Daily Commentary

MarketMinder’s View: With birth rates falling across much of the developed world, this meandering piece warns of potential stress on the global economy as a shrinking global work force becomes responsible for supporting a growing elderly, non-working population (this includes plenty of sociological discussion, which MarketMinder doesn’t deal in—markets don’t, so we don’t either). Now, the thinking here has its logic, but it also presumes today’s trends are set in stone over the very long term. For instance, it cites today’s rising property costs as a reason for declining birth rates (i.e., expensive property means most couples need two incomes to support their family, discouraging them from rearing larger families). Perhaps! Some of us are very familiar with the pain of high property prices. But this trend won’t necessarily last in perpetuity. What if governments broadly ramp up new housing investment, boosting supply? Or maybe mortgage rates come down, freeing up more existing supply as homeowners previously reluctant to sell warm up to mobilizing. Immigration, technological innovation and productivity gains can also play a role here. We aren’t trying to predict what will happen next, which is also our point: Nobody knows now if birth rates will change over the long term, so it is shortsighted to prescribe economic or societal outcomes to them today. Heck, the article even acknowledges this. It notes Reverend Thomas Malthus’s predicting world food shortages would limit population growth back in 1798, missing how massive agricultural innovations via technology would address those issues. Long-term forecasting—in any capacity—is little more than guesswork, and considering stocks focus on the next 3 – 30 months or so, we don’t recommend basing investment decisions on predictions or projections of what may happen decades from now.

MarketMinder’s View: Some politics here, so please note MarketMinder is nonpartisan. We assess political developments solely for their potential market and/or economic effects. According to the always mysterious “people familiar with the matter,” Italy is now expected to support and sign the Mercosur trade agreement—an international pact 25 years in the making. “Italy is expected to reverse course and support the deal when EU ambassadors vote on the measure on Jan. 9, according to people familiar with the matter. That would allow the EU to sign the treaty with the Mercosur countries — Brazil, Argentina, Uruguay and Paraguay — on Jan. 12.” All things equal, freer trade is a positive for markets and the economy. Namely, this deal would effectively create a 780 million-person market, eliminate tariffs on many goods and grant Europe wider access to South America’s enormous agricultural sector. As negotiations continue, the deal’s completion and implementation are still quite distant. For instance, the agreement requires ratification that can be blocked if four EU member states representing 35% of Europe’s population oppose it. And major EU player France still has several points of disagreement that could suspend or slow the dealmaking process. Yet even if the free trade agreement is eventually passed, many of its economic measures (e.g.., tariff removals) will be phased in over the next 10 – 15 years. So, at this point, the aggregate economic implications are well outside of stocks’ 3 – 30-month purview. This is a long-term, structural plus—and evidence the world outside America is trending toward freer trade, not protectionism. That is the most bullish thing about the whole saga, not the deal itself. Keep this in mind as the quarter-century old deal inches closer to the finish line.

MarketMinder’s View: According to a Bank of America Institute analysis, the top third of households by income (called “higher-income households” here) averaged 2.6% y/y spending growth in the three months to November, topping the bottom third’s 0.6% growth. The article suggests this gap is more evidence of America’s bifurcated economy—allegedly a problem since lower earners outnumber higher earners. Should spending among the former falter, the economy at large is in trouble. But we have some issues with the data discussed here. First, this is just one outfit’s figures based on its internal credit card data—interesting and useful, to be sure, but not necessarily a comprehensive look at total US personal consumption. Secondly, we think there are some nuances worth being aware of when comparing income levels. For instance, per Census Bureau data, a household earning over $105,000 would be in the same grouping as a household making $1 million or more. But it is hard to see why the two should be together—especially when you consider cost of living differentials that vary a lot by locale. Two, on the “K-shaped” economy thesis, consider: Both segments, per this article, grew. There is no “K” we are aware of where the right two lines both slope upward, just at varying angles. And perhaps most critically, as Todd Bliman noted in our Festivus grievances, all of these individuals exist in the same economy. “Upper-income” folks’ spending cycles through the economy just as lower-income households’, so we find it hard to couch spending growth in general as an economic negative. To us, this is just more hype around a false fear.