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.
MarketMinder’s View: Longtime readers might be familiar with our view of The Conference Board’s Leading Economic Index (LEI) as one of the most reliable forward-looking economic indicators there is, so it might seem weird that we aren’t sold on the notion that its nascent downturn bodes ill for the US economy. But stay with us, because there are some weird calculation quirks dragging it down, especially in May. Chief among them: the way the index accounts for stock prices. The S&P 500 is one of LEI’s 10 components, and it was the largest detractor in May. Thing is, the S&P 500 slightly rose that month. It simply shows as negative because The Conference Board uses average daily closing price rather than the total change during the month. Everyone is entitled to their views, but we happen to find the total direction more meaningful. Plus, stocks are one of LEI’s noisiest components. Another oddity is the ISM New Orders Index’s three straight months of negative contributions. Here, too, the raw index has been stonkingly positive and actually accelerated in May. It hasn’t contracted for 24 months. But The Conference Board “normalizes” the index, a process that involves comparing the monthly change to its recent trend—which occasionally leads to expansionary readings registering as contraction if there is enough short-term variability. That is happening now. Lastly, the index is subject to revision, and it is mostly revisions to March data—not real-time readings—that created the recent downtrend. That saps any edge it could have offered at the moment even if these readings weren’t skewed by weird math, in our view. So, interesting, but not actionable for investors as far as we are concerned.
MarketMinder’s View: According to Britain’s Institute for Fiscal Studies, the 270,000 Brits aged 50 – 69 who retired during the pandemic are creating a permanent drag on economic growth. Allegedly, in addition to contributing to a labor shortage that will reduce output, they are further robbing the economy of their wisdom and expertise, worsening the knock-on impact. Philosophically, yes, we get it—you need institutional knowledge and wisdom, and more experienced workers tend to have it in spades. (We find that acknowledgment, versus the traditional view that older workers are less productive, refreshing.) But the overall thesis just ignores reality, in our view. For one, it underestimates the potential for technological change to enable companies to continue doing more with less. Two, it disregards the high likelihood that boredom, financial considerations and other factors will pull early retirees back in to the workforce, as researchers have found is happening in the US. Three, it gets things backward in presuming that employment drives growth—it is the other way around. Otherwise, no recession would ever end, as the upturn in growth usually happens when businesses are still shedding workers thanks to those aforementioned productivity gains. We have decades of economic history showing the number of workers in an economy isn’t a meaningful growth driver, and we are skeptical now is different.
MarketMinder’s View: This discussion of bear markets and recessions is a mixed bag, in our view. From a high level, many of the concepts shared here can be useful for investors. Yes, bear markets and recessions are painful: We don’t dismiss the discomfort of falling retirement portfolio values, let alone recession-driven economic hardships. Yes, bear markets and recessions are inevitable parts of the market and economic cycle, respectively. As the historical data presented here show, “Since 1929, the U.S. stock market has been in a bear market nearly 24 percent of the time. Note that in this authoritative accounting, a bear market starts on the first day of declines that become 20 percent downdrafts. … I found that since 1854, the United States has been in a recession 29 percent of the time. From 1945 through 2020, it was in a recession only 14 percent of the time.” Yes, markets are volatile in the short term, so if you have funds earmarked for a near-term purchase, putting them in stocks may not be wise. But in our view, this article’s myopic focus on what just happened—and extrapolating that into something worse in the near future—isn’t helpful for long-term investors. When it comes to investment decisions, look forward, not to the past. Global stocks recently crossed the -20% threshold commonly used to define a bear market, but what is the likelihood the downturn worsens for an extended amount of time? We think that scenario is less probable than a recovery taking hold in the near future, as markets seem to be falling primarily on fear rather than fundamentals. The sheer volume of scare stories weighing on sentiment is novel, but the emotional impact on markets isn’t. As for recession, it is possible the economy is in one now, but not necessarily probable, and the possibility isn’t useful from an investment standpoint. As the article acknowledges, “In the past, it [National Bureau of Economic Research] has declared the beginning and the end of recessions somewhere ‘between four and 21 months’ after these events have occurred. As the bureau explains it: ‘There is no fixed timing rule. We wait long enough so that the existence of a peak or trough is not in doubt, and until we can assign an accurate peak or trough date.’” Meanwhile, stocks typically start declining before recessions begin and recovering well before the economic recovery is officially in the books. Today’s economic and market environment is challenging, but we believe patience will reward long-term investors who remain disciplined.
MarketMinder’s View: Please note, this piece wades into geopolitics, so as a reminder, MarketMinder is nonpartisan and focuses on policies’ economic and market impact only. It also mentions several individual companies, and MarketMinder also doesn’t make individual security recommendations. Any firms mentioned herein are coincident to a broader topic we wish to highlight. That topic: Russia appears to be retaliating against the EU’s war-related sanctions by slashing its natural-gas exports to EU nations, including Germany, Austria, France, Italy and the Czech Republic. The move sent European natural gas prices higher this week, and while Germany has said near-term supply is secure—it can obtain fuel from the market, albeit at higher prices—many fear the prospect of an energy crunch in the winter. However, while the EU doesn’t have many short-term fixes, it isn’t completely beholden to Moscow. “Government and company officials have scoured the globe this year for alternative sources of supply, striking deals in the U.S., Egypt and Israel while securing higher volumes from producers including Azerbaijan and Norway.” Moreover, don’t understate the power of the market. Higher prices incentivize producers globally to bring supply online to meet demand, and while not an immediate replacement for Russian shortfalls, they can help alleviate some supply pressures—helping sidestep worst-case shortage scenarios. While Europe is hampered by its lack of LNG import infrastructure (terminals in Germany and Holland are still under construction), pipelines can move gas from Turkey and North Africa into the EU. Regional producers like Greece could also ramp up. For more, see our commentary, “The Latest Update on the EU and Russian Energy.”
MarketMinder’s View: The Swiss National Bank (SNB) doesn’t typically make headlines, but it knows how to make a splash. Back in early 2015, the SNB shocked currency markets after ending its exchange-rate floor against the euro. Today, “The Swiss National Bank unexpectedly increased interest rates for the first time since 2007, shifting away from a battle to tame a stronger currency to focus on inflation that threatens to get out of hand. It raised its policy rate by 50 basis points to -0.25%, a dramatic move that sent the franc surging more than 2% against the euro, bringing parity between the two currencies into view.” The rest of the article speculates about future SNB policy—and its broader implications, including the potential impact on ECB decisions—but in our view, the reaction to this and other central banks’ recent moves (e.g., the Fed’s hike yesterday, the BoE’s hike today) illustrates the “rising interest rates” scare story’s power over markets right now. For all the pixels spilled on the SNB’s move, its policy rate remains negative. If anything, we think a move out of negative territory—if it were to happen—would be a welcome move back to normality, considering negative rates are a tax on banks and haven’t spurred lending. That the SNB’s move has been so widely covered today suggests interest rate fears are top of mind for investors—and contributing to dour sentiment. But nonstop coverage also saps their surprise power and lowers expectations, helping tee up the eventual relief rally.
MarketMinder’s View: We highlight this look at May Japanese trade data not for its discussion about the country’s trade deficit, but instead to point out the weak yen’s impact on imports and exports. “Imports soared 48.9% in the year to May, Ministry of Finance data showed on Thursday, above a median market forecast for a 43.6% gain in a Reuters poll. That outpaced a 15.8% year-on-year rise in exports in the same month, resulting in a 2.385 trillion yen ($17.80 billion) trade deficit, the largest shortfall in a single month since January 2014.” As the article notes, “Overall imports were pushed up strongly by larger shipments of oil from the United Arab Emirates and coal and liquefied natural gas from Australia, the data showed.” True enough. Yet it is also worth noting that the weak yen is skewing import and export values alike, making economic trends difficult to discern. Consider, in volume terms—which measure the amount of stuff traded—May imports rose 4.7% y/y (its first positive reading in four months) while exports fell -3.5% (its third-straight negative month). Some of that weakness reflects other factors (e.g., lockdowns in China, Japan’s biggest trading partner). However, the yen’s weakness may also be adding another headwind for many businesses since the country imports most of its energy—jacking up energy costs and likely forcing businesses to cut back on non-energy imports. As the conclusion notes, “Nearly half of Japanese companies see a weak yen as bad for their business, a private survey showed this week, suggesting the currency's declines are hurting business sentiment.” This reinforces our view that Japanese multinationals with the ability to reap big gains from converting export revenues back to yen—helping offset rising import costs—are likely in a better position to adjust for the weak yen’s impact.
MarketMinder’s View: First, inflation is an increasingly partisan issue both here and overseas, but our focus is on the economic and market front only. On that note, we found this article mixed. While we agree with the titular outlook, it isn’t because the Fed enjoys greater independence in forming monetary policy now than in the 1970s as this article asserts. Yes, the Fed has come a long way since the Nixon administration’s meddling (as this piece details), but the underlying presumption is that the central bank in general has a strong grasp on guiding inflation. Recent history argues against this—see the Fed’s struggles in hitting its established 2% y/y target for the headline Personal Consumption Expenditures Price Index. Sensibly, the article acknowledges some of the limitations the Fed faces today in addressing elevated inflation. “[Former Fed Chair Arthur] Burns wasn’t wrong that factors beyond the Fed’s control can contribute to inflation. Supply-side forces are, indeed, important today — not only the increases in global energy and food prices already mentioned but also pandemic-related constraints, like the disruption of global supply chains. Unfortunately, the Fed can do little about these supply-side problems.” We agree! But here is the problem: “Nevertheless, today’s monetary policymakers understand that as we wait for supply constraints to ease, which they will eventually, the Fed can help reduce inflation by slowing growth in demand.” The article traffics in inflation expectations and wage-price spiral theories to justify Fed action, but these are just as flawed explanations for broadly rising prices across the economy as Burns’ cost-push theory (i.e., higher input costs force companies to raise prices on final products, leading to wage hikes, leading to price hikes, leading to wage hikes, etc.). In our view, inflation is a monetary phenomenon (the case of too much money chasing a scarce amount of goods and services), and right now, the “scarce amount of stuff” is keeping prices elevated. Unfortunately, these pressures look likely to linger for longer than many, including us, anticipated. But we do think inflation is more likely to slow within the foreseeable future as supply bottlenecks ease and energy producers bring more supply online in response to high prices. There isn’t much the Fed can do on this front, so looking to Jerome Powell and his colleagues for solutions seems misguided, in our view. For more, please see our recent commentary, “The Good News and Bad News in Today’s Fed Move.”
MarketMinder’s View: Please note MarketMinder doesn’t make individual security recommendations. This article mentions a couple big retailers, but they are for illustrative purposes only. To put numbers and some context around the headline: “Retail sales dropped 0.3% last month. Data for April was revised lower to show sales increasing 0.7% instead of 0.9% as previously reported. Economists polled by Reuters had forecast retail sales gaining 0.2%, with estimates ranging from as low as a 1.1% decline to as high as a 0.5% increase.” So while disappointing, May’s weak retail sales weren’t exactly surprising. We would also point out retail sales provide a backward look at one tranche of consumer spending (focused mostly on goods, not services) that isn’t inflation adjusted—and monthly reads can be volatile. To smooth out some of that bounciness: “Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged in May. Data for April was revised down to show these so-called core retail sales increasing 0.5% instead of 1.0% as previously reported. Core retail sales correspond most closely with the consumer spending component of gross domestic product. While consumers are spending more on services, May’s weak retail sales and the downward revisions to April data suggested consumption was slowing in the second quarter.” Perhaps, but the core measure still tilts far too much to goods, which isn’t representative given services are the majority of consumer spending. May’s personal consumption expenditures data—including services and adjusted for inflation—will shed further light on the matter at month end. On that front, as the article details further, retail sales’ one services component, restaurant and bar receipts, rose 0.7% m/m. We think this return to pre-pandemic, slow-growth economic trends continues as consumers shift their spending from goods to services—worth keeping in mind for investors as recession talk swirls.
MarketMinder’s View: Here is some useful perspective for long-term investors, for “money you don’t need for five years or more: Retirement funds, college funds and so on.” In the last quarter century, stocks have suffered three prior bear markets—and global markets recently entered official bear market territory this week—along with many other gut-wrenching, volatile episodes. Yet: “Global stocks overall, as measured by the MSCI World Index, are up 470%. The S&P 500 is up 560%. And if you bought during the crises themselves, when prices had already fallen, you did even better. ... Still tempted to panic? Since the 1920s, stocks have been overwhelmingly the best investment for long-term saving. The average gain over five years has been 50% on top of inflation. The average gain over 10 years: 120%. And over 20 years, 360%. Only one time out of four has the market actually failed to keep up with inflation over five years, and only one time in eight has it failed to keep up over 10. Not once has it failed over 20.” Now, past isn’t prologue, and market history won’t take all the sting out of the discomfort of 2022’s market downturn. But we think the numbers highlight an important reality about investing: Stocks can and do swing wildly in the short term, but that is the price investors must pay for their long-term returns. As difficult as this year has been, we counsel investors to look forward—as stocks do—and not behind. In our view, a recovery is likely ahead, rewarding long-term investors who remain disciplined.
MarketMinder’s View: Dour headline aside, we think this article captures cautious improvement in Chinese data pretty well. “Industrial output grew 0.7% in May from a year earlier, after falling 2.9% in April, data from the National Bureau of Statistics (NBS) showed on Wednesday. That compared with a 0.7% drop expected by analysts in a Reuters poll. The uptick in the industrial sector was underpinned by the easing of Covid curbs and strong global demand. China’s exports grew at a double-digit pace in May, shattering expectations, as factories restarted and logistics snags eased. The mining sector led the way with annual output up 7.0% in May, while that in the manufacturing industry eked out a meagre 0.1% growth, mostly driven by the production of new energy vehicles which surged 108.3% year-on-year.” Not all metrics were great. As the article notes, retail sales remained weak as COVID curbs lingered, but they were better than expected. May property sales fell (albeit at a slower pace than April), contributing to fixed asset investment’s slowing to 6.2% in the first five months of the year, versus the 6.8% in 2022’s first four months. Overall, May’s numbers were stronger than expected, and while headwinds likely persist, the world’s second-largest economy seems more likely than not to avoid a “hard landing” scenario many experts have feared this year.
MarketMinder’s View: This succinct article highlights a point we have made several times on these pages: The gap between sentiment and reality is quite wide presently, which suggests to us that a market low isn’t far off. As noted herein, “So for example, we know that consumer sentiment is terrible. Last week’s University of Michigan number came in at its worst level in history, below even the depths of the Great Financial Crisis. But also, it looks like discretionary spending in the US remains robust. People are buying airline tickets, spending on hotel stays, and going out to eat — all of the types of behaviors you would expect to see in an environment of high consumer optimism. Just yesterday, Bank of America’s CFO said that consumer lending and spending were in good shape.” It goes on to highlight the same phenomenon at small businesses, where optimism about the economy is in exceedingly short supply, but small businesses continue to report that they plan to hire workers. That disconnect is the stuff market inflection points are made of. It doesn’t tell you exactly when a low will take place, but it is the recipe for one.
MarketMinder’s View: In the wake of yesterday’s market move that put the S&P 500 more than -20% below January’s high, articles like this one—offering counsel about what to do with your portfolio in a bear market—abound. We highlight this one because it is tragically flawed from several perspectives. One, and fundamentally, you don’t reposition an equity portfolio into “alternative assets” with a “fairly low correlation” to stocks when you are already in a bear market. For such a move to be fruitful, it would need to occur in anticipation of a big decline. Now, if you foresee material declines ahead from here based on a huge negative that isn’t widely discussed, perhaps reducing equity exposure could make sense. But such a move is hugely risky, considering new bull markets usually begin with a steep climb, and the point of maximum opportunity in stocks is generally when things look bleakest. Furthermore, we will note that the assets here are hugely illiquid, as well as difficult and costly to diversify. That effectively means two things: One, you can’t really rely on historical data like correlations because there aren’t enough actual trades happening. Merely because something doesn’t trade a lot and doesn’t price tick-by-tick like stocks doesn’t mean demand for that asset isn’t fluctuating. Two, equity investors locking their assets into illiquid investments during a bear market aren’t positioned to re-enter stocks later, a potentially large issue when the recovery starts. Suffice it to say, we think this article constitutes poor advice at this juncture in the market cycle.
MarketMinder’s View: The headline seems overwrought to us, but we think this article, which covers June’s Bank of America Global Fund Manager Survey and the European Investment Bank’s latest outlook, does a fair job summing up sentiment now. As this piece highlights, “More than half of investment managers – 54pc – are now expecting the continent’s economy to enter recession in the next twelve months, according to a Bank of America survey. It marks a sharp increase in pessimism as central banks prepare to tighten monetary policy rapidly in the face of rampant inflation. In May, just 28pc of fund managers said they expected a European recession. Separately, Brussels’ lending arm warned that the Ukraine conflict is likely to spark a wave of defaults among EU businesses. The European Investment Bank warned that the number of companies in the EU at risk of default will soar from 10pc to 17pc as a result of the war in Ukraine.” Look, EU economic data are rather mixed right now, with surveys like purchasing managers’ indexes indicating expansion while some hard data points contradict that. Yet with sentiment as dour as this, it could very well be that markets have already pre-priced a sharp slowdown or recession. This is doubly true considering none of the information about the causes of the economic weakness alluded to here are new or shocking. From central bankers’ “tightening” policy to inflation to the war in Ukraine, the factors behind the forecasts are widely known.
MarketMinder’s View: First, this article delves into UK politics, so please take note that our commentary is intentionally non-partisan and doesn’t advocate for or against any policy position, including whether a Scottish independence vote should occur. We assess developments solely for their potential market and economic implications. With that out of the way, it seems Scottish First Minister Nicola Sturgeon is renewing her push for another independence referendum by publishing several white papers staking out what she and her Scottish National Party argue are independence’s benefits, particularly since it would permit the country to apply for membership in the EU. Now, UK leaders see 2014’s referendum, in which Scottish voters rejected independence rather decisively, as answering the question for a generation. But last year’s Scottish election gave pro-independence parties a clear majority, which they argue is a “mandate” for another vote. But the thing is, the devolved Scottish Parliament cannot legally hold a referendum without Westminster’s go-ahead. UK Prime Minister Boris Johnson has declined to give it permission thus far, a fairly consistent position in recent years, and House of Commons leader Mark Spencer reiterated today his opinion that another vote shouldn’t happen for 25 years after 2014’s. Without UK government approval, any referendum held in Scotland would lack legal authority, which could complicate their efforts to actually achieve independence, in the event voters opted for it and in joining the EU thereafter. While many see chatter over this as increasing political uncertainty, we expect any such rise to prove short-lived. As one analyst put it here, “Independence is never far from the surface in Scottish politics. It is the principle fault line. The great divide. The question will persist unless and until a) independence actually happens or b) the public tire of the political parties that promote it. Neither of those possibilities seem very likely anytime soon and so the debate continues.”
MarketMinder’s View: This strikes us as a rather clever way to boost fiscal stimulus—and as another sign Chinese officials are focused on boosting economic growth ahead of this autumn’s National Party Congress, where Xi Jinping seeks to secure an unprecedented third term as party leader and president. Officials have long had to strike a tough balance between addressing high local government debt and keeping the economy humming, as local investments are often a big growth driver. Crackdowns in that space in recent years were partly responsible for China’s economic slowdown. But now the purse strings are loosening: The central government is boosting transfer payments to local governments, which looks like a backdoor means of boosting local investment as the cabinet is directing local administrations to “increase spending on education, scientific and technology research, social security, food security, as well as construction of major infrastructure projects.” Add this to other targeted stimulus measures announced in recent weeks, and China should have plenty of economic fuel to boost growth as more cities ease COVID restrictions.
MarketMinder’s View: Look, we don’t play favorites among politicians and political parties, and we aren’t for or against particular policy developments. We also recognize that many UK households are struggling under rising living costs and that higher taxes have contributed to this. However, that doesn’t mean tax cuts are necessary to stave off a recession or even capable of doing so. Tax changes aren’t cyclical economic drivers—they create winners and losers, and the overall economic effect is often pretty muddy. Based on our read of all the data, that is true of tax hikes and cuts alike. In this case, the Confederation of British Industry is arguing tax cuts for businesses will boost business investment, on the theory that companies will have more after-tax profits to plow back into future growth. That is a sound enough theory, but the UK spent most of the 2010s cutting corporate taxes, eventually bringing the statutory rate among the lowest in the developed world. Yet economists also spent most of that decade complaining about weak UK business investment, which is down on an annual basis since 2017. That suggests there were larger fundamental issues at work, whether due to the sectors that dominate the UK economy or businesses playing the wait-and-see game over post-Brexit regulations and tariffs. Cutting taxes by a couple percentage points probably isn’t enough to overcome that. In our experience, businesses will invest regardless of tax rates, as long as the potential reward is there. So we suggest not pinning hopes for the UK economy or markets (which we think are in overall better shape than this piece implies) on Chancellor Rishi Sunak’s tax decisions.
MarketMinder’s View: As always, MarketMinder prefers no party nor any politician, and we assess political developments for their potential economic and market impact only. For a few weeks now, pundits have argued an ascendant left-wing coalition could take power in France’s National Assembly and push big tax hikes and spending that would violate eurozone treaties and jeopardize the common currency. As we wrote last week, that appeared quite a distant possibility, and the results from yesterday’s legislative election first round don’t change our view. While Jean-Luc Mélenchon’s leftist coalition is poised to gain seats—and Macron’s Ensemble coalition may lose its majority—the likeliest outcome is gridlock. “Although Ensemble won 25.75% of the vote, marginally ahead of the left’s 25.66%, it was still projected to dominate the National Assembly. TF1 pollster Ifop gave Ensemble 275 to 305 seats, with the green-left alliance on 175-205. Ipsos for France Télévisions said Mr Macron’s alliance was heading for a lower 255-295 seats and the left 150-190.” That is in a chamber where 289 seats are necessary for a majority. Pending next weekend’s runoffs, Macron’s coalition is flirting with that number while the left is quite far off the mark. That could change. But for now, the risk of a radical policy shift appears quite low. Macron might not get to push through his preferred reforms, which may disappoint some—but that isn’t a new development.
MarketMinder’s View: This piece, which explores the impact of the yen hitting a 20-year low versus the dollar, indirectly shows why currency swings don’t boost exports anywhere near as much as people typically expect. Conventional wisdom says that when your currency is weak, you can cut prices in overseas markets in order to capture market share, thus raising export volumes. Ergo, people think exports jump when a currency is weak and sag when it is strong. Yet reality has often gone differently, with Japan being one big example over the past decade. Rather than cut prices, many exporters have opted to keep them constant and reap more profits from currency translation (when the yen weakens and prices in dollars are constant, exporters get more revenue in yen from every dollar of sales overseas). This isn’t because they are greedy, but because the weak yen also raises their import costs, and they need an offset. MarketMinder doesn’t make individual securities recommendations, but the automaker discussed in the article shows this concept quite clearly: “The yen’s depreciation will balloon the overseas earnings of Japanese automakers in yen terms. For example, [one big producer’s] operating profit for its core business will normally increase by about ¥45 billion for every ¥1 of depreciation. Some of these gains, however, will be offset by higher prices for raw materials that must be imported, such as steel and aluminum. ‘Negative aspects of the recent depreciation of the yen have been expanding partly due to soaring raw material prices,’ said Seiichi Nagatsuka, a vice chairman of the Japan Automobile Manufacturers Association.” As the article goes on to highlight, the weak yen is a particular headwind for domestically focused companies that import components, which we think highlights how to approach Japanese stocks today. Large multinationals with the flexibility to navigate currency swings probably do better than those reliant on domestic demand.
MarketMinder’s View: In our exceedingly polarized political age, it is rather reassuring to see that no matter which party is in power, the Treasury will continue its overall silly investigations into countries that allegedly manipulate their currencies for “unfair trade advantage,” whatever that even means. The previous administration amusingly put Germany on notice, even though the country uses the euro and doesn’t set its own monetary policy. Now the current administration, while “scrutinizing” Switzerland, is declining to name it a currency manipulator—even though it meets all the Treasury’s objective criteria for earning the label and has outright admitted to managing its exchange rate for years. Vietnam also has a managed currency peg to the dollar, which is basically a manipulated rate, but the Taiwan dollar floats—and Taiwanese officials there are trying to raise its value, not manipulate it lower, as they are worried about rapidly rising import costs. On the bright side, the Treasury’s report is always political theater. Theoretically it could trigger tariffs, but mostly it just brings academic studies and some grandstanding. We suggest laughing at it and moving on.
MarketMinder’s View: As always, MarketMinder doesn’t make individual security recommendations, and the specific lenders mentioned here here merely represent the broader theme of big banks and how governments approach them. In this case, after reviewing the largest banks’ so-called living wills (essentially directives for how they will wind down and settle with creditors and investors if they fail), the Bank of England (BoE) has determined they are no longer too big to fail—that is, they can fail without sparking a systemic crisis or requiring a bailout. Now, a few thoughts. One, we have long thought “too big to fail” is a flawed notion, as bailouts are always a political choice and markets are pretty good at resolving situations like this. For instance, when Lehman Brothers failed in 2008, Barclays actually wanted to buy it—the Fed just wouldn’t let it happen and forced Lehman to fail instead. What sparked market panic then wasn’t the failure of an institution of Lehman’s size, but the fact that this failure broke with the previously established solution of stronger firms buying the weak (particularly JPMorgan’s March 2008 acquisition of Bear Stearns). Two, if any of these British banks were teetering on the brink today, even with their living wills getting the BoE’s seal of approval, there is no guarantee markets wouldn’t freak out anyway and politicians would resist the temptation to step in. Cooler heads tend not to prevail at times like that, making a bank run a real possibility. So if anything, we think this announcement risks instilling false confidence and setting unrealistic expectations. You can’t crisis-proof an economy.