Daily Commentary

MarketMinder’s View: The producer price index (PPI) doesn’t normally make frontpage headlines, but with so many scouring inflation reports for what they supposedly mean for Fed action, the titular—and miniscule—dip of -0.1% m/m in August apparently counts as news. But if you look at the chart herein, PPI’s latest move falls well within the range of normal monthly variability, as does its year-over-year reading of 2.6%—which isn’t out of step with its trend over the last year. Nothing to write home about. Against the backdrop of tariffs introduced last month, though, some see relief: “Goods prices excluding food and energy rose 0.3%. Services costs fell 0.2%. Within services, margins at wholesalers and retailers fell 1.7%, matching the biggest drop in data going back to 2009 and reversing an outsize increase in July. Margins have been volatile from month to month so far this year, underscoring uncertainty around the impact of trade policy on prices and demand.” As for what this means for the Fed’s rate path, we don’t see much relevance. First, there is no telling how Fed head Jerome Powell and friends will interpret recent data—and how that will influence their decisions. But also, inflation is likely to stay tame regardless. While tariffs may cause certain categories’ prices to rise (or margins to shrink), inflation is an economywide phenomenon. Prices aren’t about to rise across the board with broad money supply growth running within its prepandemic range. Inflation is caused by too much money chasing too few goods and services. That isn’t the case now.

MarketMinder’s View: The introduction addresses the titular question, and we more or less agree: A decades-old rule of thumb isn’t a great way to determine your withdrawal rate so you don’t run out of cash after you retire, as “your mileage may vary. ... Obviously, this is the sort of thing you should discuss with a trusted financial adviser.” The rest of the article then goes in a different direction, making the case for a portfolio of dividend-paying stocks as an avenue to generate enough income for your retirement requirements. (Since the article provides some specific examples, please note MarketMinder doesn’t make individual security recommendations.) The main problem we see arising from this strategy stems from a common misperception about dividends, which the piece doesn’t dispel: They are a return of capital, not a return on capital. There is nothing magical about a dividend: When a stock pays one, its price falls by that amount. Instead of treating dividends as a primary source of retirement income, we suggest investors view this differently: generating cash by selling stock. We call these “homegrown dividends.” Why is this important? Because dividend-paying stocks typically fall into value categories—which aren’t always in favor. Loading up on dividend payers could end up substantially detracting from your portfolio’s (total) returns versus taking positions without a dividend skew. Don’t get us wrong: We very much like and appreciate dividends! But don’t treat dividends as somehow superior to capital appreciation or necessary for cash flow. For more, please see, “The Dividend Divide.”

MarketMinder’s View: This piece wades into some political waters and speculates about whether Congress can or should “fix” rising auto loan delinquencies—we suggest putting that aside. Our commentary is nonpartisan, and we comment on this topic for the economic argument: Are record auto loan defaults “a canary in the coal mine for large-scale economic problems,” like this article claims? The report cited throughout the article includes many scary-sounding numbers (e.g., “Americans owe more than $1.66 trillion in auto debt,” and “Repossessions are at the highest level since 2009”). Large numbers grab eyeballs, but in a vacuum, absolute figures don’t mean much—which is why we recommend scaling. For example, how much of total auto debt is going bad? Helpfully, the New York Fed’s Household Debt and Credit Report provides such statistics. The answer: 5% of auto loans were 90+ days delinquent in Q2, the same as in Q1—which is just below Q1 2020’s 5.1% peak and Q4 2010’s 5.3%. So while car defaults by dollar value may be hitting records, they aren’t out of line historically as a percentage of debt outstanding. To be clear, we don’t dismiss anyone’s financial hardship. But current delinquency rates don’t suggest economic calamity is around the corner. Looking beyond auto loans, aggregate delinquency rates aren’t flashing red, either. On that score, 4.4% of total household debt is delinquent—up from under 3% as the moratorium on student debt payments ended—which isn’t close to the 10%+ rates in the global financial crisis’s aftermath.