Daily Commentary

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 mentions a few specific companies, so a friendly reminder that MarketMinder doesn’t make individual security recommendations. The University of Michigan (U-Mich) Index of Consumer Sentiment, a widely watched gauge of Americans’ feelings toward the economy, tumbled to a six-month low in May. According to the survey, respondents’ moods are souring due to inflation, unemployment and high interest rates. This piece gets into the weeds about what the results mean for consumer spending and this year’s elections, but we wouldn’t go that far. Consumer sentiment has little to no bearing on consumer spending—people may feel a certain way but act in an entirely different manner based on their personal financial situation. Our takeaway here? Sentiment is fickle and can change quickly for any or no reason. May’s poll is further proof. After warming at 2024’s start, the U-Mich survey and several other sentiment tools we use have cooled in recent weeks. This is a counterintuitive positive for investors, as stocks move on the gap between reality and expectations. With numerous fears still lingering, the bar for stocks appears relatively low—leaving plenty of room for positive surprise to propel the bull market up the proverbial wall of worry.

MarketMinder’s View: This piece details some of the tactics China’s government is using in its latest battle against property sector doldrums. All the usual suspects here, including cheap funding for state-owned enterprises to hoover up some of the apartment glut and looser mortgage requirements. Neither is unusual in China, where the government often uses state-owned companies to execute backdoor bailouts. But in a new wrinkle, local governments will also start buying unsold apartments, which “would then be used to provide affordable housing.” This piece likens the plan to the Troubled Asset Relief Program (TARP), which the US used during the global financial crisis. We don’t see the connection. Through TARP, the US Treasury bought preferred stock in large banks—including banks that didn’t want the money—and automakers, effectively recapitalizing them. That is … not at all like buying physical apartments to ease a supply glut? The Fed’s absorption of Bear Stearns’ and AIG’s so-called toxic assets in 2008 isn’t a parallel, either, since it held these interest-generating securities until the market had stabilized to where it could sell at a premium or maturity. In neither case did US government institutions own physical real estate. We point this out because it is a long-running misperception about how these programs worked, and in this case, the misperception creates a false analogy. The US’s tactics also didn’t stanch the crisis. Revising the mark-to-market accounting rule in early 2009 did. Maybe China’s local governments buying apartments will work, but the analogy to America in the financial crisis is comparing apples to zebras.