Daily Commentary

MarketMinder’s View: This is an interesting look at US President Donald Trump’s announcement yesterday that he will seek to impose tariffs of either 25% or 50% on selected imports from Canada, citing unfair trade practices. Now, as ever, we think such a move would be a fundamental economic negative—chiefly for the US, because the imposing nation always pays tariffs. But the targeted products here amount to only about $20 billion in imports, a small fraction of US trade with Canada. Beyond this, it also may be a mere negotiating tool, as this highlights: “Monday's announcement comes as the U.S. pushes for significant changes to the Canada-U.S.-Mexico Agreement (CUSMA), changes that would lock any Canadian trade concessions into the text of a trade deal. The Trump administration wants to wipe out as much of Canada’s leverage in those CUSMA talks as possible. Some of that leverage comes from eight Canadian provinces banning the import and distribution of U.S. alcohol products — one of the trade irritants the White House said triggered the new 50 per cent tariff.” These factors make this talk more of the same tariff talk seen since last April’s “Liberation Day” announcement, likely why markets didn’t blink at the news.

MarketMinder’s View: First, this mentions a few individual companies, so please note MarketMinder doesn’t make security-level recommendations—our interest is the higher-level theme. In this piece, that amounts to drawing a parallel between private credit today and in 2008, on the news that insurers are starting to back securitized tranches of private credit, all aimed at alleviating a liquidity logjam, with the insurance requiring little capital to back it. The problem with this is that it pays zero reference to the state of finance today, as banks carry loads of high-quality capital, a sharp contrast with 2008. Two, it misses the key ingredients in 2008’s financial crisis, which were not toxic debt spread throughout the industry. That was the imposition of FAS 157, the mark-to-market accounting rule, which required banks to mark illiquid securities to the last observable comparable trade. This is why writedowns of securities spread like a cascade across the industry, not the insurance backing, which is a footnote to the story. Insured or no, the asset was required to take a mark down when a “similar” security was sold. The omission of this in the story here is glaring. Also glaring: Private credit isn’t suffering a crisis of defaults and missed payments. It is that investors locked up liquidity they want out of as the returns are proving underwhelming. Big difference, folks. Look, we don’t discount the idea that financial alchemy can go too far. But the whole notion of securitized assets causing 2008 was never right and it still isn’t today.

MarketMinder’s View: We disagree. This article traffics in many of the myths that near-constantly surround the shiny yellow metal, dismissing the bear market that struck it since early this year (which should help obliterate the idea it is a geopolitical “safe haven,” but we digress). It counsels buying the dip, which it alleges is driven by fears of rate hikes, on the backward-looking ideas that it is still up more than stocks on a rolling 12-month basis, central banks will return to buying gold and the Fed may refrain from actually following through on rate hikes. Folks, none of these alleged drivers withstand scrutiny. Central banks sold en masse in the early 2000s. Gold began a big bull market. Rate hikes came during that span, too—gold still rose. And past performance never means much about the future. On the Fed point, it is also worth noting that if you think gold’s outlook hinges on rates, you had better take a global view—because gold is traded globally, not locally. Think you can forecast the Fed under Kevin Warsh? How about the BoJ? And BoC? And ECB? And RBA? And BoE? You can’t know what central bankers will do with rates, and hinging any investment decision on such forecasts is folly. Again, their rate moves won’t dictate to gold or stocks anyways. But the sheer impracticality of the “analysis” here is striking. Look, here is the upshot: Gold is, and always has been, a speculative commodity. It is more volatile than stocks with lower long-term returns and isn’t reliably negatively correlated to equity markets. That kills the case for owning it fully, to us, since it can’t act as a good diversifier with that backdrop.