Daily Commentary

MarketMinder’s View: Political uncertainty is ticking up in Japan following last weekend’s Liberal Democratic Party (LDP) leadership election. The winner, Sanae Takaichi, is presumptive prime minister to-be. But that hinges on her winning a confidence vote in the Diet, penciled in next Wednesday, and the path is getting complicated. For 26 years, the LDP aligned with the small pacifist Komeito party, and they currently lead a minority coalition government. That coalition ended Friday, when Komeito left it, citing differences with the LDP over party fundraising regulations—lingering fallout from the fundraising scandal that dented the LDP’s popularity. So now, Takaichi must figure out where to get the necessary votes to win next week’s roll call. Talks with the Japan Innovation Party and traditional opposition Constitutional Democratic Party for Japan are ongoing, but there is some risk of a stalemate and snap elections. And for stocks, the uncertainty could weigh for a spell, though Japanese fundamentals still look fine over the foreseeable future.

MarketMinder’s View: The data here don’t pass the smell test (more in a moment), but the thesis and rhetorical argument are spot-on. Simply: Gold isn’t a sound long-term investment. It has occasional booms, like the present, but those historically gave way to big busts, requiring excellent market-timing. Given the booms and busts are sentiment-induced, they are impossible to time on a reliable, repeatable basis. And unlike stocks, gold doesn’t pay dividends or generate earnings. “Years ago, Warren Buffett pointed out the absurdity: ‘(Gold) gets dug out of the ground…then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.’” Now, where we think things get a bit dodgy is in the attempt to use stock and gold return data from 1928 to prove the point. Problem is, until 1970, gold’s price was fixed, which both artificially compresses returns until then and creates an artificial floor for returns after that, as there was a sizable gap between gold’s fixed price and market value before the end of post-Bretton Woods currency controls. We think a better way is to simply show gold versus stocks since those controls fully ended, as the data are clean and still prove the point.

MarketMinder’s View: While labor market data are always backward-looking, this is another bit of evidence Canada’s summertime economic soft patch was a blip. After steep job losses in July and August, Canadian employers added 60,400 workers in September (with the unemployment rate holding steady at 7.1% as more folks joined the labor force). This doesn’t fully erase weakness earlier in the summer, which followed a downtick in monthly GDP, but it does back up recovery signs evident in the latest monthly GDP and other readings. Overall, we think it shows fears of US tariffs roiling Canada’s economy were greatly overwrought, which isn’t shocking given most trade falls under US-Mexico-Canada-Agreement terms, remaining tariff-free. Markets are already aware of this, as Canadian stocks’ strong run since April shows, but having some data confirm it might help sentiment.