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: Yes, the Institute for Supply Management’s (ISM) headline service sector purchasing managers’ index (PMI) ticked down from 51.4 to 49.4 last month, undercutting expectations for a rise to 52.0. Readings under 50 indicate more businesses reported contracting activity than expanding. This is the first such read since December 2022, though, so don’t overthink a single out-of-trend data point. At a more granular level, while both production and new orders ticked down, both remained above 50—indicating expansion in these two key areas of current and future activity. Per ISM, employment, supplier deliveries and new export orders were the only subindexes below 50 in the report, and the second of these—supplier deliveries—is an inverted index. Readings below 50 mean faster deliveries, which generally is a plus. So this report is likely better in most ways than the headline reading implies. Yes, as the title of this piece notes, the prices paid gauge rose 5.8 points to 59.2, indicating a majority of firms saw rising prices. But the magnitude isn’t clear from this report. It could be many saw very small increases or increases isolated to one or a few commodities. We need other reports, like PPI and CPI, to add color to this.

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.