Daily Commentary

MarketMinder’s View: This interesting piece dusts off a 1980 book of essays in which economists make predictions about long-term transitions and “problems” confronting the American economy. Here is the upshot: None were really close to accurate in describing the evolution of the next 10, much less, 44 years. They are dotted with fear of higher inflation, capital outflows and energy shortages—all largely a product of their times. And, as the author notes, none envisioned things like the internet developing over this span or fracking sending America to record-high oil output. We highlight this not to disparage any of the economists published in that old book. Rather, our interest is in what it says about the practice of long-term forecasting, which exists undaunted to this day, despite a litany of failures. One, most forecasts about the long-range future fail because they extrapolate present trends and underrate human creativity. Friends, the economy is adaptive and ever-changing. Current trends are highly unlikely to persist eons from now, and even if they do, the impact likely isn’t what many think today. (See falling birth rates with questions.) Two, investors should discount any forecast that extends past a few short years for this very reason. And, three, as the article concludes, there is no need to forecast the far-flung future—the economy does just fine without such clairvoyance to guide it.

MarketMinder’s View: Roth IRAs—retirement accounts funded with post-tax dollars that grow entirely tax free—are a great tool for many folks to save for retirement or even estate plan. But there are income limits that begin cutting access to them starting at $146,000 for single filers and $230,000 for couples filing jointly. This article covers a niche way some higher earners use to get around that by making after-tax contributions to traditional IRAs and then converting that amount to a Roth, which in theory is a non-taxable sum. But in practice? “If the saver has funds in IRAs holding deductible contributions—as many do—the law’s onerous ‘pro rata’ rules come into play. The result is often a surprise tax bill.” A saver with tax-deductible contributions in accounts cannot simply remove just the after-tax sum: They have to take them proportionately, meaning some portion would be taxed. And, moreover, that reality exists for life. “Next come the record-keeping headaches. Future withdrawals must be pro rata as well, whether they are for conversions or not. So savers like Lee need good records to avoid overpaying tax on part of their withdrawals. If they leave the IRA to heirs, the heirs will need these records as well. ‘The record-keeping is a life sentence, unless people convert everything to a Roth IRA,’ says IRA specialist Ed Slott. He thinks many heirs of traditional IRAs are overpaying tax on nondeductible amounts.” All this complexity means investors ought to think twice before employing the “Backdoor Roth” tactic. And it may go away—there is already a legal push to ban it. If you are considering this, talk to a tax professional first.

MarketMinder’s View: “Voters took part in elections for local councils and regional mayoralties, which hold a patchwork of powers after a concerted phase of devolution over recent years. With more than half of the results declared, the Conservatives had lost more than 200 local councillors, with many more expected to follow as results continue to be counted. The elections expert John Curtice put the Conservatives’ share of the vote at just 25%, matching the nadir hit in local elections in 1995 by the Conservative prime minister John Major, soon to be swept out of power by Tony Blair.” This isn’t exactly shocking news, given polls have long suggested the Tories and Prime Minister Rishi Sunak are well behind nationally. The local election results rolling in today merely confirm that and likely shape expectations of what will transpire in the next national election, which many believe will come before yearend. While we favor no party nor any politician, we also know that many see Labour—which would likely take the reins if the local vote is any indication—is commonly considered “anti-business,” much like America’s Democratic Party. So buckle up for rhetoric over this to rise in the coming months, but don’t overrate it. It is vastly premature to assume a huge landslide Labour win that grants them a sufficient majority to pass extreme legislation of any kind, to the extent they would even try.