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Before we get to the main event, I wanted to point out this nugget that showed up in the Wall Street Journal yesterday: more than 8 in 10 investment advisors are now outsourcing investment decisions for at least some of client assets.1 This seems odd to me, that the core purpose of an investment firm is now being outsourced to someone else.
This brings up an interesting thought though, as One Day In July favors passive indexed investments. Somewhere in the investing process, there are active decisions made, always. It's just a matter of at which level in the investing stack the decision becomes active. We feel like an optimal approach is at the fund level. This allows us to garner the performance and low costs of passive investing while maximizing diversification, risk reduction, and customization.
Before we get to the bond market, I want to discuss how information enters One Day In July. Many of you have asked about this. Let's look at the media business: there are three reliable ways to make money in the media industry. 1. Be named Google or Facebook, and either scrape the Internet to get free seed content or get your users to do it for you, aggregate that content, and sell ads on it. 2. Play to already-established political partisanship of your readership and use ads or get paid a relatively low monthly fee so users can keep seeing/reading things they already believe or 3. Be in financial media and get paid a premium subscription rate because subscribers need to know what is happening to make decisions.
These have been pretty good business models, especially #1. We have used #3 in the form of Bloomberg and Wall St Journal subscriptions (in addition to other sources, generally individuals or analysts posting on their own). Both firms clearly break out news from opinion (one tilts left, one right on the opinion side) and are considered reliable sources. But financial news headlines, even a bit in these publications, seem to be increasingly sensationalized.
The Treasury market is a good example. Many headlines this year implied doom was at hand. But if you look at the actual data, that's not the case. Here is Treasury auction demand from the spring of 1999 to the spring of 2025 on the 10-Year Treasury note:
The vertical lines on this graph show the size of the auction, defined by the numbers on the right side of the graph, and the squiggly line is the bid-to-cover ratio, defined by the numbers on the left side of the graph. The bid-to-cover ratio is the total of number of bids received divided by the total number of securities sold. Notice that recent demand for Treasuries has been rising, even on substantially bigger debt offerings! And that story all over the Internet about foreign buyers abandoning Treasuries? Well, a tiny bit, but not in any material way. Demand was over 65% from foreign investors, up 6% from May, and around the one-year average. Though about 2% below the long-term average of 67% foreign demand.
This doesn't mean there are not structural long-term risks in the U.S. government's balance sheet. But in the near term, with over 2.5 buyers for every bond being offered, we are not seeing either domestic or foreign appetite wane.
- Dan Cunningham
1. More Financial Advisors are Outsourcing Investment Decisions - WSJ - 6/12/25
2. Graph & Demand Data: U.S. Treasury
Journalist David Brooks wrote this last year:
The bottom line is that if you give somebody a standardized test when they are 13 or 18, you will learn something important about them, but not necessarily whether they will flourish in life, nor necessarily whether they will contribute usefully to society’s greater good. Intelligence is not the same as effectiveness. The cognitive psychologist Keith E. Stanovich coined the term dysrationalia in part to describe the phenomenon of smart people making dumb or irrational decisions. Being smart doesn’t mean that you’re willing to try on alternative viewpoints, or that you’re comfortable with uncertainty, or that you can recognize your own mistakes. It doesn’t mean you have insight into your own biases. In fact, one thing that high-IQ people might genuinely be better at than other people is convincing themselves that their own false views are true.
This is a significant problem in the investment world. Many of the decision-makers in investing checked all those high-IQ boxes, are stamped with fancy degrees, and have had continuous signal bestowed upon them that their insights carry extra weight. This becomes dangerous because the market is a playing field that does not care about those things - it puts no value on who the investor is. In that regard it is truly democratic. A good investor must always be careful to invert the question and argue the other side of the trade.
It's probably fair to say that people who are considered classically intelligent are good at creating complex systems. This reflects in investing because one of the most profitable things firms can do is obscure the fee structure for clients, and there are many ways to accomplish this (scroll down here to see our list). After a short period of self-justification, the fee-obscurers high-five and some people fist bump and then there is that awkward post-Covid-era confusion about whether you are high-fiving or fist bumping, but regardless everyone thinks about how much cash flow they created for the firm, and then some people probably even take the afternoon off, thinking "Today was a biggie, I can accomplish no more."
This is obviously bad because these fee complexities are difficult for the investor to unwind, and they prey on people's time. The fact is that almost everyone who is not paid to create these structures has trouble seeing through them. My father-in-law used to joke that we all need to "eschew obfuscation."
We are hired by people to see through these things, and there are times when we struggle. So don't feel bad.
Here's the conundrum, and I think about this a lot. The obscurity above is bad. But is all obscurity in investing so evil? Day-trading apps hide how they make money, and that isn't going to win them any ethics prizes, but the information on investing is almost real-time in your hand. It's much clearer than illiquid investments that do not trade in a market. But maybe in a lot of cases obscurity brings a lack of knowledge, and an implicit friction to get that knowledge, that has value. In other words, it's better not to always know what is going on.
Over time I have come to see this as a big value-add area for One Day In July. As a client it's better not to track what is happening at every moment, because it helps you to psychologically weather storms and euphorias. This will likely increase your financial returns at the same time as it decreases your blood pressure. You want some friction if you go to buy or sell based on emotion. If you are one of our clients, you know your advisor is going to want to talk about this buying high or selling low, and maybe that's enough to say "Okay, you know, forget it. Let's stay with the plan and I'm going back to work on my garden, where my tulips came up in colors that don't match last fall's packaging."
Ideally, you want clear information on certain things, like fees and prices and potential conflicts of interest. But if the market gets too clear and friction-free, you might get yourself into trouble.
Dan Cunningham
1. The David Brooks quote was in The Atlantic, December 2024.
2. Matt Levine at Bloomberg and Cliff Asness at AQR have written about investment obscurity here and here.
What a week+. Before I get to the newsletter, some announcements:
For those of you in Vermont and New Hampshire, I will be on VPR Vermont Edition radio this coming Tuesday from noon to 1 PM, along with Moshe Lander, an economist at Concordia University in Montreal. We will be discussing the current situation, he from the macroeconomics side, and me from the investing side.
If you live anywhere near Montpelier, Vermont or Middlebury, Vermont, we now have new offices open in each town. The signs are under construction and are going up shortly. Montpelier's One Day In July office is above Capitol Grounds, and Middlebury's is right next to the main bridge.
Background
So you know the relative context, Bloomberg published this:
There are some bright spots. For one, United States citizens in the past 10 days may have gotten their biggest economics lesson in history. Next up is a good article if you want to understand tariffs. CATO is a free-market think tank in Washington DC that has for decades fought against tariffs, in part under the mantra of "people who trade goods don't trade bombs."
https://www.cato.org/publications/separating-tariff-facts-tariff-fictions
If you are interested in the legal proceedings, Simplified Stationers will likely be the case to follow. There is an army of legal support lining up behind this Pensacola business owner, initially from conservative groups but expectations are that this is going to be a bipartisan effort. More info here and here.
Generation X, of which I am a member, has lived its adult life bouncing from one crisis to the next. I have now invested through the dot-com crash, 9/11, the global financial crisis, Covid, and tariffs. A substantial amount of learning from the prior four crises is already embedded in client portfolios, as well as the structure and behavior of the firm. Each crisis adds new angles, which we are studying.
I am going to give you a few ways to look at this that are hopefully different from what you are reading online.
1. The first thing you have to do to be a great investor is box out your emotions. For example, it's hard to believe, but if you look at the 1-year total returns of the S&P 500, it is actually mid-single digit positive. In Vermont, when it's 40 degrees in late October, it feels much colder than 40 degrees in April. The direction from which you approach the point you are at matters to your outlook.
2. Related to #1, I am surprised how many investment advisory firms are already out reconfiguring portfolios and altering strategies. This is a terrible mistake and a sign of an inexperienced investor. If you don't have the plan designed correctly prior to these periods, and the confidence to stick with it, that's a problem. The news should not be driving your plan. This doesn't mean we don't tweak portfolios sometimes in these periods when clients come to us with specific concerns or anxieties.
3. The business situation is likely worse than the tariff chart above implies. This is due to the fact that it's not just the rapid price changes, but the fact that no one in the business world has any ability to plan at this point. So the reaction is to batten down the hatches, and this then spreads to consumers. The wild swings you see in the market reflect this uncertainty. (Remember that in theory market prices are just current values of future expected corporate profits. In reality: plus a lot of emotion thrown in.)
. On the bright side, people working in and running businesses are creative, and they have to survive. The U.S. economy is probably the most dynamic in the world and quickly everyone is trying to work around this self-imposed shock. So you have a large number of people working together to mitigate the situation. This includes a long list of powerful people, from different political parties, who are now unified on the same team. I have to say, that feels good.
5. A positive takeaway educationally from this will be that people realize that good markets are made up of transactions between consenting parties, with both parties willing to the arrangement. When a third party interferes, as in the case of a central-planning tariff, things go sub-optimal fast. You can apply this thinking to a lot of scenarios in economics, business, government, and life.
6. 22 years ago Warren Buffett proposed the idea of a market-based internal credit system that would smoothly reduce the trade deficit, likely without conflict. https://fortune.com/2016/04/29/warren-buffett-foreign-trade/
Finally, I could have included graphs here showing all of the crises over the past century in the stock market, and how well everything worked out, but I'm not sure that's helpful when you are in the moment. More helpful is trying to reduce news consumption. You will feel a lot better putting hard limits in place; we have a group of clients who have worked at this and been successful. Just try to redirect your thoughts and energies to local projects, your garden, helping someone, playing golf actually on the fairway, getting better at your job. Things you can control.
For my son's confirmation, his sponsor (who happens to be a client here), gave him a plaque that says "You are what you think about." We keep that plaque next to our kitchen table. Keep that in mind when you feel tempted to read more news.
Dan Cunningham
1. S&P 500 total return source: Stockcharts 4/10/24 - 4/10/25: 3.5%
2. Graph source: Bloomberg: 4/10/25
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