Daily Commentary

MarketMinder’s View: There are a lot of ways to think about inflation, both from a personal finance standpoint and an investing standpoint. Alas, we don’t think the framework here is one of them. It takes a very real and important observation—that a dollar buys less now than it used to—and largely encourages navel gazing on this, lamenting everything from lost purchasing power to inflation-adjusted stock returns not being as shiny as raw returns imply. All true, but the problem is it focuses on the demand side of things and, in doing so, ignores inflation’s root cause: higher money supply. Society subconsciously sets prices not according to the value of a dollar, but according to the value of each and every good and service relative to each and every other. They rise when there is more new money in the marketplace relative to the supply of these goods and services, requiring a reset. Said differently, yes, it costs more dollars to buy things, but that is because there are more dollars sloshing around. Is it frustrating that it is taking more time for this sloshing to drive wages and salaries higher than it did to drive prices higher? Heck yah. But this fact remains: Stocks’ high nominal returns since October 2022 are also helping restore households’ wealth. Trying to adjust them for inflation is a fool’s errand, in our view, starting with the fact that it isn’t even clear what the best, most accurate deflator would be. We suggest focusing on your long-term investment goals and how your personal returns are helping you reach them, and not on a single dollar’s loss of purchasing power over time. That is trivia, not a relevant factor to financial planning.

MarketMinder’s View: This look at Greece’s post-pandemic economic recovery shows how far the country has come in recent years, increasing its attractiveness as a spot for investment in the eyes of some analysts—and how far it fell before it got to this point. “The Greek economy grew by 2 per cent in 2023, outshining the 0.3 per cent contraction in Germany. Since 2019, before the pandemic, the country has grown at nearly double the eurozone’s rate. … Strong tourism numbers—which go hand in hand with improvement in the labour market and the recovery in consumption—are helping. So too are structural reforms aimed at removing obstacles to growth, such as increasing digital access to public services, accelerating judicial decisions, and improving transparency and public finances.” But this dawn comes at the end of a very long night, which has left Greece with some of the EU’s lowest living standards and a severe brain drain. We think this is a good object lesson in how markets work: They look forward, and cyclical factors often outweigh structural. Greek stocks outperformed both Emerging Markets and eurozone markets last year—and thus far year to date, per FactSet. Stocks move most on the gap between expectations and reality, and considering the persistently dour views toward the Hellenic Republic over the past decade, it hasn’t taken much to surprise positively on the economic front. However, last year’s strong returns likely reflected some hope for structural reform once the Greek government boosted its majority at last year’s elections—and it remains to be seen whether Prime Minister Kyriakos Mitsotakis will make good on those high expectations. Those looking at Greece for potential investment opportunities should ask themselves what isn’t reflected in stock prices already—remember, you can’t buy past returns.

MarketMinder’s View: In the latest twist in Spanish politics, Prime Minister Pedro Sánchez is considering resigning from office after a court launched an investigation into his wife for alleged corruption. Sánchez called the move a “harassment and bullying operation” by political opponents and will make his decision on whether to stay in office or not next Monday. This piece covers the details and opinions from both sides of the debate, but our interest is more on how this twist may affect the Spanish government—as always, MarketMinder is nonpartisan and focused on politics’ economic and market impact only. As the conclusion here notes, if Sánchez chooses to stay in office, he may call a confidence vote to bolster his leadership. However, if he resigns, the existing parliament may vote for a new prime minister—or, if that fails, the country will likely have a snap parliamentary election in July. Spanish national lawmaking had already come to a halt due to another issue (Catalan separatists calling a snap election in May), and Sánchez’s resignation followed by a new PM and/or snap elections could add some more short-term uncertainty—which could unsettle stocks for a spell. But it also points to continued gridlock—a fine backdrop for markets over time, as it keeps legislative risk low.