🎓😭 Forgive Us, Biden!
Happy Hump Day everybody,
This past week we saw a handfuls of top PGA Tour golfers jump ship for the Saudi-funded LIV Golf series, EU approved partial Russian oil ban, the Fed starts to shrink their $8.9T portfolio, Elon said return to the office or get out, Johnny Depp wins defamation suit against Amber Heard, and Apple unveiled their instalment pay plan.
Enjoy this week’s Hump Days!
- Humphrey, Rickie & Tim
In the Markets
Featured Story
After announcing back in May that the decision on student loan forgiveness would come “in the next couple of weeks”, President Joe Biden has pushed the decision back to July or August. The most likely cause for the delay is the intense deliberation and disagreement among government officials on the political and financial factors of cancelling billions in education debt. There has been no precedent set for a move as such.
There is currently $1.7T of outstanding student debt from roughly 45M Americans, which outpaces credit card and auto debt, and 25% of borrowers were already behind on their payments prior to the pandemic. During Biden’s campaign, he said he supported a debt forgiveness of $10,000/eligible borrower which would cost around $321B and forgive the loans of about 1/3 borrowers.
Government officials are in arms about how much to forgive or if the state should forgive the loans at all. Chuck Schumer (NY), Elizabeth Warren (Mass), and other Democrats are pushing the president to cancel at least $50,000 for all. However, many Americans are infuriated by the proposal including those who never borrowed for their education or never went to college. Some Republican have come out to say they would try to block an effort by the president to cancel the debt.
The debate over debt forgiveness is one that in multi-faceted, with no simple answer. Over the past 10 years, college costs have risen by more than 16% and student debt exploded by 99%. Automation is rapidly eliminating jobs for those without a college degree and those with a degree earn 80% more than those with just a high school diploma. Students feel that they are thrown into a lose-lose situation considering the only two paths seems to be go to college and take out exorbitant amounts of debt, or go right away into workforce that is automating at an alarming velocity.
The problem with debt forgiveness and why it may not be the progressive remedy we all believe it to be is because many of the students who took out loans at the $50,000 level will be able to pay it off. If the progressive goal is to reallocate resources to those who need it, the student loan forgiveness package would largely be a misallocation of resources providing a huge benefit for people who don’t need it.
The solution is going to be one that is nuanced; that takes into account both sides of the argument. There are also racial and gender factors at play here that we won’t get into but if you are interested, you can read here. Is the government going to come up with a perfect solution? Probably not. Could this be a huge step in lifting the drowning younger generation out of the trap that is student loans? Maybe.
Weekly News Roundup
Biden’s Decision on Student Loan Forgiveness Likely to Come July or August (CNBC)
The 40M+ Americans saddled with student debt will have to wait a few more months before President Joe Biden’s announcement on student loan forgiveness. The culprit behind the delay is likely intense deliberation and disagreement between officials on the political and financial factors or canceling the debt. The country’s $1.7T outstanding student loan balance outpaces credit card or auto debt.
RH: Not sure how students who already paid off all their debt are going to feel about this one…
HY: Ok it would be totally awesome if they forgave even SOME student debt. Student debt is so evil in the US… but I haven’t thought about what other systems could work here yet.
Elon Musk Threatens to End Twitter Deal Over Lack of Information on Spam Accounts (WSJ)
Elon Musk issued a letter to Twitter’s Chief Legal Officer accusing the company of not complying with his request for data on the number of spam and fake accounts. Musk’s letter is his clearest statement that he may try to abandon the deal. However, there is in place a $1B breakup fee if either side causes the deal to fall through. Twitter could also sue to force Musk to go through with the transaction.
RH: Would be very surprised if Elon pulls out of this one. But crazier things have happened.
HY: I think differently than Rickie on this one, I actually think Elon wants out. He probably got excited about the prospect of owning Twitter and now he thinks his bid is too high. Like pre-emptive buyer’s remorse, lol.
Job Growth Cooling in May but Wage Increases Were Still Hot (CNBC)
The pace of job growth is expected to have slowed in May but economists say the labor market remains strong. Average hourly wages are expected to have risen by 0.4%. Economists forecasted 328,000 new jobs added in May, down from the 428,000 added in April. Nonetheless, experts believe there have been no signs of weakness yet, and the labor market is a part of the economy that is expected to remain strong for now.
HY: Nothing to comment on besides, “wait and see”… ugh.
Charts of the Week
Since 2014, the top 10 companies by market cap in the S&P 500 have had an increasingly large impact on the index.
Currently, the top 10 companies control around ~30% of the S&P 500, surpassing the previous ~26% high in 2000. This massive overweighting could mean more downside risk.
In Case You Missed It
This video on how much you need invested to live off of dividends is one of my favorites lately! It helps you figure out how much you personally need to live off of your investments. I also selfishly like the thumbnail.