Daily Commentary

MarketMinder’s View: There are a lot of ways to think about inflation, both from a personal finance standpoint and an investing standpoint. Alas, we don’t think the framework here is one of them. It takes a very real and important observation—that a dollar buys less now than it used to—and largely encourages navel gazing on this, lamenting everything from lost purchasing power to inflation-adjusted stock returns not being as shiny as raw returns imply. All true, but the problem is it focuses on the demand side of things and, in doing so, ignores inflation’s root cause: higher money supply. Society subconsciously sets prices not according to the value of a dollar, but according to the value of each and every good and service relative to each and every other. They rise when there is more new money in the marketplace relative to the supply of these goods and services, requiring a reset. Said differently, yes, it costs more dollars to buy things, but that is because there are more dollars sloshing around. Is it frustrating that it is taking more time for this sloshing to drive wages and salaries higher than it did to drive prices higher? Heck yah. But this fact remains: Stocks’ high nominal returns since October 2022 are also helping restore households’ wealth. Trying to adjust them for inflation is a fool’s errand, in our view, starting with the fact that it isn’t even clear what the best, most accurate deflator would be. We suggest focusing on your long-term investment goals and how your personal returns are helping you reach them, and not on a single dollar’s loss of purchasing power over time. That is trivia, not a relevant factor to financial planning.

MarketMinder’s View: This is emblematic of the kind of articles investors should expect to see more of as the UK’s election approaches (and ditto in the US): a piece spinning politicians’ chatter into speculation over how policy will unfold over many years (in this case, decades). We follow the logic and dot connecting, but we think this is a perilous path for investors to tread. One, it hinges on political parties’ historical reputations and ideologies as well as personalities. We think this is a foundational error: We are nonpartisan and prefer no candidate nor any party because markets are nonpartisan and don’t pick favorites. They care about how policies unfold relative to expectations over the next 3 – 30 months and whether there is a high risk of surprises that create winners and losers, which is what we focus our analysis on. Which brings us to the second problem: Markets move most on surprises. As many unintended consequences as a vast swath of nationalizations might invite, this possibility has been discussed to death for years, which slowly saps surprise power and creates a low bar of expectations for reality to clear. Lastly, we think it is far too early to form concrete policy expectations. The election date isn’t set, and neither party has released its manifesto. Maybe Labour’s will include nationalizations, whether overt or implicit. Maybe it won’t. And even if it does, there may be too much intraparty gridlock to get anything major through Parliament. The time to assign probabilities to all of this will come, but it isn’t here now, and in the meantime, the chatter helps markets gradually price in the possibility.

MarketMinder’s View: Article of the week! A simply delightful look at the power and magic of compound growth and how disciplined investing can turn small sums into big windfalls in the long run if you are patient and stick to your plan. Read it. Be inspired. Then send it to every young person, retirement saver or early retiree you know.