Daily Commentary

MarketMinder’s View: Many fret Social Security’s solvency, but as we wrote recently, fixing it needn’t be onerous (it just isn’t politically expedient). It also needn’t be partisan, as the 1983 reforms discussed here demonstrate, which reminds us we favor no politician nor any party—we are here for the policies, not the personalities involved. As the article points out, “So long as the Social Security system runs on a pay-as-you-go basis with no real investments to support benefits, it will never be solvent on a long-term basis. The Roosevelt administration could have invested the portion of annual Social Security taxes not required to fund the small early-year benefits in a trust fund that was owned by the people who paid Social Security taxes. Had the government adopted such a system from the beginning, investing 70% in a broad-based stock portfolio like the modern S&P 500 and 30% in investment-grade private bonds, the trust fund in 1977 would have held $209 billion in real assets rather than $36 billion of government IOUs. Had the surpluses generated by the bipartisan reforms of 1983 been invested in a similar investment mix, the Social Security trust fund would have $14.1 trillion in real assets today rather than a government IOU for $2.6 trillion.” Now, coulda-woulda-shoulda hypotheticals aren’t testable hypotheses (though that aforementioned example underscores the power of compound interest). But as the rest of the piece details, there are plenty of ways for Congress to patch Social Security funding—the historical examples shared here show how (e.g., raising the full retirement age from 65 to 67 gradually starting in 1983). The insolvency of this “third rail” is an attention-sucking wedge issue, convenient for raising campaign contributions, but it isn’t the threat to retirement benefits many presume it to be.

MarketMinder’s View: As this article mentions some specific stocks, please note MarketMinder doesn’t make individual security recommendations. We are here for the broader theme only: personal finance education for fun and profit—the earlier, the better! We are big believers in learning by doing, and with investing, there is nothing like concrete experience to bring key financial principles home. So how to start with your kids? Some joint brokerage accounts allow both parents and teens “the ability to place trades and withdraw money. The parents, however, get notified through the app whenever their child tries to make a trade or withdrawal, giving them a chance to stop the transaction.” They may also offer educational modules to help teach young investors the ropes. The more familiar they are with financial fundamentals and the basics of sound investing, the likelier they can build a foundation for future success!

MarketMinder’s View: This helps put the alleged global bond “rout” in perspective. “Global government bond yields have risen 17 basis points on a rolling 20-day cumulative basis, compared with 62 basis points [four years ago], data compiled by Bloomberg show. On a peak-to-trough basis, bonds have lost 4.2% this year—a far cry from the 23% plunge seen in 2022.” Now, all that is in the past. What matters for current bondholders are returns going forward. On that front, developed market governments’ creditworthiness remains rock solid. The article frets “energy-driven” inflation, but that is never the cause. Inflation is a monetary phenomenon created by too much money chasing too few goods and services, which isn’t the case today. Per the Center for Financial Stability, broad money supply growth is 7.9% y/y, near the historical average, in line with past low-inflation periods and not close to June 2020’s 30.5% zenith, which led to 2022’s racing prices and that titular bond wipeout. No doubt, sentiment can swing bond prices (which move inversely to yields) short term, but over the longer term, markets move most on the gap between reality and expectations, and what matters most to bonds are inflation and inflation expectations. With inflation and credit fears overblown—and bonds’ underlying fundamentals fine—we think bonds can continue serving their role in a long-term portfolio (as a way to lower overall expected short-term volatility). For more, please see last month’s commentary, “The Bond Backdrop Now.”