Daily Commentary

MarketMinder’s View: Please note MarketMinder is nonpartisan, assessing Germany’s political developments solely for their potential economic or market effects. The Social Democratic Party’s (SPD) Bärbel Bas resigned as co-party leader and Labor Minister on Monday. The SPD’s coalition partner, Chancellor Friedrich Merz’s Christian Democratic Union (CDU), had called for Bas’s resignation for months. An inability to enact pension reform appeared to lead to Bas’s political downfall, which the article details. The upshot for investors: Germany’s government isn’t united, decreasing the likelihood major change arrives any time soon. “For months, the CDU and SPD have been grappling with low poll numbers, disappointing election results, and disputes over key reform projects. Plans for changes to the electricity tax, the introduction of a sugar tax, the pension and the labor market reform — hardly any initiative has been able to proceed without public controversy.” This is a recipe for gridlock—frustrating for constituents and reform proponents but positive for stocks, as it lowers the likelihood of big change creating winners and losers. Any significant change will struggle to become law. Moreover, the molasses-paced process gives businesses time to prepare, further dampening the market effect. Merz's reforms aren’t economic game changers, but they don’t need to be. German growth is more resilient than many appreciate.

MarketMinder’s View: Last Friday, the US Treasury suspended sanctions on Russian diesel exports—an attempt to dampen today’s red-hot prices. This piece scales the projected effect, noting it “involves 300,000 tonnes of diesel released immediately ‘to the American and global marketplace’ followed by 500,000 tonnes in November and a further 1 [million] tonnes after that.” How much America receives isn’t clear. But we doubt it will cool prices much. According to the US Energy Information Administration, America consumes about 400,000 tons of diesel per day—so this move isn’t big. As another expert notes, Ukrainian drone strikes have knocked Russian refining output, further limiting the deal’s effects. Similar reserve releases this year haven’t eased prices much, so we doubt these will. The politics are noisy (a reminder that MarketMinder is nonpartisan), but the economic effects are likely tiny. Take this for what it probably is: Pre-midterm politicking over high energy prices, a major voter concern.

MarketMinder’s View: This piece discusses indexed annuities, insurance products that lock up retirement savings in exchange for stock-like returns with zero downside risk. While we aren’t inherently for or against most investment products or services, we do have issues with indexed annuities. The appealing marketing tends to overshadow complex fee structures dampening returns. In this case, one policyowner put a $40,000 inheritance into a 12-year indexed annuity, which “… promised returns tied to the market’s performance.” A huge catch: The company behind the annuity could lower the gains received. To be clear, this is consistent with the product’s terms. “Exactly how much a person’s money grows is based on terms the insurer can change during the life of policy, such as the share of the deposit that can earn market returns, any cap on those returns and any spread subtracted from those returns.” If you purchase an indexed annuity without understanding the details, you could be in for a rude awakening. Investing in stocks will always involve downside risk. Their 10% average annualized return includes up years and down years alike. Trying to avoid that short-term volatility by owning complex products that purport to reduce or minimize volatility can be costly in other ways. For more, see our 2018 commentary, “Volatility Heightens Annuities' Allure, but Their Pitfalls Remain.”