1) Tender Touchdown, Arduous Touchdown, No Touchdown? The COVID years simply get weirder and weirder. The COVID hangover is very bizarre. We’ve all been hoping for inflation to decelerate, nevertheless it stays stubbornly excessive. In the meantime the financial system is decelerating throughout the board, however stays…surprisingly sturdy.
You see it in nearly all the info. For instance, under is a chart of Actual GDP and payroll development on a one yr foundation. You’ve had a fairly important slowdown in each. However they’re not going destructive!
So now persons are beginning to speak in regards to the “no touchdown” situation – a state of affairs through which the aircraft simply continues to fly with out ever touchdown.
Personally, I nonetheless suppose this has a protracted methods to go. The maths on the financial system isn’t that difficult in my view. When mortgage charges went over 5% the housing market floor to a halt. And so with mortgage charges at 6.75% as I write we’re nonetheless in an setting the place housing is more likely to stay very challenged. And so long as housing stays weak the broader financial system will stay weak and fragile. So yeah, perhaps the aircraft isn’t going to crash, however as I acknowledged in my 2023 outlook the potential for a “muddle by” yr appears to be like just like the probably end result right here and I wouldn’t let a number of good knowledge factors cloud the larger image right here.
2) The Secret Sauce of ETFs is Nonetheless a Secret
After we speak about large large developments within the asset administration house the ETF vs mutual fund battle needs to be one of many absolute largest. I keep in mind again within the early 2000s I used to be at Merrill Lynch and we solely used mutual funds. This was when ETFs had been simply turning into a factor and I’d consistently examine the mutual funds we used to comparable ETFs. I’d examine the relative efficiency, charges, tax effectivity and the ETFs nearly all the time got here out on high. And I keep in mind asking somebody within the ML coaching program why we don’t simply use ETFs. The reply was all the time “we don’t receives a commission to promote low value index funds”. I by no means understood this and I’ve continued to be amazed at how sticky the mutual fund product wrapper is when it’s a lot worse in so some ways (liquidity, prices, tax effectivity, and so forth).
So it’s nonetheless type of superb to see the relative dimension of the ETF vs mutual fund house, 20 years later, and notice that the ETF house remains to be dwarfed by mutual funds.
I’m mainly the anti-Bogle with regards to this matter. Whereas he mentioned ETFs had been horrible I believe they’re maybe the most effective innovation within the funding world within the final 30 years. However the issue is that lots of people nonetheless don’t perceive them. And the factor that’s most misunderstood is their inherent tax effectivity and the best way ETFs can assist you defer taxes. That is very true inside, ahem, the multi-asset fund of funds construction the place you may rebalance to a sure threat profile INSIDE a single ETF utilizing inventory AND bond funds with out essentially incurring capital positive aspects taxes alongside the best way. As Meb Faber notes on this Tweet, the distinction isn’t small. ETFs can add as a lot as 0.7% per yr in tax effectivity alone.
The annoying factor is that this secret sauce isn’t actually a secret. It’s a scrumptious recipe on the market in broad public for everybody to client and but it’s a recipe that doesn’t appear to actually catch on….
3) Don’t Fear Concerning the Curiosity on the Nationwide Debt
We revealed a brand new 3 Minute Macro video through which we focus on the chance of curiosity on the nationwide debt. This can be a query I’ve gotten one million occasions through the years and the conspiracy theorists simply like it as a result of it appears so intuitive.
The fundamental considering is {that a} surge within the nationwide debt mixed with rising rates of interest creates the chance of a suggestions loop the place the federal government has to pay a lot curiosity that it creates excessive inflation which feeds on itself. Sounds scary, nevertheless it’s probably not that scary in actuality.
As I clarify within the video, the scale of the curiosity funds actually isn’t that large in comparison with historic funds and there are different way more vital components at play right here. Please test it out and I hope you study one thing new from the video.
