Daily Commentary

MarketMinder’s View: Please note, MarketMinder isn’t for or against most asset classes. However, a critical component to successful investing is asking, “Do you know something others don’t?” When it comes to widely discussed information and developments, the answer is probably “no” for most people. In that vein, we think this piece does a solid job explaining why the private equity (PE) space may not offer the same opportunities today as it did in the past, as “… the evidence shows that, historically at least, private equity investment is associated with greater profitability and productivity. Often private equity investors have expertise in the industry they buy into, and better structure a company’s finances. Lately, however, PE has been running out of steam. Returns may not be as good. Fewer exits also mean fewer payouts. Pension funds are not getting their money back, or returns are not always what they expected. The outlook isn’t much better, with higher interest rates making leverage more expensive and buyouts less profitable.” As the article also points out, an increase in PE investments means more examples of PE not improving markets or companies. Considering all the press PE has received recently—especially as proponents push to make private investments an option in Americans’ retirement plans—we think interested folks should think long and hard before jumping into a space the industry’s biggest investors have become increasingly hesitant about. Think about why these funds might be seeking broad retail investor participation. For more, see last week’s commentary, “Inside Wall Street’s Private Equity Push.”

MarketMinder’s View: Here is some interesting insight about the global oil market implications (or lack thereof) if Israel cuts off Iran’s oil. As the article details, China would be the biggest loser considering, “More than 90% of Iran’s oil exports now go to China, according to commodities data company Kpler. Most of it is bought by small Chinese ‘teapot’ refineries clustered in the Shandong region that operate independently from state-owned oil companies.” These companies switched to Iranian crude a couple years ago to take advantage of its discounted price relative to global oil prices—an easy way to pad margins. If the current conflict materially disrupts Iranian exports, these Chinese refiners would have to pay full price for oil—which would affect their profit margins. However, the broader fallout would likely be limited. “The Organization of the Petroleum Exporting Countries Plus group of producers has a lot of spare capacity that could be returned to the market relatively quickly. Saudi Arabia and the United Arab Emirates combined have more than four million barrels of oil a day on the sidelines. A Goldman Sachs analysis found that these two producers replaced around 80% of lost barrels within around six months in previous supply shocks. This safety valve could ease tensions in the oil market if needed.” So in the end, as the article notes, it would amount to some refineries in one nation having to pay market price, presuming they don’t just switch to Russian crude, which is still making its way to global markets using the same methods as Iran’s tankers. As scary and tragic as the Middle East’s latest conflict is, the hit to global oil supply isn’t huge. For more, see last week’s commentary, “A Market Perspective on Israel and Iran’s Latest Conflict.” 

MarketMinder’s View: At today’s G7 summit, US President Donald Trump and UK Prime Minister Keir Starmer signed their trade deal, but in some ways, now the tough part begins. You see, the two nations’ much-ballyhooed agreement didn’t address some important topics, including pharmaceuticals, and negotiations continue on other items (namely, steel). On the latter, “British officials are still negotiating over the steel and aluminium provisions, with uncertainty over whether it would cover Britain’s biggest steel manufacturer Tata. After closing its two blast furnaces at Port Talbot last year, Tata has been importing steel from its sister plants in India and the Netherlands for processing in the UK to then ship to customers. However, this could breach US rules that require all steel to be ‘melted and poured’ in the country from which it is imported. … The British side admits that talks on steel with the US side, also involving US trade representative Jamieson Greer, are ‘tricky’ but officials say they are ‘reasonably confident we will get there’ by the first week of July.” That is two weeks from now, which brings us to another point: Don’t overstate the influence of these deals. The typical free trade deal can take years to negotiate—the agreements we have seen this year are pretty narrow. That can let politicians claim victory, but the downstream effects (positive and negative) aren’t likely to be big—worth keeping in mind when setting expectations. For more, see last month’s commentary, “The UK and US Ink a Deal (to Maybe Make a Deal Later).”