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.


Yellen Seeks to Win European Support for a Tax Deal Congress Hasn’t Approved

MarketMinder’s View: Remember when the US and over 130 countries signed a global agreement to set a minimum 15% corporate tax rate and force companies to book profits in the country where they are earned rather than in the (usually low-tax) country where their regional hub is domiciled? And they even got Ireland and Hungary to sign on and agree to raise their statutory rates? As we said at the time, the global fanfare over the deal seemed largely misplaced, given all participating nations would need to change their tax laws and ratify the deal. That is … not going swimmingly, as this piece shows. Poland has vetoed the EU legislation to implement the new regime, arguing that the minimum tax rate shouldn’t take effect until the other part of the deal goes live—and that half has proved much slower-going, as global negotiators haven’t finished writing the details yet. Meanwhile, the US Congress is nowhere close to passing anything, and businesses are pushing back over their concerns about what the minimum rate would mean for research and development and renewable energy tax credits. Now that midterms are hogging everyone’s attention—and likely to increase gridlock, given the president’s party usually loses seats at midterms—the likelihood this passes any time soon seems very, very low. That removes the incentive for other nations to act quickly, which could very well doom this deal to a similar fate as prior efforts to set a global tax system.

Crypto Plunge Exposes the Folly of Taxing Unrealized Gains

MarketMinder’s View: First, note that this article delves into political issues (specifically, taxation). Please remember that MarketMinder favors no politician nor any political party, assessing developments solely for their potential market and economic impacts. Earlier this year, President Joe Biden’s budget included a proposal that would apply a capital gains tax on unrealized gains to households with a net worth over $100 million. Like most of the current administration’s proposals, it stalled out amid intraparty resistance, which doesn’t surprise us. As we have written, there is a host of potential legal and logistical issues with the idea. This short, salient piece adds a giant political reason this idea is unlikely to go anywhere: Liquid assets go up as well as down, and cryptocurrencies are providing an extreme example of the tax weirdness this would cause. Hypothetically, “someone who bought Bitcoin at its value of about $30,000 in July of 2021 would have ended the year with about $17,000 in unrealized gains per Bitcoin —‘gains’ which have since disappeared.” Now bitcoin has crashed. If that sticks, what would happen at yearend? In all likelihood, the tax would have to include provisions for refunds in years when the assets fall, creating “situations where millionaires receive large refund checks from the government during economic downturns — situations that their own progressive constituents would doubtless decry as proof of the tax code favoring the rich.” It would also make tax revenue pro-cyclical, as the government would have to dish out huge refund checks during bear markets, throwing a huge wrench in fiscal policy. In our view, this is one more reason gridlock’s killing of this proposal is likely a net benefit for investors.

The Pound Faces a Dreaded 'Doom Loop'

MarketMinder’s View: The British pound has fallen relative to the dollar this year and is now closing in on $1.20, which this argues is “psychologically important,” whatever that means. This piece further theorizes that the pound is suffering from unique domestic risks (e.g., the BoE’s forecast for a weak economy and 10% inflation as well as political uncertainty) and could even fall to parity with the dollar. Or worse: “Sterling is now at risk of falling into a ‘doom loop,’ given that a lower pound results in more expensive imports, adding to upward prices pressures. The resulting rise in inflation then pushes the pound down even more, creating a downward spiral.” We see a few issues with this, not least the fact that all major currencies are down significantly relative to the dollar this year. The euro is down nearly -10% from its year-to-date high in mid-February. The mighty Swiss franc is down -9.4% from its mid-January high. The yen is down -12.0% from its January 21 high. The pound’s -10.4% drop from its year-to-date high is right in line with this. (All figures from FactSet.) This isn’t shocking, as there is normally a flight to safety in times of real or perceived trouble, which this year’s global stock market pullback and its associated scare stories fall into. Secondly, if the doom loop were actually real outside of banana republics with weak institutions and commodity-reliant economies, wouldn’t we have actually seen it by now? Wouldn’t the pound have kept plunging after the Brexit vote and its aftermath, instead of recovering in 2017? If a high trade deficit is so darned bad for currencies, then why is the dollar soaring alongside an all-time-high US trade deficit? Plus, high imports mean high inbound foreign investment—that is an eternal accounting truth. In general, we think today’s currency fears are an indication of how far sentiment has fallen, not an indication that there is something fundamentally wrong with developed-world economies outside the US.

Weird Is the New Normal for US Midterms

MarketMinder’s View: As always, MarketMinder is politically agnostic—we favor no party nor any politician and assess political developments for their potential economic and market impact only. One big political development on this year’s calendar is November’s midterms, which we think should bring big market tailwinds. Not because any party is better for stocks, but because midterms usually increase gridlock, which reduces legislative risk. When Congress can’t pass much, it can’t create big winners and losers, radically redraw property rights or otherwise stoke uncertainty. This piece is a good look at the history behind this, explaining how and why the president’s party usually loses seats—with the exceptions being when the president’s approval rating was high (not a factor today). But other than 1998 and 2002, which had “unusually low” midterm backlash, “there was a series of either unusually popular presidents or circumstances — war, hard times, scandal — that produced unpopular presidents. And 2022 gives every indication of being more of the same.” That makes it quite likely that President Joe Biden’s Democrats will lose seats in November. And, with their majorities in both the House and Senate historically small, that could mean they lose control of one—if not both—chambers, making gridlock even higher than it has been thus far in his term. As markets gradually realize the likelihood of radical legislation is falling, they should rise in relief, even if that relief is only subconscious.


What to Know if You Want to Buy the Stock Market Dip

MarketMinder’s View: The titular “what” here is that the Fed won’t come to investors’ rescue with rate cuts, robbing investors of the mythical “Fed put” that has allegedly put a floor under market downturns for decades. The logic: “when the public believes the Fed stands ready to pour cheap money into the markets, that keeps stocks and other assets from collapsing in price, effectively creating a free put option for investors.” (A put option gives an investor the right to sell a falling stock at a previously agreed-to, higher price.) Problem is, the Fed put isn’t real. As we discussed a few months back, plenty of market pullbacks have ended without rate cuts, and plenty of bear markets have raged on despite them. In our view, this argument is just an extension of long-running interest rate fears and the investing world’s misguided obsession with the Fed. In reality, its monetary wiggles just aren’t that powerful, for good or ill. Rate cuts aren’t inherently bullish, and rate hikes aren’t auto-bearish. The current downturn has coincided with rate hikes, but in a way, we think this has the potential to help sentiment in time. When a bad outcome everyone fears happens, it can help them move on—it happened, it took its negative toll, and then its power was spent. That psychology often plays out as stock market downturns escalate, and it can help tee up the eventual recovery—with or without a rate cut.

Russian Shipping Traffic Remains Strong as Sanctions Bite

MarketMinder’s View: Nearly three months after Western nations slapped supposedly severe sanctions on Russia, the commodity supply fears that markets quickly priced in have yet to prove true—a reality we think markets are gradually fathoming, based on commodity prices’ easing over the last month. “Volumes of crude and oil products shipped out of Russian ports, for example, climbed to 25 million metric tons in April, data from the shipping tracker Refinitiv showed, up from around 24 million metric tons in December, January, February and March, and mostly above the levels of the last two years.” While that may slow some from here given much of these shipments fulfill contracts inked before sanctions took effect, so far, shipping activity isn’t falling off a cliff. “Tracking by Lloyd’s List Intelligence, a maritime information service, shows similar trends. The number of bulk carriers, which transport loose cargo like grain, coal and fertilizer, that sailed from Russian ports in the five weeks after the invasion was down only 6 percent from the five-week period before the invasion, according to the service. In the weeks following the invasion, Russia’s trade with China and Japan was broadly stable, while the number of bulk carriers headed to South Korea, Egypt and Turkey actually increased, their data showed.” From a sociological standpoint, we understand the frustration some will inevitably feel that sanctions are too easily dodged to be an effective deterrent. But from a market standpoint, this helps reality go much better than the worst-case scenarios stocks seemingly priced in a hurry in February and March. As non-sanctioning countries take advantage of the arbitrage opportunities that arise with Russian commodities trading at a steep discount, it helps shore up supply globally, which should eventually help slow inflation.

Tech Stocks Are in a Bear Market, but They Aren’t Cheap

MarketMinder’s View: Individual companies loom large in this piece, and as always, MarketMinder doesn’t make individual security recommendations. Rather, we are focused on the broad argument that while the Tech-heavy Nasdaq is down around -30% from its prior high—putting it well below the -20% threshold most use to declare a bear market—it would be wrong to believe the index is close to hitting a low and rebounding. This argument is based not on fundamental factors, but on price-to-earnings ratios (PEs), which remain above their long-term average. In our view, this is pretty useless reasoning, for the simple reason that PEs aren’t predictive. There is no magic PE reading that signals the bottom of a market downturn. Long-term average PEs are backward-looking calculations that incorporate all manner of extreme readings. They aren’t a gravitational force, and mean reversion in general isn’t a stock market driver. For stocks, it isn’t about how far a PE falls. Rather, it is about when stocks finish pricing all of the scare stories driving sentiment lower, clearing the way for gutsy risk-takers to buy. That can happen at any level of PE.

Spain, Portugal Sign Off on Plans to Temper Energy Prices

MarketMinder’s View: Spain and Portugal are rounding third on a plan to relieve some of the pain of high energy prices: capping natural gas at €50 per megawatt-hour for the next year. Ministers are touting the benefits of cutting costs for households and businesses, and we are sympathetic to those enduring higher costs. However, we very much agree with the potential for unintended consequences discussed in the article’s second half. Spanish ecology minister Teresa Ribera said the caps “‘are fundamentally aimed at reducing the extraordinary profits of energy companies,’” but this ignores the likely downstream impact: production cuts. If firms can’t count on turning a profit after swallowing the high up-front costs of new energy projects, then they will generally cut exploration and production, leading to supply shortages (and higher prices) over time. Meanwhile, in the here and now, capped prices remove the incentive to manage consumption, which could exacerbate the shortages that are presently driving prices higher. Again, we understand the allure from a sociological standpoint, but in our view, market forces generally do the best job of correcting higher prices over time, as they encourage needed production. Price caps, by contrast, usually bring shortages and, once the caps are lifted, higher prices than there might otherwise be. See the UK, where price caps have brought severe household energy cost increases, with any questions.

Bitcoin Is Increasingly Acting Like Just Another Tech Stock

MarketMinder’s View: Please note, MarketMinder neither makes individual security recommendations (any individual companies mentioned herein are simply part of a broader theme we wish to highlight) nor is inherently for or against bitcoin and its cryptocurrency brethren. We share this piece because it unintentionally debunks some common bitcoin myths, from its alleged safe-haven status to its purported inflation-hedging prowess. “Since the start of this year, Bitcoin’s price movement has closely mirrored that of the Nasdaq, a benchmark that’s heavily weighted toward technology stocks, according to an analysis by the data firm Arcane Research. That means that as Bitcoin’s price dropped more than 25 percent over the last month, to under $28,000 on Thursday — less than half its November peak — the plunge came in near lock step with a broader collapse of tech stocks as investors grappled with higher interest rates and the war in Ukraine. The growing correlation helps explain why those who bought the cryptocurrency last year, hoping it would grow more valuable, have seen their investment crater. And while Bitcoin has always been volatile, its increasing resemblance to risky tech stocks starkly shows that its promise as a transformative asset remains unfulfilled.” Now, we are skeptical about the claims bitcoin has a meaningful correlation with the Nasdaq index—the numbers shared here reflect year-to-date price movements, and much longer time series are necessary to make any useful correlation argument, in our view. They say more to us about the fact sentiment is pretty broadly dour. Rather, our takeaway on crypto’s decline is much more high level: 2022 has shown how extremely volatile bitcoin is. For investors seeking an asset class that holds its value when stocks fall, bitcoin and other cryptocurrencies probably aren’t it, in our view.

The Rising Dollar Is Wreaking Havoc With U.S. Trade

MarketMinder’s View: The titular sentiment here is a bit overstated, as the actual article does a decent job exploring why a strong US dollar isn’t inherently negative or positive, in our view. “The rising greenback makes U.S. imports cheaper, favoring American consumers. Ditto for U.S. businesses that import manufactured goods and services, important offsets to surging domestic inflation. … The stronger dollar also retards American exporters by making their products more expensive for foreign buyers in their own currencies. … It also forces domestic producers to cut their costs and shave their profit margins in order to compete here and abroad. Conversely, foreign exporters to the U.S. can reduce their dollar prices somewhat and still increase their revenues in their own currencies.” Yep: Currency strength creates winners and losers, so a strong dollar is a mixed bag (at best) for American multinationals, which do business both here and overseas, not to mention import resources and labor. Where we think this piece is wide of the mark: arguing a strong dollar has led to an expanded trade deficit, which is purportedly a negative. While that may be true mathematically as a strong dollar can drive higher import volumes, high imports represent high domestic demand (not to mention an influx of foreign investment). The trade deficit is nothing more than an accounting entry. That misperception aside, the generally balanced take on today’s strong dollar is refreshing considering most analyses paint currency strength or weakness in broad, black-and-white brushstrokes.

In U-Turn, IEA Sees World Weathering Lost Russian Oil Supply

MarketMinder’s View: When Western powers began imposing sanctions on Russia for its invasion of Ukraine in February, many research outfits worried the potential reduction of Russian oil exports would lead to a global supply shock. With the war still raging a couple months later, some analysts are revising those projections. “The IEA, after warning on March 16 that 3 million barrels per day (bpd) could be shut in from April, lowered that figure for a second time as it noted only 1 million bpd had gone offline. Production ramping up elsewhere and slower demand growth due to China's lockdowns will forestall a big deficit, the Paris-based IEA said. ‘Over time, steadily rising volumes from Middle East OPEC+ and the U.S. along with a slowdown in demand growth is expected to fend off an acute supply deficit amid a worsening Russian supply disruption,’ the IEA said in its monthly oil report.” Now, weaker demand due to China’s lockdowns is neither an economic positive nor anything anyone could forecast—COVID restrictions defy prediction. But rising production was an overlooked positive development, in our view, and one reason why we thought the global supply picture was better than appreciated. As for concerns Russian oil would be gathering cobwebs? Well, “Russian exports rebounded in April by 620,000 bpd from the month before to 8.1 million bpd, the IEA said, back to their January-February average as supply was rerouted away from the United States and Europe, primarily to India.” We would add that China and Turkey appear to have upped imports, too. Sanctions create dislocations, winners and losers, but they often don’t cause economic activity to dry up—global markets are too dynamic for that.

Chinese Dollar-Bond Defaults Mount as Another Large Developer Fails to Pay

MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations—the companies mentioned here are part of a broader theme we wish to highlight. That theme: The Chinese property sector’s troubles continue, with Sunac China the latest developer to miss an interest payment on a dollar-denominated bond. “The company’s international-bond default would further dampen investors’ confidence in the property sector. Before this month, 17 Chinese developers with a total of $51.4 billion in hard-currency debt had defaulted since the start of 2021, according to a Goldman Sachs research report.” The article runs through Sunac’s specific issues, as the company’s fall from grace happened rather abruptly: China’s industrywide property downturn made it difficult for the developer to access funding, and renewed lockdowns—particularly in Shanghai, one of Sunac’s biggest markets—dealt a critical blow to the company’s fortunes. Now the property developer is in the process of bringing in state-owned investors and asking its international creditors for time to work through its challenges. In our view, this episode reinforces some notable themes. One, “Although the Chinese government has signaled and implemented friendly property policies to boost housing demand, such as lowering mortgage rates and down payments and relaxing some home-purchase restrictions, it will take time for these policies to flow through to developers, said Luther Chai, a senior analyst with CreditSights in Singapore. … He added that the fall of Evergrande, Kaisa and Sunac shows that the government isn’t trying to prevent defaults. Rather, its priority is to ensure homes are delivered to home buyers, to prevent social unrest, he said.” Two, worries of a chaotic property spillover beyond China’s borders haven’t come to pass—defaults among troubled Chinese property developers continue playing out in an orderly fashion, a better-than-feared outcome. Property market troubles are an economic negative for China, and right now they are colliding with COVID lockdowns to create stiff headwinds. But whenever major cities eventually reopen, the wave of pent-up demand that is likely to unleash should be a powerful—and underappreciated—offset.

Mortgage Originations by Credit Score and Age

MarketMinder’s View: Along with the many fears swirling in headlines today (war, Chinese lockdowns, ongoing supply bottlenecks, inflation, Fed hikes), we have also noticed arguments a housing collapse is imminent as mortgage rates rise—often with parallel claims comparing current circumstances to the last housing bust. But as this article shows, there are several differences between now and then, with the underlying reality likely better than feared. Notably, “Look at the difference in credit scores in the recent period compared to during the bubble years (2003 through 2006). Recently there have been almost no originations for borrowers with credit scores below 620, and few below 660. A significant majority of recent originations have been to borrowers with credit scores above 760.” Besides solid underwriting, the article also points out mortgage debt has been climbing much more slowly than home values in this cycle. The conclusion: “Even if we see house prices decline in some areas, there will be very few forced sales since most borrowers have high credit score[s] and significant equity in their homes—so we will not see cascading price declines as happened during the housing bust.” These are just some evidentiary points supporting why housing’s broader supply and demand drivers today argue against a near-term collapse, never mind spillover to the broader economy and stocks, in our view. For more on why, please see our 1/27/2022 commentary, “The State of Real Estate.”

Controversial Stablecoin UST — Which Is Meant to Be Pegged to the Dollar — Plummets Below 30 Cents

MarketMinder’s View: We won’t say the bust in this titular “stablecoin” (typically an asset-backed cryptocurrency designed to maintain a fixed value) was a foregone conclusion, but it isn’t surprising, in our view. While we aren’t for or against any particular crypto-related investment, we do encourage anyone considering one to look before they leap—doing thorough due diligence is critical, particularly in the unregulated Wild West crypto space. In this case, there weren’t any actual assets backing the alleged stablecoin UST—it is an “algorithmic” stablecoin, which relies on financial engineering to maintain its link to the dollar. Things seemingly went swimmingly when UST’s in-house reserve currency—and likely a lot of hype and excitement—were high and rising. But not so much with cryptomarkets’ suffering a bout of negative volatility lately. When the underlying assets backing a currency (crypto, stable or otherwise) go poof, any purported peg it has is likely to go, too. Consider what underpins confidence in the US dollar: the country’s overall financial soundness and its political and economic stability, to name a few reasons. Aside from its superficially stable name, what does UST have? The added twist here: “[UST creator Do] Kwon has amassed billions of dollars’ worth of bitcoin through his Luna Foundation Guard fund to support UST in times of crisis. The fear now is that Luna Foundation Guard dumps those bitcoins onto the market, resulting in an even bigger sell-off.” There is no explicit link between UST and bitcoin, but to put it mildly, “David Moreno Darocas, a research analyst at CryptoCompare, said the situation highlights the ‘fragility’ of algorithmic stablecoins like UST.” For more, please see our 7/22/2021 commentary, “A Primer on Digital Currencies.”

Fear and Loathing Return to Tech Start-Ups

MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations, so companies this article mentions serve only to illustrate a broader call going up across the Tech-startup land: Batten down the hatches, as venture capital funding appears to be drying up. “The turn has been swift. In the first three months of the year, venture funding in the United States fell 8 percent from a year earlier, to $71 billion, according to PitchBook, which tracks funding. At least 55 tech companies have announced layoffs or shut down since the beginning of the year, compared with 25 this time last year, according to Layoffs.fyi, which monitors layoffs. And I.P.O.s, the main way start-ups cash out, plummeted 80 percent from a year ago as of May 4, according to Renaissance Capital, which follows I.P.O.s.” If the interviews with the business executives and investors highlighted here are any indication, sentiment within the startup industry seems dour: Many expect some pain and uncertainty to persist for a while. In our view, there are a few high-level takeaways for investors: 1) Given our view we are in a later-stage bull market, this is one reason we remain optimistic about large-cap growth stocks, which can more easily fund their own expansion compared to smaller ones reliant on outside sources; 2) downbeat sentiment suggests markets are far from turn-of-the-century euphoria that outpaced reality, presaging the dot-com bubble bursting; and, relatedly, 3) this isn’t what bubbly behavior consists of. While some startups may be in a tough spot—and we sympathize with the human cost behind that pain—a shakeout in one corner of the market won’t necessarily spill over more broadly. Tech startups had a rough patch in the mid-2010s, but stocks’ bull market marched on. Note, too, many seem to be treating these hard-hit companies as cautionary tales—and we would view that muted response as more reassuring than alarming from an investment perspective, as it suggests stocks still have plenty of wall of worry to climb.

After Pain at the Pump Comes the Electric Shock

MarketMinder’s View: Are Utilities safe ports during the market storm? Not necessarily, and this article helpfully explores Utilities’ general drivers—and some unique headwinds facing the sector today. Many view Utilities as “defensive” (read: stable) because people still need to keep the lights on in a recession. True, Utilities companies aren’t as likely to go out of business and tend to outperform during bear markets. But we think stocks today are in a correction (sharp, sentiment-fueled drop of -10% to -20%), not a bear market—which is the deeper, longer, fundamentally driven decline that often precedes a recession. Moreover, a big reason Utilities tend to be defensive is that their earnings hold up relatively well during tough times, which might not be the case in the period ahead due to higher energy costs. As explained here: “Most businesses welcome the chance to charge their customers more. But utilities, being regulated monopolies, are not most businesses. Inflation presents them with several difficulties. Whereas an ordinary business can raise prices immediately to deal with higher input costs, utilities face constraints. They can pass through higher fuel and power costs, of course, although even this presents some difficulty. Recall that falling fuel and power costs allowed regulators some room to approve higher investment spending during the 2010s. But inflation complicates those approvals going forward, especially as regulators are usually appointed by state politicians or directly elected. More pernicious is the fact that, pass-through costs aside, utility economics don’t really account for inflation, not in real time anyway. Utilities earn a return on the book value of their regulated assets, so inflation erodes their real earning potential. Moreover, adjusting bills to take account of rising inflation requires regulatory approval, which can take many months, causing a lag.” We think sector diversification and having counterstrategies (i.e., owning positions in areas of the market you don’t think will do well in case your views prove wrong) are important, but understanding the nitty-gritty of companies’ underlying business models is critical in making those decisions. Just because conventional wisdom considers a sector “safe” doesn’t mean it will behave that way in every single market environment.

EV Stocks Face a Long Road to Redemption

MarketMinder’s View: This is a tale as old as markets—hot new industry generates pie-in-the-sky hopes and attracts heat-chasing investors from all corners, then crashes spectacularly. MarketMinder doesn’t make individual security recommendations, but the electric vehicle (EV) stocks discussed here illustrate the anatomy of an investment fad or bubble perfectly. Investors pour in cash on the thesis that hot new companies in an emerging industry will rule the roost in 10, 15 or 20 years. Investors ignore or overlook a lack of profits and high cash burn rates. When the bubble bursts, the stocks fall hard, leaving many of the companies struggling to survive. (This can and has happened many times amid broader bull markets, like the master limited partnership collapse in the mid-2010s, silver around that time or or or.) Even if the long-term thesis proves correct, none of the recent high flyers are guaranteed to be winners in the long run. How could investors have avoided this pitfall? In our view, by taking a measured assessment of profit potential and being realistic when it became clear that EV startups were burning through cash while operating deep in the red and easy financing wouldn’t last forever. “While the rising cost of capital is hitting speculative stocks in other sectors too, EV startups have more to lose than most. Launching a new car maker is extraordinarily expensive, and the costs come years before the profits. Bridging this gap is much easier if money is essentially free, as was the case with the influx of cash from special-purpose acquisition companies last year. Those days are fading fast.” Legacy automakers can use gas guzzlers to subsidize EVs, which are much more expensive to manufacture, but pure-play EV companies don’t have that option. The writing was always on the wall—the key, always, is to shun euphoria and focus on realistic probabilities, not distant possibilities.

Cost of Living Crisis Slows UK Consumer Spending but Holiday Bookings Take Off

MarketMinder’s View: Official UK retail sales for April aren’t in yet, but the British Retail Consortium’s (BRC’s) monthly survey and Barclaycard’s measure of credit card spending show trends there largely echo what we have seen in the US: Spending shifting from goods to services as people cut fuel consumption and bargain-hunt at the grocery store to manage rising costs while travel and leisure return to the fore now that COVID restrictions are done. With that said, we recommend not relying on the actual numbers here to give an accurate read on total UK consumer spending in April. It might seem encouraging that BRC’s survey showed retail sales falling by just -0.3% m/m, but BRC doesn’t adjust for inflation. The Office for National Statistics’ report on retail sales volumes (the quantity of goods sold, rather than the value) could look worse. Similarly, while Barclaycard reported an 18.1% increase in “consumer spending,” driven by travel spending, that accounts for only half of the country’s credit card transactions, which doesn’t capture all spending activity. It is also an 18.1% increase from April 2019, which omits almost a full year of pre-pandemic spending growth. That is such a weird base comparison that it is next to useless for divining recent spending trends. Note, too, that April is when the higher home energy price cap kicked in and stealth tax hikes took effect, illustrating the importance of waiting for seasonally adjusted, inflation-adjusted month-over-month data and maintaining realistic expectations.

A United Ireland Would Be an Economic Disaster

MarketMinder’s View: As always, we are politically agnostic. We aren’t for or against any politician, party or policy initiative, and we assess political developments for their potential market impact only. To that end, we caution investors against putting much stock into pieces like this one, which argues that reuniting Ireland and Northern Ireland would cause such big economic problems that a referendum on the question is unlikely ever to pass. We don’t dispute the economic forecast part of this, as the reunification of East and West Germany shows the struggles likely to ensue. It caused a deep recession in former East Germany and steep inflation in the prosperous former West Germany, and there is still a clear economic divide between the two halves over a full generation later. However, the notion that this would doom a referendum to failure is wildly speculative and ignores the lessons of Brexit, when a campaign dubbed “Project Fear” failed to sway voters to stay in the EU by warning of economic collapse if the UK left. Now, we also think this is all very much beside the point, as a referendum is exceedingly unlikely in the near term. While the Irish nationalist party Sinn Féin won a plurality at last week’s Northern Irish Assembly election, it won on its leftist economic platform, not nationalism, which remains unpopular in the north. Things aren’t always what simplistic headlines would have you believe.

Japan Has Long Sought More Inflation and a Weak Yen. But Not Like This.

MarketMinder’s View: This is a very nice rundown of the Bank of Japan’s failures to stimulate Japanese domestic demand despite nearly a decade of allegedly extraordinary monetary stimulus. It catalogues not only the stubborn persistence of weak inflation and growth, but it also explains why the weak yen hasn’t been as big a boon as advertised: While it enables Japanese exporters to reap larger profits via currency translation, it also raises import costs, which hits all the companies (exporters included) that import raw materials, components and labor. Japan also relies on imported energy, making the two-hit combo of high natural gas and oil prices and the weak yen a particular burden—especially now. Meanwhile, all of Japan’s structural economic inefficiencies remain unaddressed, adding headwinds. All of these observations are sound. But also, they aren’t new. Longtime MarketMinder readers may have noticed that we have been pointing all of this out for nearly 10 years now. Nothing here is at all surprising to markets, which we think have long since figured out that Japanese monetary policy creates winners and losers without providing actual stimulus. The only thing different now is that the world notices, which is a sign of sentiment’s severe deterioration. People no longer have irrational expectations for Japan, which probably helps Japanese stocks moving forward as it sets a much lower bar for reality to clear.