Daily Commentary

MarketMinder’s View: This article notes—and illustrates with a nifty graphic—how at the turn of the century, the US was on a path to record budget surpluses. “In 2000, the federal government actually ran a surplus and the Congressional Budget Office [CBO], Capitol Hill’s nonpartisan scorekeeper, projected the Treasury would keep collecting enough revenue to pay for all government programs and generate continuing surpluses. Fast-forward to 2025, and the U.S. is running record deficits outside of wars, recessions or crises. The nation’s publicly held debt is nearing 100% of gross domestic product and is projected to surpass the post World War II record of 106% in a few years.” The conclusion observes, “The US has never run deficits so large for so long,” which can sound ominous depending on your mood. We think this piece underscores a few points. First, CBO forecasts don't appear especially prescient, a reminder of the near-impossible task, in our opinion, of projecting the distant future. Second, “the path to record deficits” hasn’t led to national ruin. There are several reasons for this, but a big misperception is conflating the national debt’s size with its affordability. Rising deficits and debt aren’t problematic when incoming revenue can fund debt service costs. Debt to GDP isn’t the relevant measure here, but whether tax receipts cover interest payments—which they do, several times over. As we wrote a month ago: “Couple that with the fact US bondholders are first in the receiving line for those internal revenues, and you might say they are exceedingly well serviced.” And third, if America’s debt load troubled markets, we reckon markets would flash warning signs. Yet US interest rates remain tame—and lower today than when the government was running budget surpluses a quarter century ago.

MarketMinder’s View: As the headline here implies, and the article delves into, “The new Social Security and Medicare Trustees report, the government’s formal annual estimate of the programs’ finances, finds that the trust fund for the Social Security retirement program is set to go bust in 2033, the same as last year. At that time, its incoming tax revenues would be enough to pay only 77% of scheduled benefits, barring a change by Congress. Combining the old-age and disability programs would buy future Congresses another year, with the combined programs able to pay 81% of scheduled benefits starting in 2034—not 2035, as estimated a year ago.” To see why you shouldn’t take such far-flung predictions to heart, rewind to see what Trustees said before. Four years ago, funds were supposed to run out in 2033. The next year, 2034. The next, as mentioned, 2035. Now, it is back to 2034. A moving target doesn’t really tell you anything other than circumstances change, so extrapolating much from this is folly. Then too, looking to history shows how worst-case scenarios needn’t necessarily play out. In 1982, Trustees noted: “Without corrective legislation in the very near future, the Old-Age and Survivors Insurance Trust Fund will be unable to make benefit payments on time beginning no later than July 1983.” (Emphasis added.) Needless to say, Social Security didn’t collapse. What happened? Congress grabbed the proverbial third rail, made a few (politically acceptable) tweaks and preserved the program we know today. That doesn’t mean it will happen again come 2034 (or whenever) but as Sir John Templeton said, “The four most dangerous words in investing are: ‘this time it’s different.’”

MarketMinder’s View: The Department of Labor is no longer dissuading 401(k) providers from including cryptocurrencies (like bitcoin) in their retirement plans. But as the old saw goes, just because you can do something, doesn’t mean you should. And while we have nothing against bitcoin and its ilk per se, we think this article gives a few reasons why investors should do their due diligence—not just in retirement accounts, but in all investment accounts. The principles here are universal. First, “Bitcoin doesn’t produce any cash flow, so it doesn’t generate any returns for the investors. The only way investors can generate a profit is to sell it back for a higher price. It’s much more like gambling than a productive investment.” Second: “moving away from traditional stocks and bonds does not necessarily lead to higher returns.” The piece goes into more detail, but there isn’t much evidence so-called alternative assets are inherently superior. We are more lukewarm on the third point: that because defined benefit plans don’t invest in cryptocurrencies, there is no reason 401(k)s should. It behooves investors to employ critical thinking about what makes most sense for their financial situation, so just because one group of investors may buy or avoid doesn’t necessarily apply to all. For more, please see “Investing Isn’t Collecting, Private Equity Edition.”