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.


G7 Countries Agree Plan to Impose Price Cap on Russian Oil

MarketMinder’s View: How, you might ask, do seven nations that have (mostly) already embargoed Russian oil imports plan to impose a price cap on the oil that they are not buying, when they generally have no say-so over transactions between Russia and non-participating nations? As this explains, they believe banning Western firms from insuring shipments of Russian oil that is being sold above a to-be-determined price ceiling will keep actual prices below that ceiling. We have our doubts. Europe has been working on its own similar insurance ban for several months now, and reports indicate insurance activity is merely shifting to firms in India, China and, well, Russia. Plus, many shipments of Russian oil have taken place in the (proverbial) shadows, with ships running dark and transferring oil between tankers in non-sanctioning nations’ waters, disguising its origin. Russian crude is already trading at a significant discount to WTI and Brent, and where there is arbitrage there will always be entities willing to exploit it. The entire existence of black and grey markets proves this. We understand this is discouraging from a sociological standpoint, as it means Russia will continue financing its war effort. But it also means global oil supply should stay higher than anticipated when the war broke out half a year ago, which should prevent prices from skyrocketing.

Which Investments Do Best—and Worst—in a Recession

MarketMinder’s View: The findings here are both rather obvious and near-useless to investors. Yes, growth stocks usually outperform over the 9 months before a recession, which is unsurprising since this category also leads in mature bull markets, when investors are willing to pay up for far-future earnings, and bull markets usually peak before stocks enter recession. And yes, fixed income usually outperforms as stocks fall in a recession, as bear markets usually precede and accompany recessions (albeit they bottom before the economy does). High-yield bonds logically struggle as well, given they are exposed to the same corporate risk factors as stocks when the economy goes south. But all of this is little to no help from a portfolio positioning standpoint today, in our view. Why? Well, as you likely inferred from the preceding sentences, stocks are forward-looking, and their inflection points typically happen before the economy’s corresponding peaks and troughs. Moreover, those economic turning points are never clear in real time. A recession is a broad decline in economic activity that lasts several months or more. By the time it is abundantly clear you are in one, the bear market could well be over if it is a short and shallow recession. The National Bureau of Economic Research, which officially determines recessions—including those used in this study—normally doesn’t weigh in until long after the fact. And, again, because stocks are forward-looking, if you want to position around economic downturns, then you would have to identify a very high likelihood of those downturns in advance, otherwise you risk selling long after stocks have fallen and buying back in long after they have recovered.

German Economy Gets Another Growth Warning as Trade Volumes Drop

MarketMinder’s View: German export volumes fell -1.2% m/m and import volumes fell -1.5% in June, continuing a run of rather bad news for Germany’s economy—and fleshing out the economic weakness that German stocks have been pricing in since late 2021. While we think it is important to look bad news in the eye, it is also important to put it in context. In this case, investors were already aware exports were weak in June considering they were anemic in Q2’s GDP report, which includes June. And given exports rose in April and May, it stood to reason June was bad. Now we simply know how bad. What matters from here: Are conditions likely to get severely worse than what investors already expect? Considering the baseline scenario at this point seems to be trade plunging as energy shortages force factories offline, we think the likelihood of positive surprise exceeds the probability of a negative shock. Moreover, getting confirmation of bad news can help stocks move on. It is counterintuitive, but it is how forward-looking markets work. Confirmation that fears are coming true can help end the associated uncertainty.

When Should You Buy the Stock Market's Dip? Not Now, Experts Advise.

MarketMinder’s View: We aren’t much for market timing and don’t believe anyone using any set of indicators will be able to pinpoint the low—or even really know that it happened for a considerable time afterwards. In that vein, this article seems like a waste of energy. But we would add to this: The discussion herein of defensive sectors like Health Care, Utilities and Staples and dividend stocks doing well and being “more attractive” than beaten-up Tech stocks gets positioning backwards, in our view. Regardless of whether the low is in place now or markets have further to slide, we think the recovery is near. Buying defensive sectors today is tantamount to positioning for the last eight months, not what is likely to happen going forward. It could mean reducing the likelihood you capture the recovery. Always remember: What falls the most in bear markets usually bounces the highest afterwards.

Here's Another Sign High US Inflation Is Starting to Wane

MarketMinder’s View: It is premature to say that recent readings suggest price pressures have peaked, but there are more and more data suggesting that probability is up of late. The latest: August’s Institute for Supply Management US manufacturing purchasing manager’s index. The overall gauge registered 52.8 in the month, matching July’s slightly expansionary read, while new orders encouragingly flipped positive, hitting 51.3. But this article focuses on the bigger change: “The so-called prices paid index in a survey of manufacturers fell in August for the fifth month in a row, the Institute for Supply Management said Thursday. It also slid to a lowest level in more than two years. The index dropped to 52.5% in August from 60% in the prior month and recent peak of 87.1% in March. It’s now back near pre-pandemic levels.” While this implies more businesses are reporting rising prices than not, the extent of that is pretty small. It remains to be seen if these “soft” survey data materialize in actually slower inflation, but this was an encouraging report nonetheless.

Germany's Energy Saving Rules Come Into Force

MarketMinder’s View: Germany’s first round of energy consumption rules took effect today, with the aim of reducing consumption of Russian oil and, especially, gas to permit the country to fill stores quickly ahead of the winter. These measures, while not desirable, aren’t very extreme: They mandate things like retailers keeping doors closed on hot or cold days to preserve electricity use on air conditioning and gas burned to heat storefronts, reductions in lighting of advertising and monuments for aesthetic reasons, and limits on indoor temperatures and warm water. The economic effects of these moves aren’t extreme, although another set of rules is slated to take effect in October. And, ultimately, the question of gas rationing looms over the country’s heavy industry. But for investors, it is worth noting: Germany is well ahead of schedule in filling gas stores, Russian gas is now below 10% of German consumption and markets are well aware of the stress cutting Russia off presents to Germany. Hence, we suspect positive surprise on this front is more likely ahead than negative.

Yellen Warns of Failure to Agree on Russia Oil Price Cap

MarketMinder’s View: This piece obviously has both political and geopolitical undertones, so please keep in mind that our focus is exclusively on the potential economic and market impacts and that we favor no politician nor any political party. That said, we feature this piece—which stresses urgency in enacting a near-global cap on Russian oil prices—to highlight what we think is a central misperception. First, economists disagree on the workability of such a “buyer’s cartel” in depressing prices. But also, the idea that prices will spike without one given the EU’s shift away from Russian oil at yearend is at odds with reality. Russian oil and gas exports to the EU are already down significantly, with these goods now heading to China and India at already discounted prices. According to energy firm Neste, Urals oil is currently trading $24.08 below Brent, the global benchmark. So the cap has sort of already happened naturally. Furthermore, markets are self-balancing and don’t need external interference like this. Rising oil prices have contributed to slowing demand and rising production already, a key reason why oil prices have fallen -25% since March 8’s high, per FactSet.

The Fed's Messaging Needs an Upgrade

MarketMinder’s View: We see a lot of this as making too much out of Fed Chair Jerome Powell’s speech last week at Jackson Hole, which it casts as the Fed acknowledging that lowering inflation will require higher unemployment. This sees that as a new twist, but that is at odds with the Fed’s past commentary on the subject, which stressed that weaker labor market and economic conditions may accompany tighter policy. Even the pressure from Senator Elizabeth Warren on the subject, noted in here as new, matches commentary from past months, like her July 25 Wall Street Journal op-ed. That said, almost anything can roil sentiment, and that seems behind the selloff since Powell’s speech. Beyond these critiques, though, we agree with this criticism of Powell and the Fed’s jib-jabbering forward guidance, which Powell said he would stop giving after July’s meeting, only to say a lot of things that sound like forward guidance at Jackson Hole. “But last week’s speech contained hints of a commitment to keeping rates high regardless: ‘Restoring price stability will likely require maintaining a restrictive policy stance for some time.’ Doubtless Powell was simply trying to correct a misapprehension. The fact remains, the Fed can do forward guidance or it can be nimble, but not both. With the economy so hard to read, it shouldn’t suggest there’s any given path — high or low — for interest rates. Commit to restoring low inflation, to be sure, but make no promises about what this will require.”

Retirement Planning Means More Than Saving in Your 401(k)

MarketMinder’s View: What to expect when you are retiring? This article provides a high-level look at some non-financial considerations worth being aware of. Consider: “New retirees who neglect to plan can flounder without the structure of their careers, unsure how to fill their days, some retirees and advisers say. Their social connections may dwindle suddenly, and those endless rounds of golf or hours spent babysitting the grandchildren turn out not to be as relaxing or fulfilling as envisioned.” Everyone is different, but the article suggests staying active and finding purpose in retirement can help with feeling fulfilled, fighting boredom and staying healthy. If you choose to volunteer, make sure to set boundaries with your work—or your family. Your schedule and responsibilities should be what you signed up for. We also think this general counsel is sound: “While people gain time and freedom, they may lose routine, identity and mental stimulus, all of which aren’t easy to replace ... consider what would cause them to have no regrets about how they are spending their valuable time.” As the article concludes: “Retire from work, not from life.”

Why Totino’s Needs 25 Ways to Make Pizza Rolls

MarketMinder’s View: How is food science relevant to investing? Here we should note this article focuses on one (tasty) product from a specific company, and MarketMinder doesn’t make individual security (or snack) recommendations. It is only for illustrative purposes to highlight a broader point about corporate resilience. As the article relates, pizza rolls require several ingredients, which haven’t all been in ready supply lately. “So the company’s scientists, supply chain heads and procurement managers began meeting daily late last year. The solution? The company found 25 ways—recipes, if you will—to make the pizza rolls, each with a slightly different list of ingredients, swapping in cornstarches, for example, for tapioca starch that had become hard to find, or substituting one kind of potato starch for another. The pizza roll conundrum is a microcosm of an issue that’s affecting the food industry more broadly. Managing soaring prices for most of the ingredients in cookies, chips and pizza is one thing. But for many food executives, the bigger headache now is wondering each week which ingredients will—or won’t—show up at their factories.” The foodstuff industry isn’t alone in its flexibility. From manufacturers and retailers to software providers and miners, companies don’t sit idle and throw up their hands when faced with challenges—solving problems (with profits as their reward) is their whole raison d’etre. While pundits too often seem to forget this, we think this is a good reminder that businesses—and markets—don’t.

U.S. Gasoline Prices Fall to Pre-Ukraine Invasion Levels

MarketMinder’s View: As you may be aware, pump prices have fallen. This article suggests with wholesale gas prices’ continuing decline, further relief could be on the way. “U.S. gasoline futures fell as low as $2.5899 per gallon on Wednesday, the lowest since Feb. 18, just before Moscow invaded Ukraine, setting off a series of sanctions from the United States and its allies that boosted prices across the energy markets to multi-year highs. Energy costs have been the primary driver of global inflation, with retail gasoline prices hitting an all-time record in the United States at more than $5 a gallon in mid-June. Lack of spare refining capacity pushed costs for refined products higher, but headed into winter, gasoline prices have started to retreat as demand dips.” We see this as overall good news, but the article chalks the decline up to “Fears of a global recession and record amount of emergency oil sales from national reserves have helped cool crude oil futures as well as gasoline markets.” While commodity prices probably do reflect recession chatter, as recessions typically reduce energy demand, we think supply has also played a role. Russian sanctions have reshuffled where supplies go, causing some disruption, but they are far from eliminating that output altogether. Economic reality, in our view, is turning out better than feared.

The Fed Is About to Go Full Throttle on QT. Fear Not.

MarketMinder’s View: This article starts with a false premise, in our view: “Given that quantitative easing [QE]—buying US Treasuries and mortgage-related securities—helped firm the economic recovery and provided a lift for the stock market and other so-called risk assets, it seems quantitative tightening [QT] could have the opposite effect.” It takes a complicated route to argue QT isn’t anything to fear, which we agree with, but not for the reasons here. First, as we pointed out in April, QE is no stock market booster, as evidenced by the non-existent correlation between the Fed’s balance sheet and S&P 500. Moreover, consider what stocks care about most: how future earnings measure up to what is already priced in—which has little overlap with the Fed’s bond buying operations. With that said, the article’s look at broad liquidity, including the Fed’s reverse repo program (RRP), which has ballooned to over $2 trillion, and Treasury’s General Account, around $500 billion now (from $1.8 trillion in 2020), is interesting. The RRP helps keep federal funds rates inline, and as the article notes, “Bonds are issued and cash withdrawn from the financial system, but the money is not distributed into the economy. It is a liquidity draining operation.” However, we think taking these data along with the Fed’s balance sheet to “create a liquidity indicator that better explains movements in stock prices than just the Fed’s balance sheet alone” strains credulity. This argument overstates the Fed’s (or any central bank’s) market impact—simply, monetary policies are one of many (not the only) factors stocks price in. We think it suffices to note that the last time the Fed embarked on QT stocks fared fine overall, too.

High Inflation, Recession Risk Widen ECB Dilemma

MarketMinder’s View: Accelerating eurozone inflation is raising expectations for a supersized ECB rate hike at its September 8 policy meeting. “Inflation in the 19 countries sharing the euro currency accelerated to 9.1% in August from 8.9% a month earlier and again beat expectations as price pressures broadened. ... Indeed, excluding food and fuel, inflation accelerated to 5.5% from 5.1% while an even narrower measure, which also excludes alcohol and tobacco, rose to 4.3% from 4.0%. ‘We now expect the ECB to hike by 75 basis points next week even if new staff projections for growth are approaching the downside scenario,’ Nordea said in a note.” While it is impossible to say what the ECB will do, markets also move ahead of central bank decisions, anticipating their actions—blunting the impact to the degree there is any surprise. Also, don’t overrate any one monetary move, even if it is “exceptionally large” as many anticipate. Monetary policy hits with a long lag, impacting the economy somewhere between 6 to 18 months after the fact. As the article’s latter half illustrates, eurozone recession fears are prevalent. Yet the mishmash of arguments for one are muddled—blanket pessimism appears to be outrunning reality, in our view. No doubt high energy costs weigh on sentiment, but more spending on non-discretionary items (like heating) and less on discretionary ones doesn’t necessarily detract from GDP, improving the likelihood of a positive surprise (i.e., an outcome short of runaway inflation and deep recession). The supposition tight labor markets are recessionary here deserves scrutiny, too, as employment trends are evidence of past economic conditions—jobs follow growth, not the other way around. We think the idea they signal a future “wage-price spiral” is misperceived. Meanwhile, per the ECB, private sector loan growth has accelerated this year, which isn’t consistent with the eurozone’s being in or entering recession. Also inconsistent with ever-accelerating inflation? Per FactSet, 10-year German bund yields remain historically low at 1.5% currently—a good indication markets see through these fears, in our view, as investors would demand a higher interest rate if they thought inflation would be a long-running problem. When in doubt, trust the market—it prices in all widely available information over the foreseeable future.

Is Now a Bad Time to Retire?

MarketMinder’s View: The titular question is common based on our experience, and given this year’s challenging market environment, we understand why some investors may be hesitant to go forward with a long-planned retirement during a downturn, instead preferring to wait for a recovery. However, even big bear markets needn’t prevent investors from reaching their long-term goals—so long as they participate fully in bull markets. As pointed out here, “Despite the market’s importance in early retirement, history shows that the portfolios of people who retire in down markets can recover. Thanks to the long bull market and low inflation that followed the financial crisis of 2008, someone with 50% in stocks who retired with $1 million on Jan. 1, 2007, and spent $40,000, adjusted annually for inflation, would have had about $874,000 left after two years, but would have about $1.63 million today.” While past returns aren’t predictive, that recovery occurred after the biggest S&P 500 bear market in the postwar era—illustrative of stocks’ ability to generate long-term returns despite large downturns. Beyond the shared research, we found some of the suggestions here on how to preserve a retirement nest egg mixed. We think it is sensible to reduce discretionary expenses if possible, as doing so can mitigate a bear market’s impact on your portfolio’s value. However, we disagree investors should shift their asset allocations based on where they are in retirement in an effort to “protect” their portfolio. One, “protection” as a goal is incompatible with any asset with inherent volatility and doesn’t really exist. Two, suggestions like loading up on bonds early in retirement ignore the time value of money. More broadly, we think an investor’s specific goals and time horizon should drive asset allocation decisions, which should be based on long-term risk and return combined with comfort with expected volatility, not possibilities within the first five years of retirement. For more, see last year’s commentary, “Digging Deeper Into the 4% Rule’s Alleged Demise.”

Europe Nears Gas Storage Target Early Despite Russian Supply Cut

MarketMinder’s View: In yesterday’s “What We’re Reading” section, we highlighted how Germany was ahead of schedule in filling its gas reserves, decreasing the likelihood of wintertime rationing. In that spirit, we share some more good news: The EU has reached its gas storage goal two months ahead of target. On an individual nation basis, “In Poland, reserves were almost 100% full on Aug. 27 while Portugal’s storage was completely full. Italian storage was filled to 81%, while Hungarian to 62% and Bulgarian to 60%, GIE data showed.” Another notable energy-related issue for the Continent: “Lower temperatures seen across Eastern Europe, and parts of the Iberian peninsula next week will also help nations to conserve more gas as less energy is expected to be needed for cooling.” Now, these developments don’t mean Europe’s wintertime energy issues have vanished and all is golden, as the Continent usually relies on Russian gas alongside reserves when the weather is cold. If Russian gas flows stay low (or stop), shortages could happen. But this is why we caution investors against extrapolating worst-case scenario forecasts into reality—economies are dynamic, and households, businesses and governments adjust. A European winter without severe energy rationing would likely be enough to beat expectations at this point, positively surprising investors. For more, see our August 18 commentary, “On Europe and the UK’s Energy Pain.”

Job Openings, Quits Rate Stay Near Record Highs Despite Recession Fears

MarketMinder’s View: First, the numbers from the July Jobs Opening and Labor Turnover Survey (JOLTS), as reported here: “U.S. employers had roughly 11.2 million open jobs on the final business day of July, in line with revised figures from June. There are nearly two job openings listed for each one of the 5.7 million Americans who reported being unemployed in July, according to Labor Department data. … Of the nearly 6 million Americans who left jobs in July, 4.2 million quit on their own accord, likely to take a job with better compensation or career opportunities elsewhere. The quits rate, which measures the percentage of the workforce which quit their jobs in a given month, remained at 2.7 percent, just below a record high of 2.9 percent set earlier this year.” While July’s figures aren’t outliers from their recent trend, this article frets the ongoing labor market’s strength despite Fed rate hikes, worrying that if Fed chair Jerome Powell and friends don’t cool the labor market, it could lead to a wage-price spiral that “could make inflation hard to tame.” We think this argument is off on several levels. Starting from the feared outcome, the wage-price spiral is bunk, in our view, so while inflation may remain elevated for a while, rising wages aren’t the reason why. Wages are an after-effect of inflation, not a driver. Also, monetary policy hits the economy at an undetermined lag, with most (including central bankers) estimating it to range from 6 to 18 months. With the Fed just starting to hike in March—and a 0.25 percentage point hike at that—we wouldn’t expect to see the impact yet and perhaps not for several months. Finally, as with any labor measure, jobs data are late-lagging indicators—i.e., they follow economic growth. Trying to glean what they say about the economy now, let alone the future, is a mistake, in our view. For more, see our July commentary, “Why JOLTS Shouldn’t Jolt Your Economic Outlook.”

U.S. Consumer Confidence Rebounds More Than Expected in August

MarketMinder’s View: Another US consumer confidence indicator—this one courtesy of The Conference Board—showed better-than-expected improvement in August, with the headline index jumping to 103.2 from July’s 95.3, the first monthly rise after three straight declines. As The Conference Board’s Senior Director of Economic Indicators Lynn Franco presented here, “… purchasing intentions increased after a July pullback, and vacation intentions reached an 8-month high. Looking ahead, August’s improvement in confidence may help support spending, but inflation and additional rate hikes still pose risks to economic growth in the short term.” In our view, sentiment gauges don’t predict action, and we track them as a way to get a rough snapshot of the broad mood. The Conference Board’s latest measure tells a similar story to University of Michigan’s August sentiment poll: US consumer moods have improved from earlier in the summer, but dour outlooks still dominate. In our view, that is just further evidence expectations remain low—and, in our view, lower than warranted amid a mixed economic backdrop.

Xi Jinping’s Vision for Tech Self-Reliance Runs Into Reality in China

MarketMinder’s View: We highlight this more as an object lesson than something with an immediate investment takeaway, and that lesson is timeless. Four years ago, as trade tensions between China and the Trump administration simmered, China’s government launched an all-out effort to become self-sufficient in semiconductor design and production, and it sparked a number of big fears among US investors. The potential for a deeper trade war, intellectual property theft, China’s permanent economic ascendance and the US being unable to access the most advanced chips were all alleged risks. But none of it has really panned out. Instead, as this shows—and as most one-party governments’ five-year plans tend to go—the effort bore little to no fruit, and now the government is pursuing corruption investigations against the people previously hired to lead the push. That, in Xi Jinping’s administration, is tantamount to punishment for failure. Too often, Western investors assume China’s industrial strategies are self-fulfilling prophecies. Investing on that long-term presumption, without regard for the host of variables that could change along the way, is a recipe for error. As we often point out, stocks move on the likely reality over the next 3 – 30 months, not distant possibilities sketched around government diktats.

Fed Plans 2023 Launch of Anticipated Faster Payments System

MarketMinder’s View: This is not a digital dollar or any of the other theoretical things that have sparked numerous conspiracy theories and a general sense of fear and misunderstanding among investors in recent years. Rather, it is an update to the US’s financial plumbing that will speed financial transfers among banks, businesses and consumers. “The new system would allow bill payments, paychecks and other common consumer or business transfers to be available quickly and round-the-clock, a change from an existing system that is closed on weekends and can at times take several days before funds become available. … The Fed system would also compete with another real-time network built and launched by big banks in 2017, which processes a much smaller volume of payments. The Fed has said its system, to be called FedNow, would provide a second option in the market that would lower costs, improve efficiency and reduce the vulnerability of the financial system. That could be attractive to some smaller lenders that have been reluctant to use the big-bank system.” Potential benefits of faster-moving money include reduced demand for payday loans and fewer overdrafts, helping lower-income households in particular. It also, as one Fed person noted in a recent speech, addresses many of the issues that a digital dollar would theoretically target, which could quiet chatter about that topic for a while. Now, we think there are tradeoffs to having a government-run payments service, as it could stifle competition and innovation, so we aren’t calling this development some whopping positive. But we think it is important for investors to have an accurate understanding of what FedNow is and how it works so that they are armed against the fear-mongering that will likely continue.

European Energy Slumps as German Gas Stores Fill ahead of Target

MarketMinder’s View: We often remind readers that commodity markets are subject to sentiment-driven swings just like stocks, and this is a real-time example. After skyrocketing in recent weeks on fears of a severe wintertime shortage, European benchmark natural gas prices plunged Monday after Germany’s economy minister confirmed the country is ahead of schedule in filling its gas reserves, making wintertime rationing highly unlikely. Should prices continue stabilizing, it would likely help all the industries previously affected by exorbitant input costs, including chemical and fertilizer producers—easing two global fears. Not that it will be smooth sailing in Europe this winter, but when everyone fears the worst, anything short of that can qualify as a positive surprise, bolstering sentiment and stocks.