Daily Commentary

MarketMinder’s View: This long-ish piece revolves around politics, so please note MarketMinder is nonpartisan, preferring no party or politician. Our sole focus is on the potential legislation’s market ramifications. Last week, the Netherlands’ lower house passed an annual 36% capital gains tax (CGT) on any increase in the value of Dutch investors’ stock, bond or crypto investments—a tax on unrealized gains. The article highlights the broadly negative reaction that followed, including criticism from social media financial commentators and opposition politicians, as well as a comprehensive discussion about wealth taxes under consideration worldwide. Our interest isn’t in whether governments should or shouldn’t pass wealth levies—a topic laden with sociological implications. But taxing unrealized gains likely isn’t a net benefit. For instance, it risks disincentivizing long-term investment in the Netherlands. It also risks forcing people to sell stocks and other assets to pay their tax bills, which can have downstream implications. And on the revenue side, it risks making receipts volatile and unpredictable, as investors would be able to carry forward unrealized losses to offset future gains, which could put public finances in a tight spot during and after bear markets—typically when governments also want to pursue “stimulus” during a recession. Norway’s experience also shows wealth taxes tend to generate little revenue as they inspire people to vote with their feet. Yet we see a few things to consider. One, the bill still requires Senate approval, and lawmakers there may be more circumspect after seeing the backlash. Two, if finalized, this tax would take effect from 2028, giving stocks plenty of time to digest the probable effects here. Three, as noted herein, an online petition has the level of backing needed to force Dutch Members of Parliament to formally consider the petition, which could lead to minor (or major) changes. And if history serves as a guide, Dutch pols may change their tune. Following pushback, Dutch officials have U-turned on policy pre-ratification several times after voters made their voices heard via referendum (e.g., in response to 2017’s Intelligence and Security Services Act). This tax could be halted or materially adjusted before 2028, so while we will keep a close eye on this, it is worth noting nothing here is a given or sneaking up on stocks. Lastly, don’t overrate this as a risk for Dutch or global markets. Dutch stocks are 1.3% of the MSCI World Index (per FactSet) and owned by investors globally, mitigating the influence of a local tax measure on returns (and Dutch folks invest globally, too). This strikes us more as a personal finance issue.

MarketMinder’s View: The titular “analysis” here is the Congressional Budget Office’s (CBO’s) latest forecasts for the Old-Age, Survivors, and Disability Insurance (OASDI) fund, one of two pools the Social Security Administration uses to disburse benefits. As the title suggests, these new estimates bring the fund’s projected depletion date up to 2032 from 2033 in last year’s forecast, citing hot inflation’s raising Social Security’s cost-of-living adjustments. While that may sound worrisome, especially for those who receive or are planning to receive their Social Security benefits in the near future, we suggest taking a deep breath to recognize what this is: the latest in a long line of ever-shifting long-term OASDI projections. Consider: In 2021, the CBO predicted funds would dry up in 2033. The next year, they pushed it back to 2034. The next year, 2035. Then back to 2034 the next. And last year, they moved it up within 2034. This latest update is par for the course. These forecasts are also highly imprecise, dealing in straight line math and assuming today’s conditions are concrete. No one knows today how inflation, economic growth, wage growth, tax rates or government policy will develop over the next 5 to 10 years. Consider, too, Congress has a history of adapting to keep Social Security benefits flowing (often acting at the last minute), but the CBO’s forecast fails to account for this. “Depletion” is also a bit of a misnomer here—the CBO’s date represents when Social Security will lose its ability to pay benefits in full. Incoming revenue is still forecast to cover 72% of scheduled benefits, and Congress knows making retirees take a pay cut is an express ticket to getting voted out. None of this is reason to panic, in our view—this is a reheated false fear capturing headlines yet again.

MarketMinder’s View: Lots of publicly traded funds mentioned here, so please note MarketMinder doesn’t make individual security recommendations. We think this is a sensible, levelheaded take on the exotification of exchange-traded funds (ETFs), highlighting a key investor takeaway: Despite its rise to popularity for purportedly “being cheap, boring and relatively safe,” the ETF market is becoming increasingly complex. “Investment firms launched 997 new actively managed exchange-traded funds in the U.S. last year, according to Morningstar data, nearly triple the average of the previous five years, when Wall Street embraced ETFs as an easy-to-trade, tax-advantaged spin on mutual funds.” ETF offerings include single-stock exposure, leverage, derivatives, cryptocurrency and even “meme stocks.” Many of these products also charge hefty fees. Today’s glittery products may sound enticing, but don’t get caught up in the marketing—besides understanding the fund’s strategy, it is also worth considering a manager’s incentive. “Many of these managers have decided that the best chance of standing out in a crowded market is to cater to thrill-seeking investors. Single-stock ETFs are one example. The highly risky funds use strategies to produce a target of double or triple the daily return of an underlying stock. … But because single-stock funds charge much higher fees than an average fund, investment firms have rushed to launch those products in hopes that one will gain popularity and become a rainmaker.” ETFs’ reputation for being “boring and safe” doesn’t make them either, so always know what you are buying and ensure it fits into your long-term investing plan.