Daily Commentary

MarketMinder’s View: This is an important follow-up to a piece we featured last week, which offered six financial tips for new graduates—always one of the best gifts you can give someone who is just starting out. As is inevitable whenever a piece like this hits the wires, some readers disagreed with a few of the points, offering their own takes, which this piece nicely addresses. Seemingly most controversial was the suggestion that home ownership isn’t mandatory or even necessarily the most optimal way to go, depending on the individual’s savings and home prices in their locale. Renting, contrary to popular belief, isn’t throwing money down the drain. One reader argued young folks should buy as soon as possible and rent the extra bedrooms to help cover the mortgage. The author’s rebuttal is chock full of wisdom: “Like so much about personal finance, it’s about the individual’s financial standing. The math does not always work in favor of purchasing a home, especially for young adults who haven’t had time to build a sufficient cash cushion to weather economic downturns. What happens when the friends suddenly move out? Or they get laid off — last hired, first fired. Where’s the money going to come from if there is a major home repair needed?” Following that realism is some hard truth about what happens to most folks when they opt not to pay off student debt early in their careers, taking advantage of forbearance. They keep putting it off, saying major life events must take precedence, but “because the interest is being capitalized, the debt keeps growing. Now in their 40s and 50s, they are panicking about paying the debt off before they retire.” It all brings to light a very important point about financial planning: Conventional wisdom is often grounded in myth that doesn’t work in the real world, while the best solutions often go against the grain and will sound tough at first. But thinking through the long-term consequences helps illuminate things, and both of these points are shining examples in how to do that.

MarketMinder’s View: Remember all those calls for Congress to abolish the debt ceiling to avoid bitter standoffs and (inaccurate) talk of default? Yah this bill wouldn’t do that, which isn’t a surprise, considering how useful the debt ceiling is for politicking and fundraising. Instead, if passed: “It would empower the Treasury Department to continue paying bills for the country’s existing obligations. To stop Treasury’s payments, Congress would have 30 days to pass a veto-proof joint disapproval resolution, which would require a two-thirds vote in the House and Senate.” Without having draft legislation to read through, it is unclear why this would be necessary, given past Supreme Court and GAO guidance has been crystal clear that the government must and can continue paying bond interest when at the debt ceiling, and there is sufficient monthly tax revenue to cover interest with plenty left over for other things. The 14th Amendment backs this up, too. The coverage of this forthcoming bill also doesn’t specify where the money to cover continued payments would come from if the Treasury decided to spend more than it takes in. So, questions. But the big thing to know is that this wouldn’t alter the risk of default, which was already near-zero considering default means only failing to pay debt interest or principal. The Treasury can refinance maturing bonds when it is at the limit, and again, revenue covers interest. So given the law wouldn’t do much in practice, it shouldn’t be disappointing that it stands little chance of passing this gridlocked Congress.

MarketMinder’s View: Six months after raising the energy windfall profits surtax from 25% to 35% and extending it to 2028, the UK government has now pledged to end the extra tax early if the six-month average prices for Brent crude oil and natural gas fall below $71.60 per barrel and 54 pence per thermal unit, respectively. Both figures aren’t far below current prices, offering businesses some hope of relief, and raising hopes that the change will boost investment. How so? All else equal, new investment raises supply, lowering prices and, ideally, bringing them below the new tax threshold. Time will tell if this works, but we sort of have our doubts. One, taxes aren’t the sole determinant of investment decisions. Two, ever-shifting tax rules raise uncertainty, which discourages investment. Three, based on our reading of HM Treasury’s official statement, it isn’t clear whether the windfall tax would return if prices rose above its thresholds. Four, we are hard pressed to see what the point of this is. The Treasury’s statement notes the tax has raised £2.8 billion thus far but projects it will pull in £26 billion total by 2028. But if it raised only £2.8 billion while oil was flirting with $100, and crude is back down in the $70s now (per FactSet), then how is there a remote chance it would bring in over £23 billion within the next 5 years? The math doesn’t work. This all seems like political theater to us.