Daily Commentary

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: We bring you this with the giant caveat that the agreements in question were sealed before the Supreme Court struck down President Donald Trump’s blanket and reciprocal tariffs Friday morning, raising questions about the validity of all the trade deals where countries received lower rates in exchange for various investment and trade commitments. Setting that aside, we are starting to get some clarity on what some of these pledged investments will entail. Not just what the projects will be, but where the investment is coming from. In Japan’s case, three new projects have now come to light as part of the $550 billion in investment commitments agreed to in last year’s deal: a gas-fired power plant in Ohio, a crude oil export terminal in Texas and a synthetic diamond manufacturing facility in Georgia. All will be overseen by Japanese companies, and as for funding and profits: “To execute the three projects, Japan and the United States will establish a special purpose entity. The Japan Bank for International Cooperation will provide funding, while three major Japanese banks will extend loans with a loan guarantee from Nippon Export and Investment Insurance. The U.S. side will contribute land and other tangible assets, while the U.S. federal government will help with construction permits and approvals. Profits from the projects will be split 50-50 between Japan and the United States up to the amount covering Japanese loans and interest, and 90% of any profits beyond that will be received by the United States and 10% by Japan.” The article mentions several of the companies involved, and as always, MarketMinder doesn’t make individual security recommendations. We highlight this for the broader theme, which is that gradually falling uncertainty remains a tailwind even if these deals are unlikely to move the needle for either country’s economic growth.

MarketMinder’s View: This is a link wrap type thing that includes some individual stocks in some of its later nuggets, so we remind you MarketMinder doesn’t make individual security recommendations, and we are bringing it to you solely for the short article that leads it off. This makes an argument near and dear to our hearts: There is no such thing as cash on the sidelines flooding into stocks, and the $7.7 trillion in money market funds isn’t dry powder just waiting to rocket stocks higher. This is principally because for every buyer, there is a seller. “The next time a pundit cites [cash on the sidelines] as a positive factor, though, ask them what happens with cash when it runs onto the metaphorical field? If Peter has $1,000 in his money-market fund and decides to buy four shares of IBM with it, someone else has to feel like selling. Say it’s Paul, who now has that $1,000. The same amount of money is ‘on the sidelines.’ It could go into a checking account instead—there’s cash in those, too—but no net money ‘went into’ the market.” Plus, the reason why people hold cash matters, too. Chances are, not all of that $7.7 trillion is something people want to expose to higher risk of loss. We have some quibbles with some of the examples used here, but it makes the general point: “When short-term interest rates are artificially low, conservative people might choose to take slightly more risk and lock in higher rates through bond funds. Others allocate more to stocks. Those who already own a lot of shares might choose riskier ones with more-distant and less-certain payoffs—speculative, unprofitable companies.” Heck, a lot of that money is in money market accounts because people sought higher-paying alternatives to bank accounts. If their time horizon for that money is short and they can’t expose it to volatility, it isn’t going into stocks (where, again, it wouldn’t push up prices anyway).