Daily Commentary

MarketMinder’s View: This piece details some of the tactics China’s government is using in its latest battle against property sector doldrums. All the usual suspects here, including cheap funding for state-owned enterprises to hoover up some of the apartment glut and looser mortgage requirements. Neither is unusual in China, where the government often uses state-owned companies to execute backdoor bailouts. But in a new wrinkle, local governments will also start buying unsold apartments, which “would then be used to provide affordable housing.” This piece likens the plan to the Troubled Asset Relief Program (TARP), which the US used during the global financial crisis. We don’t see the connection. Through TARP, the US Treasury bought preferred stock in large banks—including banks that didn’t want the money—and automakers, effectively recapitalizing them. That is … not at all like buying physical apartments to ease a supply glut? The Fed’s absorption of Bear Stearns’ and AIG’s so-called toxic assets in 2008 isn’t a parallel, either, since it held these interest-generating securities until the market had stabilized to where it could sell at a premium or maturity. In neither case did US government institutions own physical real estate. We point this out because it is a long-running misperception about how these programs worked, and in this case, the misperception creates a false analogy. The US’s tactics also didn’t stanch the crisis. Revising the mark-to-market accounting rule in early 2009 did. Maybe China’s local governments buying apartments will work, but the analogy to America in the financial crisis is comparing apples to zebras.

MarketMinder’s View: Probably not, and this piece explains why. Yes, the titular estimate is the amount Brits and those traveling to see this summer’s shows are expected to spend on tickets, merch, meals and lodging. But it is not a boost to economic growth. As one economist points out, “splashing the cash on seeing Swift live is not a net boost to the economy, if her super-loyal fans are squeezing spending on other things to afford their night out. ‘You’re probably having to cut back somewhere else: maybe it’s a birthday present for your child, and you would have bought them something else instead,’ he says.” Then, too, UK GDP is nearly £2.7 trillion. By comparison, £1 billion is peanuts. 0.37%, to be precise. We also have some comparison points, courtesy of England’s strong run in 2022’s World Cup, which is a quadrennial event that confounds seasonal adjustment patterns. Pubs sold a lot of beer that month, boosting consumer spending, but only temporarily. It was a tiny blip, not a trend. What matters for an economy isn’t spending on one-time events, but spending and investment patterns over more meaningful stretches.

MarketMinder’s View: As always, MarketMinder doesn’t make individual security recommendations—we are here for the broader sector theme. This piece examines US Utilities stocks’ recent hot performance and concludes this time is different for the stodgy, defensive sector: Allegedly, it is now a play on artificial intelligence (AI) and therefore an offensive category. The evidence is allegedly surging power demand to run the data centers and powerful computers pushing machine learning forward. Nice thought, but we suggest not jumping on the hype train. One, these demand forecasts are widely known and most likely baked in by this point. Two, it ignores that there is limited evidence of higher demand, and even if that happens, it will require higher supply, which means big up-front spending, probably debt-financed at today’s higher rates. This will likely push Utilities’ costs higher and shrink margins, negating much of the boost people seem to anticipate. Amusingly, the parallel this piece cites as a bullish comparison proves our point. The article claims the only analogue for a similar electricity boom is the 1960s and 1970s. Welp, Utilities underperformed the S&P 500 for the vast majority of that stretch, per Global Financial Data, Inc. It had two very short bursts—one in the early 1960s and another in the mid-1970s. But it was fallow before, in between and after and lagged on a cumulative basis. Seems to us things aren’t so very different after all, and those buying now on hype are likely to be disappointed by a defensive sector that returns to acting defensively before long.