Daily Commentary

MarketMinder’s View: A US budget deficit of nearly $2 trillion doesn’t sound great, but putting it into proper perspective and scale defangs the alleged threat. According to the nonpartisan Congressional Budget Office (CBO) forecast, “the U.S. deficit-to-GDP ratio will average 6.1% over the next decade, reaching 6.7% in fiscal 2036—far above U.S. Treasury Secretary Scott Bessent's goal to shrink it to around 3% of economic output.” The problem with such far-flung forecasts, though, is they are seldom correct. The CBO’s decade-long projections presume current legislation remains as is—but is that a sensible assumption? The agency also uses straight-line, long-run economic forecasts when, as many know, GDP fluctuates. Then too, GDP isn’t a good way to assess the country’s fiscal rectitude. Those lending to America to fund its deficits don’t get paid in GDP—they receive payments via tax receipts. On that score, US debt service costs are rising, yes, but they aren’t historically out of whack. Today’s interest payments relative to tax receipts are near the highs from the 1980s and 1990s (per the St. Louis Fed), yet disaster never struck then. America still made good on its debts. Which brings us to our last point. Treasury markets—the most susceptible to potential US non-payment—don’t seem much bothered by the CBO’s opinion (which is all forecasts ever are). Per FactSet, 10-year Treasury yields closed today at 4.17%, about the middle of the range they have been in the last three years, suggesting America’s creditworthiness remains rock solid.

MarketMinder’s View: Please keep in mind MarketMinder is nonpartisan, preferring no party, politician or policy over any other. Our sole focus is on the market ramifications of potential political actions. Is US President Donald Trump about to scrap the signature trade deal from his first term—the US-Mexico-Canada Agreement (USMCA, which revamped NAFTA)? According to the ever-so-reliable anonymous sources, “The president has asked aides why he shouldn’t withdraw from the agreement, which he signed during his first term, though he has stopped short of flatly signaling that he will do so ... An official in US Trade Representative Jamieson Greer’s office said that a rubber-stamp of the 2019 terms was not in the national interest and the administration intended to keep Trump’s options open and negotiate to address issues that had been identified.” As the article explains, this is a matter worth watching given the North American trade pact covers around $2 trillion in goods and services—with plenty of vested domestic interests. For instance, the prospect of higher tariffs and costs may make it even more difficult for Republican lawmakers fighting to keep their seat in this year’s midterm election. That said, threatening to walk away from a deal is a time-honored negotiation tactic to extract concessions. “It’s unclear if Trump will threaten publicly to leave or formally give the warning. It’s possible if he did so, he may use it as leverage to reach a more favorable deal rather than follow through on pulling the US out of the agreement.” Bear in mind that USMCA is up for review in July, at which point the parties will debate whether to extend it past its 2036 sunset, amend it or let it expire. Threatening to walk could well be a way to try to win concessions in exchange for a renewal. Regardless, none of this will sneak up on markets, so while trade uncertainty bears watching, staying calm is vital.

MarketMinder’s View: Please note MarketMinder is neither for nor against bitcoin or any other cryptocurrency, and we don’t make individual security recommendations. Specific firms mentioned here are incidental to the broader theme we wish to discuss: For most folks, moving money should be (and generally is) boring, predictable and secure. And if there is a mishap, you should be able to reverse it or appeal to an authority for proper correction. As the episode here illustrates, that isn’t the case with bitcoin. When a staffer at a South Korean cryptocurrency exchange mistakenly paid out 620,000 bitcoins (around $40 billion) instead of 620,000 won (about $425) in prizes during a promotional campaign, “Enough recipients sought to sell or withdraw bitcoin that the market sank 17%, before Bithumb halted transactions after roughly 30 minutes. Those affected included investors who had held bitcoin before the botched giveaway. The losses totaled about $685,000, Bithumb says. The company has since said it has reversed the transactions or had recipients voluntarily return more than 99% of the misdistributed bitcoins. But Bithumb is still trying to convince users who during the brief window of trading managed to offload more than 100 bitcoins, valued at roughly $9 million, to give back the equivalent funds.” Now, perhaps this doesn’t seem like reason to be wary of crypto, given it is basically a real-life version of that “Bank Error in Your Favor, Collect $200” Community Chest card in Monopoly. But consider: What if you are the one who makes the error? Underscoring the relevance for those considering crypto, while local financial regulators are investigating, there aren’t many established legal protections for investors—and bitcoin’s “fraud-detection” system didn’t trigger, either. Now, fat-finger transaction blunders occur outside of crypto, too. But traditional exchanges can cancel them, and those with issues have recourse to established dispute resolution mechanisms. As many dabbling in the crypto arena are finding out, though, such systems are often lacking on the frontiers of finance—on top of outsized volatility antithetical to useful currencies. Venture there at your own risk. Buyer beware!