💸 Uncle Sam Needs An Advisor

The U.S. has a social security problem, and we don’t know what to do. May 21, 2024 | Peel #714 In this issue of the Peel: - 👵 The U.S. has a social security problem, and we don’t know what to do. - 🎯 Target is cutting prices, signaling a weakness in demand for products. - 🇦🇷 Argentina’s economy is radically changing under Javier Milei… Market Snapshot 📸 = Banana Bits 🍌 - Dealmaking continues to rise, and Goldman’s [already getting it in](=) - Don’t expect government spending to slow down [in an election year]() - Qualcomm is the lucky winner to provide Microsoft’s [new PCs with AI chips](=) - 68-year-old JPMorgan CEO Jamie Dimon hints that his [retirement is getting closer](=). If only our elected officials did the same The Ultimate Program to Land a 6-figure Job in High Finance = Landing an investment banking offer is tough coming from any school – from non-target all the way to the Ivy League. But 6-figures right out of school isn’t supposed to be easy. 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Macro Monkey Says 🐒 Social Insecurity Trusting Ted Bundy to babysit your kids might have seemed like a fair and reasonable idea in 1973 because, well, it’s not like he had killed someone... Similarly, trusting the U.S. government to maintain its “risk-free” borrower status seems fair and reasonable because it’s not like they’ve defaulted on debts... However, trusting the U.S. government to fund your retirement today is like going on a date with Bundy in 1989 because 'I can change him,' just days before his execution. Earlier this month, we learned that relying on either option is equally irresponsible. The only question is, who (or what) collapses first? The Numbers A few weeks ago, on May 6th, the trustees of the Board of the Social Security Administration published their 2024 report to Congress. Surprisingly, this report made Congress look like the more financially responsible one. Essentially, the purpose of this annual check-up is to see exactly how f*cked Social Security is and get an update on how that f*ckery will change going forward. There’s a lot going on here, so we’re only going to focus on some of the most important and interesting topics discussed. But first, the basics: At the end of 2023, Social Security provided benefits to ~67 million retired and/or disabled Americans and their families. Total income in 2023 was $1.35bn, while total expenditures were $1.39bn, leading to a decline in reserves from $2,83bn to $2.78 bn. [Source]() Most of us have heard the common trope in American politics that the Social Security Admin (SSA) will go bankrupt by 203X, depending on your source. But the chart above seeks to encapsulate all possibilities to remove the X, replacing it with a known year. Basically, the above chart tells us there is a 97.5% chance that the SSA runs out of money by 2044, with the median estimated bankruptcy date coming closer to 2035. I don’t know about you apes, but I’ll be 35-36 years old at that point, not exactly close to the full SS eligibility age of 67. So, now that we have an idea of when, it’s important to understand why Uncle Sam won’t pay for your cruises and Alzheimer’s meds. [Source]() Here, we can see that since 2010, costs for the OASI, or Old-Age and Survivors Insurance Fund (the primary cost of Social Security), have exceeded income. This is expected to continue until ~2080. Meanwhile, the much smaller Disability Insurance fund (DI) is expected to remain in line with or above cost through the projection period. But this doesn’t mean much to most Americans who retire without disability issues. In other words, it’s an accepted fact in Washington and from sea to shining sea that income sources to the SSA, like FICA and disability taxes, will not be sufficient to cover combined annual costs during any year in the foreseeable future. This means that the SSA has to dip into its OASI and DI reserves to fund itself as long as it possibly can. According to the below chart, that depletion date will be reached by the mid-late 2030s and last through 2080 only under the most ideal assumptions. [Source](=) Who Cares? Luckily, we have more than a decade to figure this out (we think). The real news here isn’t that Social Security is gonna get Aaron Hernandez-ed in the 2030s or 2040s, but that we can fix the problem before it becomes too late. The underlying drivers leading to this bankruptcy are partly issues we can change and partly issues we have to accept. Beginning with the latter, Americans are getting old. Demographic data suggests an aging population will increase the burden of retirees to a much greater degree than new workers (a.k.a. tax base) will be able to provide benefits. [Source]() Here, we can see that exact trend in this chart, estimating the number of workers per 100 OASDI beneficiaries. Historically, it takes ~3.15 workers to support one OASDI recipient and keep SSA solvent, but as we can see, we no longer have that luxury. We can’t stop aging (yet), but what we can do is change 1) costs or 2) income sources. The problem is that neither one of those solutions is politically acceptable in our current climate—nobody votes for the guy/gal cutting grandma’s income. But something needs to change. Otherwise, no one’s grand-anything is gonna get a nickel from Uncle Sam anymore. [Source]() Probably the easiest first-step change to make is to improve the above formula, calculating the Primary Insurance Amount (PIA) received by newly eligible OASDI recipients. Currently, the basic formula calculates a new retiree's “AIME,” or Average Indexed Monthly Earnings. Payments are based on average monthly career earnings. For the first $1,174 of their monthly working income, retirees receive 90% of this amount. If the retiree earned between $1,174 and $7,078, they receive 32% of the amount they earned within that range. If the worker made over $7,078 monthly on average, they get 15% of that additional amount. So, someone who earned an AIME of $1,100 will get $990/month. Meanwhile, someone who earned an AIME of $10,000 will receive $3,289.27 (90% of $1,174 + 32% of $7,078 - $1,174 + 15% of $10,000 - $7,078). I’m no mathematician, but my assumption is that someone with a higher AIME probably needs less government assistance than someone with a lower AIME. Alternative retirement funding strategies exist that don’t require constant taxpayer support. An idea I first saw proposed by Bill Ackman involves funding every new baby in the U.S. with $7,000 on their birthday in a trust fund that can’t be touched until a certain age. Based on current birth rates, this carries an estimated cost of $20bn. Then, if investing in things like the S&P 500, this requires zero additional lifetime funding. Plus, it’s a much simpler formula. Long story long, current government-sponsored retirement plans are completely unsustainable. Do not rely on this in your own retirement, but we have options we could change to ease this burden for our children going forward. What's Ripe 🤩 Hims & Hers Health (HIMS) 📈27.7% - The pharmaceutical industrial complex is still going strong as this youngblood to the healthcare game surged on the addition of GLP-1 drugs. - Hims & Hers, a pharma startup that struggles with grammar, will offer drugs like Ozempic, Wegovy, and other blockbuster obesity drugs on their platform. - Markets pumped on the popularity of these meds and the new business they could bring. Now, the only issue is maintaining a consistent supply of GLP-1s. Norwegian Cruise Lines (NCLH) 📈7.6% - Avoiding icebergs left and right, Norwegian Cruise Lines surged on Monday following updated—and more optimistic—full-year guidance. - Shares remain more than 73% below Jan 3rd, 2020 highs, but the increase in FY’24 EPS from $1.32/sh to $1.42/sh is giving hope to long-time holders. - Further growth and margin improvements are expected through 2026, reaching as high as 39%. What's Rotten 🤮 Li Auto (LI) 📉12.8% - Meanwhile, Li Auto took the opposite strategy—decreasing guidance and missing on earnings—which, for some reason, markets didn’t vibe with. - The Chinese EV and hybrid car maker saw operating costs spike 71%, contributing to the 36% decline in Q1 earnings to 82mn. - But, revenue jumped 36% and most of the OpEx increase was due to hiring. Already down 46% on Friday from early Feb highs, are you buying this dip? Target (TGT) 📉2.1% - Heroes are sometimes only recognized as such after the fact. Someone give Target their crown of thorns as the firm announced it is cutting prices. - Most companies eat alongside rising inflation, but Target is actively pulling in the opposite direction by slashing prices to hopefully increase volume. - Investors shudder at this implicit admission of weak demand, but Taylor Swift is scared now that Target might steal her spot as consumers’ favorite brand. - The firm drops earnings on Wednesday, so we’ll see if that “weak demand” is as bad as many fear. = Thought Banana 🤔 Milei: Making Miracles or Misery? It’s not often that a country’s leader has the stones to stand up there and say, “You’re all stupid and insane, and I’m going to save the West.” It’s even more unusual when that leader is from a country whose GDP is roughly the size of Broadcom’s market cap. But Argentine President Javier Milei is no usual guy. From spending $50k to clone his dog, to his open admiration for Al Capone, to his nickname literally being “El Loco,” Argentina’s found itself quite the golden boy. Let’s see how things were going in Q1. What Happened? On December 10th, 2023, Javier Milei took office with a radical agenda to stamp out hyperinflation, liberalize the nation’s economy, and more to transmit what he called “economic shock therapy.” [Source](=) As we can see, his goals are certainly taking their time. GDP growth declined once again in Q1 by just under 1.9%, but changes like the kid Milei advocates for aren’t the kind of things that turn around in just 3-months. Milei’s biggest goal was to reign in hyperinflation in Argentina that, even as late as 2023, was booming at an annual rate of over 200%. His first step was a bit of a head-scratcher—devaluing the sh*t out of the Argentine peso. Normally, this kind of action would cause inflation to spike even further, but as part of an economic reform plan, it can slow inflation if the population is on board with said reforms. Looking at monthly inflation, Milei’s plans seem to be going well, registering the first single-digit monthly inflation in more than half a year. [Source]() However, the real biggest change Miei has actually made so far can be found in the nation’s fiscal balance sheet. For the first time since 2008, Argentina recorded a quarterly surplus in February of this year. The surplus has remained, but… [Source](=) So far, Milei’s improvements have been limited to the macro side of the economy. Citizens have seen their money crash in value at the same time that economic deregulation has entered the chat, spiking prices in things like rent and energy. To Milei and his friends, this is simply short-term pain needed to drive long-term benefits. To his detractors, this is exactly the kind of policy implications they feared. But, the IMF is clearly a fan, at least on the macro side. By cleaning up debts and dragging the nation’s budget to a surplus, Milei has expanded Argentina’s ability to receive loans and other assistance from international organizations like the IMF. Already, the global lender has allowed Argentina to defer $44bn in debts until October while extending a $4.7bn loan to the country as early as January. The Takeaway? Argentina is experiencing the best of times and the worst of times as this economy embodies A Tale of Two Cities better than any other right now. On the macro side, Argentina is thriving. Debts are getting re-rated, international funds are lending new money, the country’s fiscal balance sheet is improving, and inflation is entering retreat mode. On the micro side, citizens are mostly furious, but Milei’s effective rhetoric seems to have maintained a certain degree of optimism among the populous… so far, at least. It’s a race against the clock for Argentina, hoping to return to real GDP growth along with fiscal and current account surpluses before their population collapses into revolution or some other nightmare. Sounds like a fun game! Best of luck to all. Now, I’m just wondering how I can bet on this… 💭 The Big Question 💭: Will Milei’s reform become a success story for other nations to follow? Will his reforms lead to economic collapse? What else does this guy have planned? Banana Brain Teaser 💡 Previous 🗓 Three printing presses, R, S, & T, working together at their respective constant rates, can do a certain printing job in 4 hours. S and T, working together at their respective constant rates, can do the same job in 5 hours. How many hours would it take R, working alone at its constant rate, to do the same job? Answer: 20 hours Today 🕐 Mark and Ann together were allocated n boxes of cookies to sell for a club project. Mark sold 10 boxes less than n and Ann sold 2 boxes less than n. If Mark and Ann have each sold at least one box of cookies, but together they have sold less than n boxes, what is the value of n? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “If printing money would end poverty, printing diplomas would end stupidity.” — Javier Milei How Would You Rate Today's Peel? 😁[All the bananas]() 😐[Meh]() 😩[Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]( // [WSO ALPHA](=) // [ACADEMY]() // [COURSES]( // [LEGAL]( [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 14435 Big Basin Way PBN 444 Saratoga, California 95070 United States