Daily Commentary

MarketMinder’s View: More politics here, so a reminder that MarketMinder is nonpartisan, assessing developments solely for their potential economic and/or market effects. Or lack thereof, which is the case with this article. It cites new International Monetary Fund (IMF) forecasts suggesting US federal debt will reach 143% of GDP by 2030, surpassing similar estimates for Italy and Greece—two main players in the early 2010s eurozone debt crisis. Sounds scary, but context is key here. First and foremost, note these estimates use gross debt, which includes all intragovernmental holdings—money the government effectively owes itself. More relevant is net debt—aka debt held by the public—presently about 100% of GDP, per the US Treasury and Bureau of Economic Analysis. Beyond that, IMF estimates aren’t prescient. They rely on straight line math, assuming today’s policies are set in stone. But they aren’t. A future Congress could easily undo a lot of this planned spending, just as this Congress undid past budget bills. These things shift all the time. It is also possible lower taxes encourage more economic activity than the IMF projects, raising revenue, which is the kicker here: Debt’s affordability, which we weigh by comparing interest costs to tax receipts, is what matters, not how total debt measures against GDP. Lastly, US debt fears are decades-old at this point, not sneaking up on stocks. Attention on forecasts like this is indicative of sentiment, not actual credit risk.

MarketMinder’s View: The US government sanctioned two Russian oil producers last week, aiming to solve the long-running tendency for sanctioned Russian crude to end up on the market. This time, “Companies doing business with Rosneft or Lukoil now face the risk of themselves being added to the U.S. Treasury’s Specially Designated Nationals and Blocked Persons List, which makes it hard to do business internationally and limits access to the dollar-based payment system, among other restrictions.” Yet as this article details, the likelihood this actually keeps Russian crude off the global market for any significant length of time looks low. Iranian oil is heavily sanctioned, yet Iran’s oil exports are at their highest level in years. “Evasion tactics have grown sophisticated and the so-called shadow fleet of vessels that transports sanctioned oil has quadrupled in size over the past three years. Iran has been forced to discount its oil deeply, but has kept exports high under intense sanctions. Russia will probably find ways around restrictions by setting up new supply chains to handle energy deals, and redoubling efforts to disguise where cargoes have come from using ship-to-ship transfers or manipulating ships’ transponders.” Sanctions have a long history of rerouting trade, not stopping it outright. So we doubt this batch carries any real, long-term implications for global oil supply or, by extension, prices.

MarketMinder’s View: According to a new LegalShield survey, Americans are increasingly seeking legal help with their personal finances. “The report says that bankruptcy inquiries surged 17 percent in the third quarter of the year, continuing an upward trend that began in late 2021. This helped to push the Consumer Stress Legal Index up 4.4 percent between June and September, capping off seven consecutive months of increases and reaching its highest level since March 2020.” Supposedly, this means consumers—which generate 68% of US GDP (per Bureau of Economic Analysis data)—are increasingly under pressure and at risk of pulling back. So we did the logical thing and checked out the actual report and its history to see if it has any predictive power. And we found it claims to predict consumer confidence by three months, which sounds useful until you consider that consumer confidence doesn’t predict actual consumption. A look at the longer-term dataset shows bankruptcy inquiries remain well below levels seen pre-COVID. The rise since 2021 seems more about the withdrawal of COVID assistance and resumption of student loan payments than actual, fundamental consumer trouble. It is tempting to look at the fast rise beginning in 2007 as evidence this series predicts the economy and stocks, but when you consider that the housing bubble burst in 2006, it seems more like a lagging indicator of widely known real estate problems. Back then, as usual, the recession’s main swing factor was business investment, not consumer spending, which declined far less and rose intermittently for the recession’s first six months. Overall, we strongly suspect the only reason folks are looking at this is the dearth of data during the US government shutdown—people are hunting far and wide for hints at the economy’s health. That is a fine quest! But we think there are other, more telling measures, like those we reviewed last week.