemic levels across the developed world. Now, that doesn’t mean meeting debt obligations isn’t an issue for some households, businesses or even nations. But we caution readers against drawing meaningful takeaways from pieces that make sweeping conclusions based solely on large numbers without context. With consumers and businesses overall and on average flush with cash, we fail to see the impending debt apocalypse.

The Illusion That May Be Seducing Investors

MarketMinder’s View: This article examines illiquid, private market “alternate assets”—and the purported superior returns they provide—and, in doing so, underscores a valuable lesson for investors enduring stock market volatility. As the article notes, because unlisted assets don’t trade regularly, they may seem less volatile, but that may not reveal the whole picture: “Unlisted companies or assets are valued, not usually by a market, but by desktop valuations conducted periodically that may or may not incorporate some inputs from market developments. That provides an appearance or, some might argue, the illusion of reduced volatility.” But if you had to sell in a pinch—or sought to redeem your holdings during a redemption window when broader markets were down—you might quickly learn that unlisted assets’ prices are quite subject to market forces. Listed or not, any security is worth only what someone will pay for it. Listed assets give you countless reference points, illuminating every wiggle along the way. Unlisted assets give you far fewer dots on the graph, creating the mental temptation to draw a straight line from A to B to C—and in the process, gloss over what could be some very big fluctuations in the interim. Read any hedge fund manager’s memoir, and you will see wild tales of big net asset value fluctuations in between reporting dates, sometimes based on one or two big trades going right or wrong. Just because you can’t see those fluctuations on a chart of quarterly valuations—whether for unlisted REITs, property, venture capital funds, private equity funds, hedge funds or what have you—doesn’t mean they aren’t there.