Daily Commentary

MarketMinder’s View: A $1.8 trillion budget deficit adding rapidly to America’s large debt pile may sound troubling, as explored here and many other outlets decrying the supposed impending fiscal implosion. (In doing so, this touches on politics, which as ever MarketMinder is agnostic on; we are concerned only about the issue’s potential market impact or lack thereof.) But all that fretting veers mostly into politicking, in our view. Those who actually own the debt—and fund the deficit—don’t seem as troubled. Why? In our view, they care far less about the size and more about the likelihood they will be paid back (with interest). The things that matter for them are whether the Treasury’s incoming revenues cover interest payments (they do, several times over) and whether the government can continue refinancing maturing principal (easily, as auctions routinely see demand more than twice the supply on offer). If investors were worried, they would demand a much higher yield to account for the risk—and benchmark 10-year Treasury yields are around 4.0%, below their 5.6% daily average since 1953, per FactSet. (Note, too, the early 1980s’ double-digit rates weren’t world ending, either.) Now, this doesn’t mean deficits don’t matter—or won’t eventually. But for the 3 to 30-month timeframe markets can reasonably assess, they aren’t too worried—and we would trust their judgment more than fearful headlines. Meanwhile, the distant future is anyone’s guess. For more on why CBO projections aren’t prescient, please see February’s commentary, “Digging Into the CBO’s Debt Forecasts.”

MarketMinder’s View: Here is a perceptive article on why trade restrictions are overrated (it also mentions several specific companies, and as a reminder, MarketMinder doesn’t make individual security recommendations). For example, even as Russian President Vladimir Putin threatens to “withhold crucial raw materials like uranium,” alternative suppliers are ramping up enrichment elsewhere. Furthermore, “US companies have also recently been importing more enriched uranium from China. Though this is presumably resold uranium from Russia, which has increased deliveries to its most important trading partner China significantly since 2022. This shows that, despite sanctions, Russian raw materials can still reach the US market via other channels.” Or take other so-called critical minerals: “Demand for nickel has risen sharply in recent years because it is required for the production of lithium-ion batteries for electric vehicles. This, along with the fear of sanctions, has led to price fluctuations. Today, the price is lower than it was before Russia invaded Ukraine, thanks in part to Indonesia, which has significantly larger nickel deposits than Russia, and has unexpectedly entered this market.” For more on why export controls and other trade barriers usually aren’t as onerous as feared, please see our August commentary, “How We See 2024’s Bipartisan Tariff Tout.”

MarketMinder’s View: While we don’t have anything against housing as an investment, we think those considering it should do so with eyes wide open “... as the overall costs of owning a home have soared. Across America, climate change, rising home prices, and other factors are accelerating the costs of property insurance – and to a lesser extent property taxes and utilities. As those variable costs increase, they’re grabbing an increasing share of the monthly housing budget, a report out Monday shows.” Some of those variable costs include taxes and insurance and depend on the real estate’s locale—as the article points out, insurance payments in areas prone to natural disaster have shot up by as much as 90%. In our view, these costs and other risks—including the lack of liquidity and difficulty diversifying—can make homeownership as an investment (and not simply the roof over your head) an especially challenging route to riches.