Daily Commentary

MarketMinder’s View: When the Trump administration unveiled its sweeping, surprisingly stiff and strangely concocted tariffs last April, many thought the hit to US trade and trade partners would be severe. The World Bank estimated the average tariff rate at 28%! And it was higher on a statutory basis on China. But we always thought this overstated reality. Even before the US Supreme Court shot many of those down in February’s ruling, the bite was proving far less painful than the bark suggested. This article documents one of several reasons why: tariff avoidance. “US imports from China plummeted last year as President Donald Trump ramped up tariffs. But shipment-level records analyzed by AI-driven supply chain platform Altana show that as new duties were imposed and adjusted, businesses often routed goods through Asian countries with lower tariff rates, and onto Mexico, where treatment under the US-Mexico-Canada Agreement offered another opportunity for savings. Transshipment isn’t necessarily illegal in a global trading system where production and assembly often span multiple economies and as companies ship goods through major ports to transfer cargo from one vessel to another. Component parts from China are increasingly used to make new products in Vietnamese factories, for example, that are later shipped to the US. USMCA-related routes aren’t new, either.” Some of this avoidance is likely illegal, too, as this goes on to note. But it highlights the severe complexity in levying tariffs in a world that won’t deglobalize fast. This is one reason markets have shrugged off tariffs since the initial shock last year. Stocks pre-priced a worst-case scenario that was never likely to play out, then moved on. We think investors should, too, as companies have now had a year to find more and more tariff mitigation methods. Tariffs’ hit wasn’t delayed—it likely isn’t coming.

MarketMinder’s View: The titular “wrong oil price” is the global benchmark Brent crude oil futures price, which has trailed the “Brent Dated” since the war in Iran began—the price one would actually pay for oil loaded onto a tanker right now. Usually they track closely, but the divergence since war broke out allegedly means the real-world oil shortage is worse than the futures market appreciates and that those who focus on futures prices have their head in the sand. We agree the divergence is interesting, but we don’t think it shows underappreciated risks stocks or oil futures have somehow overlooked. For one, the higher Dated price doesn’t mean everyone taking delivery of oil today is paying that higher price. Refiners use futures contracts to hedge against future price movement, so many taking delivery now should be paying lower prices locked in months ago. That futures prices are lower than the Dated price now is the market’s way of signaling oil shortages shouldn’t be as bad as feared, which isn’t a bad shout when you consider the Middle East’s pipeline workarounds and producers elsewhere (America, Argentina, etc.) ramping up. (Those workarounds, which push some 5 - 7 million barrels of oil to ports outside the Strait, also suggest the amount of oil off the market isn’t as big as depicted herein.) The higher Dated price isn’t even necessarily a bad thing, as it motivates producers to get supply where it is needed most. If Asian nations are willing to pay up for needed oil now, that is an incentive for oil exporters along the Atlantic coast to undertake longer shipping routes to get it there. Note, too, that the divergence has narrowed sharply from about $35 per barrel on April 7 to about $9 yesterday, per the chart in the article. That strikes us as evidence the market is already adjusting rapidly. Lastly, while we don’t dismiss the real hardship some small developing markets are facing as governments ration fuel to combat hoarding and prospective shortages, the fact remains that the global economy is much less energy-intensive than it used to be. Far higher prices than today’s didn’t render recession in the early 2010s, for instance, and inflation since then means much of today’s elevated prices (whether futures or Dated) are a money illusion. We think there remains ample surprise power for positive surprise to rally stocks.

MarketMinder’s View: This article delves into corporate tax policies, clearing up some misconceptions along the way, which is why we feature it. However, it also gives opinions and recommendations on said policies, which you can take or leave—we aren’t opining on the “right” corporate tax rate, which is beside the point. The broader discussion is why we are here, because it casts some light on an occasional question we have seen from investors: When a company’s reported earnings to shareholders say one thing and its IRS corporate tax filings say another, which one is right—are higher earnings reported to shareholders funny math and a false representation? The answer is they are both correct because the SEC’s and the IRS’s accounting systems differ. In explaining how “88 large corporations paid zero federal income tax on $105 billion of profits in 2025,” the piece notes the SEC’s Generally Accepted Accounting Principles (GAAP) and the IRS’s tax code “define income, deductions, and timing differently,” and that mixing and matching “one system in the numerator to the other in the denominator tells us nothing meaningful about profits or taxes.” To see why: “Imagine a company earns $10 million and spends all of it on a new piece of manufacturing equipment in 2025. Under [GAAP] financial accounting rules, the firm spreads out the cost of that purchase over 10 years, deducting $1 million per year. So in 2025, the firm’s accounting books show $9 million of profit on $10 million of pre-investment earnings. Under current tax law, the firm can deduct the full $10 million in the year the investment is made. The firm’s taxable income in 2025 is zero, but it will have no additional deductions left over in future years. ... This isn’t tax avoidance; the tax code and accounting rules simply recognize costs at different times. Comparing the two misunderstands the lumpiness of business income, and this misunderstanding is at the heart of nearly every company [in question here].” Gradual expensing lets companies give a clearer view of their core profitability, while the tax code is designed to encourage more investment (immediate expensing for tax purposes gets bipartisan support). Markets are well aware of GAAP (and other) methods accounting for corporations’ financial results and the differences with how the IRS treats them. Both illuminate reality. Knowing how they work and their conventions is critical to avoid confusion—and potential investing mistakes.