Daily Commentary

MarketMinder’s View: Following President Biden’s announced latest tariffs on China, we have seen a lot of speculation regarding a new era of protectionist policy—and a potential US-China trade war. This piece adds to the chorus. “Tougher protectionist measures from the US come amid signs that Beijing has abandoned, at least for now, attempts to rebalance its growth model away from exports and towards domestic consumption. China remains a high-saving, high-investment, low-consumption economy and that inevitably means that the surplus goods churned out by its factories find their way into global markets. As China’s trade surplus grows ever bigger, protectionist sentiment in the US will become more pronounced.” The article projects today’s tensions potentially leading to a deglobalized, dual-bloc global economy—one led by the US and the West, the other by China. While these projections are quite overwrought, they aren’t surprising either, in our view: It isn’t uncommon for politicians to jawbone over protectionist policy in an election year. When that noise amplifies, keep things in proportion. For all the harsh rhetoric, there isn’t strong evidence for deglobalization and Biden’s latest tariffs are mostly symbolic. We don’t dismiss the possibility of a full-blown trade war, but despite all the tough talk over the past eight years, US-China commerce remains ongoing. Plus, as this piece acknowledges, the latest tariffs cover a tiny swath of the US economy, much too small to have any notable economic impact. Context and scale are always key—and unless tariffs unexpectedly ignite a global trade war, talk alone isn’t enough to derail the economy or markets.

MarketMinder’s View: Citing the Congressional Budget Office’s (CBO) February report, this piece suggests soaring US federal debt presents major threats—today and in the future. “The [CBO] estimates that debt held by the public, which currently totals $27.4 trillion and excludes intragovernmental obligations, will rise from the current 99% of GDP to 116% over the next decade. That would be ‘an amount greater than at any point in the nation’s history,’ the CBO said in its most recent update.” Some of the finance executives interviewed here suggest rising debt will spur questions about the government’s ability to pay for its obligations, making US Treasurys less attractive to foreign investors—and that uncertainty could spill over into the stock market. Anything is possible, but the available data argue against these fears. Treasury auction demand is now stronger than in 2019—when US debt was lower—and foreign Treasury ownership has risen alongside total debt levels. Note, too, foreign investors aren’t the only source of US Treasury demand—US investors are willing and able buyers, too. Moreover, this article worries about the total amount of debt—even though its affordability is what investors care about most. In that vein, US debt is quite serviceable—today, federal interest payments are around 10% of total tax receipts (per the Office of Management and Budget), down from 2020’s levels and well below those seen in the 1980s and 1990s, a great period for the US economy and stock markets. For more on this particular concern, check out our February commentary, “Digging Into the CBO’s Debt Forecasts.”

MarketMinder’s View: This piece highlights one investor’s push to allow Americans to invest their retirement funds into non-public assets, most notably private equity (which reminds us, MarketMinder doesn’t make individual security recommendations). Supposedly, these assets’ illiquidity is the tradeoff for higher long-term returns—a so-called “illiquidity premium.” Since most people can’t tap into their 401k or IRA money until retirement anyway, why not stash it in higher-yielding private markets? Well, we can think of a few reasons. For one, private assets aren’t inherently superior performers to publicly traded assets. “[Private assets] have performed well in the past, but research suggests once public pensions started investing more in private assets, the funds did less well. Private markets seem to work better when they are smaller and fund managers can be more choosy. Expanding their size and scope also can make markets riskier overall.” Unlisted assets also aren’t as stable as many believe—many of them report valuation data periodically, giving the illusion of smoothness, but just because a daily price isn’t available doesn’t mean volatility isn’t there. In the absence of daily prices, investors may not know their private investments’ value until they sell—and at that point, the value may not match expectations given the limited amount of information. We aren’t inherently against most investment services or products—though we see a multitude of issues with deferred annuities, which are discussed here—but we caution investors against treating private equity as an automatically better investment option. Illiquidity, in our view, comes with more drawbacks than many realize.