Daily Commentary

MarketMinder’s View: There is a whole lot of political bias in this piece, so we remind you MarketMinder doesn’t play favorites in politics and assesses matters solely for their potential market effects. When you strip it down to its core argument and ditch the politics, what you find is the well-chewed-over theses that America is overindebted (with a side dish of the well-digested AI bubble fear), arguing centrally that America’s political “instability” means we won’t rein in the deficit and rising debt, setting up a financial crisis. “The largest risk, at this moment, revolves around the federal government’s accumulation of debt, now in excess of 120% of the nation’s gross domestic product, a near unprecedented level. It is likely to keep on growing at a fast clip given massive built in budget deficits for the next decade.” With all due respect, fear of US debt is age-old and there is nothing particularly special about today. That figure, the debt-to-GDP ratio, is literally the only evidentiary point offered. So let us consider it. The figure presented is gross debt-to-GDP, which includes Treasurys the government owns itself. That is an accounting entry, and things that are both assets and liabilities cancel. Per Treasury and US Bureau of Economic Analysis data, net debt to GDP finished Q1 at 98.7% of GDP. It is estimated to have crossed 100% recently. Beyond that, as we have written, this comparison is faulty, comparing the accumulated national debt (which almost never falls) to the annual flow of economic activity. Uncle Sam also doesn’t pay debt interest with GDP. It uses tax revenue. If you compare debt interest to tax revenue, the ratio is at the high end of the historical range—but it sits right around where it was in the late 1980s and early 1990s. Another fun fact? China isn’t “the major player on the other side of the US’s fiscal imbalances,” whatever the heck that is supposed to mean. It has pared down its debt holdings for years with little fallout, and even the most generous estimate of its total holdings are around one-thirtieth of net debt (source: US Treasury). Look, we get it. If there was a debt crisis, banks would likely be hit because they own a lot of Treasurys. But as even this article admits, there is next to no real sign that is happening now and little sign it is very close.

MarketMinder’s View: First, this touches on politics and name drops several individual companies affected by tariffs, so please keep in mind MarketMinder favors no politician nor any political party and we don’t make individual security recommendations. This is a good and detailed summation of the many and varied forces slowing the refund of many “Liberation Day” tariffs ruled unconstitutional in February. In the run up to the ruling, some feared a rush of refunds would put fiscal pressure on the Treasury, which we never found credible: The simple fact is this sum is too small even if the refunds came quickly en masse, but even that never looked likely. So it is: “Only about 5% of the 3,000 largest publicly traded US companies mentioned refunds in the context of President Donald Trump’s now-illegal tariffs in recent comments and regulatory filings, according to a Bloomberg analysis of firms in the Russell 3000 Index.” This makes a lot out of the politicized name-and-shame the Trump administration has threatened, but there are more reasons for the slow movement. One, if a company gets a refund, is it then subject to consumer lawsuits downstream? Many of the experts quoted herein suggest the answer is at best “ask again later” and potentially, “yes.” And then there is the cost and ease of filing: “In the meantime, billions of dollars owed to importers will remain in the Treasury Department while some struggle to file claims before their entries time out of Phase 1 eligibility, Ryan’s [Tony] Gulotta said. Others must wait while CBP builds out new capabilities in the refund portal and irons out some legal issues surrounding older and more complex entries. While there is no cost to file for refunds with CBP, the administrative burden for companies can be expensive. ‘One dollar of [overturned tariff] refund does not truly equate to $1 recovery, so companies may not be able to pass the full recovery back,’ said [Angela] Santos of ArentFox.”

MarketMinder’s View: This probably won’t be meaningful to markets in the 3-to-30 month window they weigh most carefully, but it is interesting nevertheless—and shows how the energy market is evolving in response to the twin shocks from Russia’s Ukraine invasion and the Iran war. Canada, aiming to boost its energy industry via gas and oil exports, has now inked a deal to supply Germany from a planned floating liquefied natural gas facility off the coast of British Columbia (BC). While this is a couple years out, the direction of travel here is clear. In recent years, the country has expanded one pipeline from Alberta to the BC coast (the Transmountain Pipeline), is advancing another and aims to bolster shipments to both Asia and Europe. “[Canada’s Minister of Energy and Natural Resources Tim] Hodgson, speaking in a recent interview with Bloomberg News, said European nations are actively looking for a reliable supply of gas to replace flows from Russia and the Middle East, which have been disrupted by war. European countries don’t want to become overly reliant on American gas, Hodgson said — partly because of trade tensions with the Trump administration but also because they want the security of having a range of suppliers.” This is yet another sign of the seismic shifts in this industry. It isn’t reality today, but it isn’t hard for us to envision a world where oil from states like Russia and Iran—and the control of chokepoints like the Strait of Hormuz—is nearly irrelevant to world energy supply, given global supply growth and export infrastructure development.