The Market Bull – October 14, 2019
The major averages finished about even on a quiet day of trading. Global economic data continues south, as do the Social Security Trust Funds.
I’m beginning to wonder why the lamestream media even bothers reporting on a resolution to the trade war as once again their headlines and stories evaporate with statements of “no deal”. That said China’s US Exports fell 10.7% from a year ago through the first 9-months of this year. US imports into China slipped 26.4% on the same basis. So, a lot of shared pain, despite lamestream media promises that the trade war would only hurt the Chinese.
While numerous pundits continue to claim that everything is great, zero interest rates, Repo Market interventions and an imminent return to QE or Quantitative Easing say otherwise. Aside from the well documented booms and busts that zero interest rates engender. They also crucify savers, retirees and pension plans as these groups lose investment income to very low, or as is increasingly the case negative fixed income yields. Social Security is a case in point as the Trust funds earn less and less income as rates go steadily lower. The latest data from the Social Security Administration shows that the Old-Age and Survivors Insurance Fund closed fiscal 2019 with a balance of 2.8 trillion. This balance was up by $3 billion from September last year but was down $16 billion from September 2017. That said growth in the Trust Funds was fairly steady until 2016 but has since leveled off. While this sounds like a lot of money the Trust Funds are estimated to deplete in 2034.
In September, the weighted average interest rate of the securities in the Trust Fund fell to 2.73%, the lowest in recent memory. The average annual interest rate for each year has been declining relentlessly since 2009, dropping from 4.8% to 2.8% in the fiscal year 2019
This means that despite rising balances in the Social Security Trust Fund, interest income has plunged. Trust Fund balances rose 24% from 2009 through 2019. But interest income fell 28% over the same period, from about $108 billion in 2009 to $78 billion in 2019. The chart below shows average weighted annual interest income (declining red line, left scale) versus Trust Fund balances (right column):
This decline of interest income speeds up the deterioration of the Trust Fund. At current Trust Fund levels, each decline of 1 percentage point of the average annual interest rate slashes the Fund’s interest income by $28 billion a year. Thanks to Wolf Street for the charts.
Standard and Poors 500 Index closed at: 2,966.15 down 4.12
NASDAQ finished the day: 8,048.65 down 8.39
Gold ended trading at: $1,496.30 up $7.60