Money Sense

[DKG]

A new analysis puts a dollar figure on the cuts Americans could see to Social Security benefits in 2033, when analysts expect payroll taxes that flow into the program won't be enough to cover monthly payments to retirees.

Many Americans have heard about the potential for benefits to be cut a decade from now if no changes are made to the program. To put the impact in more real-world terms — and prod policymakers to act sooner — a new analysis by the Committee for a Responsible Federal Budget calculated the potential hit to annual benefits in dollar terms.

It estimates that a typical, newly retired, dual-income couple would see a drop of about $17,400, amounting to roughly $1,450 a month. Couples who earned more in their careers on average could see roughly $23,000 in benefits cut. And couples with lower earning would see about $10,600 less, representing a larger potential drop as a share of income.

The potential benefit cuts stem from a projection that by 2033 the amount of payroll taxes flowing into Social Security's Old-Age and Survivors Insurance Trust Fund will be less than what's needed to pay full benefits. Social Security is a "pay-as-you-go" system, meaning it can't borrow to address shortfalls.

[DKG]

There is a strong possibility stocks and home prices are poised to drop and the US economy is set to cool. Investors will grab larger bond yields, and wary sellers will list their homes eventually leading to a buyer's market.

The S&P 500 has rallied 25% from its October lows, and now trades at more than 22 times earnings. Investors might decide to cut their exposure to stocks, given the growing pressure on corporate profits, and the fact that 2-year and 10-year Treasury yields have jumped to almost 5% and 4% respectively.

The wider US economy has defied recession forecasts and rebounded for a few reasons. Public-spending programs such as the Inflation Reduction Act and CHIPS and Science Act, cost-of-living adjustments to payments for social-security recipients, and inflation-related tweaks to income-tax brackets.

The growth outlook would darken by January or February. A lot of that momentum is going to slow or even hit the brakes. The Fed's rate hikes are going to be felt. The pain has only been delayed.

[DKG]

Oil supply being at a 2 year low and demand being at an all time high of 103M bpd should make for an interesting rally in oil prices.


Opec-Plus: July Output Crashes to 2-Year Low
Crude oil production by the Opec-plus alliance was 42 million barrels per day in July, down 800,000 b/d on June and the lowest since August 2021.

Saudi Arabia slashed output by 940,000 b/d, while Iraq, Nigeria and Angola together lifted output by 400,000 b/d, according to preliminary assessments.

Russia's output was 9.52 million b/d, 460,000 b/d below February's level, while crude exports were 4.62 million b/d, down 740,000 b/d from May, indicating that Moscow has fulfilled its pledges.
https://www.energyintel.com/00000189-d7a6-d8ee-a3bb-f7ff335a0000

[DKG]

US small business optimism is well below average. The National Federation of Independent Businesses' Small Business Optimism Index was 91.9 in July, although that's still lower than the 49-year average of 98.

These rapid rate hikes that have occurred and the unprecedented speed of these hikes has put small businesses in a difficult position. The cost of capital has gone through the roof.

If you're in the S&P 500, you have no trouble financing your business. You can't say that about small businesses anymore.

Small businesses with five to five hundred employees represent sixty percent of the U.S. economy, which is why this liquidity crunch is a concern.

[DKG]

The Bank of Canada will announce whether it will again raise its key interest rate now at 5.0%  — thus increasing the cost of mortgages and business and consumer loans — in a bid to lower inflation, a process it began in March 2022 when the key bank rate was a mere 0.25%.



Keep in mind that central bank governor Tiff Macklem wrongly predicted in 2020 — after the pandemic hit — that it was a good time to take out a mortgage or business loan because inflation would remain below the bank's 2% target through 2023.

[DKG]

The average retired couple could see their Social Security benefits reduced by $17,400 in 2033 as funding for the program diminishes over the coming decade, according to a recent analysis.

The Social Security program is funded by the Old-Age and Survivors Insurance (OASI) trust fund. Trustees for the Social Security program project that OASI would deplete its reserves by 2033, the Committee for a Responsible Federal Budget (CRFB) pointed out in an Aug. 8 post. At the time, today's 57-year-olds will hit the normal retirement age while the youngest retirees at present will turn 72.

"Upon insolvency, the law mandates that the OASI trust fund can only spend in amounts equal to incoming trust fund revenue, which means that all 70 million retirees, dependents, and survivors—regardless of age, income, or need—will see their benefits cut by 23 percent," the analysis states.

[DKG]

Stocks ended lower last week as concerns grew over the rise in long-term treasury yields. The concerns were back on Monday as the 10- and 30-year Treasury yields hit new multi-year highs. The 10-year Treasury yield ended the New York session at 4.339%, its highest level since Nov 6, 2007. The 30-year Treasury yield closed at 4.445%, hitting its highest level since Apr 11, 2007.

Yields, which rise when bond prices decline, generally have an adverse impact on tech and other growth stocks because higher yields reduce the present value of their promised future earnings. The bond selloff comes just days ahead of Fed Chair Jerome Powell's Jackson Hole speech, which hints at how the markets want to position themselves before the speech.

Rising yields have been impacting big tech companies as they tend to make stocks look less attractive to investors. Tech stocks have been largely responsible for the rally in 2023. On Monday, tech stocks held their ground but they have had a disappointing August so far and are down 5.9% for the month.

The rapid slowdown in the Chinese economy has been the other factor driving markets down.

[DKG]

Federal Reserve Chair Jerome Powell said Friday in a closely watched speech that the U.S. economy could require further interest rate increases that also highlighted the uncertain nature of the economic outlook.

[DKG]

The Federal Reserve's preferred inflation indicator climbed, marking the second consecutive inflationary measure to increase in the past month and revealing that the fight against inflation isn't over. Incomes also slowed while spending surged, suggesting that the U.S. economy could be on the brink of stagflation, an environment of high prices and stagnating growth.

In July, the personal consumption expenditures (PCE) price index rose to 3.3 percent, from 3.0 percent in June and matching the consensus estimate, according to the Bureau of Economic Analysis (BEA). On a month-over-month basis, the PCE rose by 0.2 percent, unchanged from the previous month.

Core PCE, which omits the volatile energy and food sectors, edged up to 4.2 percent year-over-year, from 4.1 percent in the previous month and matching market forecasts. Core PCE also inched higher by 0.2 percent in July, the same as the previous month.

Within the PCE price index, services prices surged by 0.4 percent, and goods prices tumbled by 0.7 percent. Nondurable goods prices were flat.

The US economy added 187,000 jobs in August showing strong, but slowing job growth.

[DKG]

The Canadian economy contracted .2 percent in the second quarter. The TSX was up two hundred points this morning on anticipation that the Bank of Canada will halt rate increases. Higher crude prices are also driving the Toronto Stock Exchange.

[DKG]

The US jobless rate rose to 3.8 percent in August, up from 3.5 percent in July and the highest since February 2022, the Labor Department said in its employment situation report on Friday.

Employers added 187,000 new jobs last month, more than economists had expected, and up from 157,000 in July, a figure that was revised downward by 30,000.

But the rising unemployment rate suggests that job seekers are spending more time between positions, as the number of openings drops from the dizzying levels seen last year, when companies were desperate for labor.

'We are beginning to see this slow glide into a cooler labor market,' said Becky Frankiewicz, chief commercial officer at the employment firm ManpowerGroup. 'Make no mistake: Demand is cooling off. ... But it's not a freefall.'

The labor force participation rate, which had been flat since March, increased to 62.8 percent, finally reaching a level in line with figures recorded before the pandemic.

The number of 'new entrants' among the unemployed, referring to people with no prior work experience, edged up as well, suggesting that first-time job seekers are spending longer on their job hunts.

Signs of a cooling labor market should be welcome by the Federal Reserve, which has been trying to tame inflation with a series of aggressive interest rate hikes.

The central bank wants to see hiring decelerate, because strong demand for workers tends to fuel rapid wage increases and feed inflation.

[DKG]

When 2025 draws to a close, so will many of the sweeping Trump-era GOP tax breaks established by the Tax Cuts and Jobs Act (TCJA) of 2017. While the legislation made some tax cuts to corporate profit permanent, lowered individual tax rates will expire on Dec. 31, 2025, and will revert to pre-TCJA levels.

The TCJA spawned a bunch of changes to the tax code, but here are three key tax adjustments that you'll need to consider before they turn back at the end of 2025.

Income Tax Rates
Although it kept seven income brackets, the TCJA lowered tax rates across the board and restructured bracket spans, making them more agreeable under the TCJA. With the exception of those who were at 10% (those making $11,000 or less) and 35% (those earning $231,251 to $578,125) tax rate levels prior to 2018, all income tax rates decreased when the new laws came into effect.

The top individual tax rate dropped from 39.6% to 37% under the terms of the Tax Cuts and Jobs Act (single filers making $578,126 and over), the 33% bracket fell to 32% ($182,101-$231,250), the 28% bracket to 24% ($95,376-$182,100), the 25% bracket to 22% ($44,726-$95,375) and the 15% bracket to 12% ($11,001-$44,725).

These bracket backslides will mean that every American will need to reassess their spending and tax returns to pay 1% to 4% more in personal taxes unless provisions are extended, revised or made permanent over the next 28 months. 

Standard Deduction
Under the Tax Cuts and Jobs Act for the tax years beginning after December 31, 2017, and before January 1, 2026, the standard deduction was nearly doubled for all filing statuses. This led to fewer people itemizing deductions and instead opting for the standard deduction.

The TCJA significantly changed the standard deduction amounts for individuals and families. The standard deductions before the 2017 Tax Year were $6,350 for single filers, $9,350 for heads of household and $12,700 for those married filing jointly.

After the TCJA (2018-2025 tax years), these amounts jumped dramatically. The standard deductions for the 2023 tax year are $13,850 for those single or married filing separately, $27,700 for those married filing separately and surviving spouses and $20,800 for heads of household.

This change aimed to simplify the tax filing process for many individuals and families (Forbes estimates that 90% of taxpayers choose to claim the standard deduction). Claiming the standard deduction made it possible for many to skip the complicated process of itemizing deductions and potentially reduce taxable income.

The TCJA must be extended to help families cope with rising costs.

[DKG]

Wall Street and the TSX ended sharply lower on Thursday as Treasury yields surged to multi-year highs and investors grew worried that the Fed's monetary tightening campaign could be in place for longer than expected following the FOMC meeting on Wednesday. All three major indexes ended in negative territory, with the S&P 500 and Nasdaq closing at their lowest since June.

The Dow Jones Industrial Average (DJI) plummeted 1.1% or‎-106.58 (‎-0.31%) points to close at 33,963.84. The blue-chip index recorded its lowest close since July 10.

The S&P 500 declined 1.6% or 72.20 points, to finish at 4,330 points, its lowest close since June 26. Real estate, materials and consumer discretionary stocks were the worst performers.

The TSX slightly fell -0.06% (-12 pts), closed at 19780 points. It fell 5 days in a row, and ended -4.1% (-842 pts) for the week.

Alamos Gold (AGI) largely fell -3.9% (-$0.65), closed at $16.18, the worst % loss in 3 months, fell -3.6% (-$0.61) for the week.

[DKG]

The S&P 500 is easing after dropping 1.5% to its lowest level since June. Yesterday, the Dow Jones Industrial Average fell 388 points, or 1.1%, its biggest one-day decline since March. The Nasdaq Composite lost 1.6%.

All three major indexes are heading for a losing week and month.

US home prices climbed to a record high in July, marking the sixth straight month of increases as a tight supply of homes continues to drive up prices, according to the latest Case-Shiller home prices index. The Fed will see the reacceleration of house prices as a reason to keep interest rates higher for longer.

[DKG]

Treasury yields eased back from their highest levels in more than a decade. High yields mean bonds are paying more in interest, which makes investors less willing to pay high prices for stocks and other riskier investments.

The yield on the 10-year Treasury pulled back to 4.52% from 4.55% late Tuesday.

It's been generally charging higher as traders accept a new normal where interest rates will stay high for longer. The 10-year yield was at about 3.50% in May and just 0.50% early in the pandemic.