Bob’s Journal 8/21
Social Security Marks 90th Birthday with Mixed Legacy, Future Prospects
Last week marked the 90th anniversary of the enactment of the Social Security Act.
The Social Security Administration (SSA) noted the date with a statement that “the program has grown into one of the most successful and trusted institutions in American history.”
The agency pledged to continue “its unwavering commitment to the financial security and dignity of millions of Americans.” The SSA also stated in the future its service would be “faster, smarter, and more accessible than ever before.”
On the same day, President Donald J. Trump issued a proclamation stating that “Social Security now stands stronger and more resilient than ever before.” He also said, “I recommit to always defending Social Security…”
Others are not as sanguine or positive about the program’s future.
Over the decades, including this year, Congress regularly added benefits without providing additional sources of revenue. Reforms in 1983 were designed to extend the life of the program but not make it solvent for the long term.
Earlier this year, the Social Security retirement trust fund was projected to run out of money around 2033. That date now is estimated to be about one year earlier because of recent legislative changes.
Of course, Social Security was subject to a great deal of confusion and upheaval earlier this year when the Department of Government Efficiency (DOGE) significantly reduced SSA’s workforce, incorrectly alleged the agency was paying benefits to millions of dead people and said the program was a Ponzi scheme.
The data indicate that because of the controversies, many Americans accelerated their claims for Social Security retirement benefits by several years. They did this knowing that would cause them to receive lower lifetime benefits, because they feared if they waited benefits would be further reduced or eliminated.
Now, Americans seem more worried about the future of the program.
About 70% of Americans who are not yet retired are concerned the program won’t be in existence when they are ready to retire, according to a survey by the Transamerica Institute and Transamerica Center for Retirement Studies.
Uncertainty about the program worries people, because 32% say Social Security will be their primary source of retirement income and many more believe it will be an important source of retirement income. Women are more likely to be dependent on Social Security than men.
There are no signs that Congress is working on a plan to shore up the trust fund or ensure benefits aren’t cut when the fund is exhausted.
Under current law, if the trust fund runs out of money and Congress doesn’t take corrective action, there would be an automatic across-the-board reduction in benefits. The most recent estimate is that benefits would be cut 20% to 25%.
I’ve long urged people not to collect benefits early because of concerns about the solvency of the trust fund. I expect Congress will act. My current expectation is that the system’s deficit would be funded by the government’s general revenues.
Even if the trust fund is exhausted and Congress doesn’t act to close the deficit, annual payroll taxes would be sufficient to pay 75% to 80% of promised benefits indefinitely. Congress would need to make up only the difference.
I recommend not claiming benefits early because, if benefits are reduced in the future, I’d want mine reduced from the higher level received by claiming later instead of the lower benefit received by those who claim early.
Claim Social Security benefits at the time that’s best for your financial plan. Don’t let all the talk of a possible future cut stampede you into claiming early.
But be sure your retirement spending plan has enough flexibility to adapt to a cut of up to 25% in Social Security benefits around 2032.
AI’s Influence on the Economy and Markets
Artificial intelligence (AI) has been the big driver of the major stock indexes for more than two years. Recent research shows it also is driving the economy.
Most of the gains in the stock indexes have been delivered by large company growth stocks, especially those closely tied to AI. The stocks are known by many as the Magnificent Seven or Mag Seven.
I won’t repeat details here, but the returns of the “Mag Seven” greatly exceed the returns of the other 493 stocks in the S&P 500 Stock Index. You can check the returns of the exchange-traded fund Roundhill Magnificent Seven (MAGS).
Excluding the Mag Seven, stock index returns are mediocre or negative over recent periods.
What’s not as well-known is the extent to which the nation’s economic growth depends on investments related to AI. The investments in AI extend beyond the Mag Seven, because many firms that participate in the AI boom are privately held or are in other sectors of the economy.
Companies involved in AI are spending massive amounts of money on computer chips, land, buildings, energy, and other infrastructure needed to develop and generate AI.
One estimate is that the largest publicly traded AI-related firms will make about $400 billion in capital expenditures this year. Some analysts point out that this amount exceeds the European Union’s total defense spending.
Businesses not directly in the AI arena are making investments because of AI, such building data centers or energy-generating facilities.
Investments in information processing equipment and software increased at a 25% annual rate in the first half of 2025 while gross domestic product (GDP) rose only 1.2%.
It’s possible that the economy is growing only because of the AI investments.
AI essentially is the equivalent of a massive government stimulus plan.
All this is good for the economy and stock market, especially for those who are direct beneficiaries of AI investments.
Yet, not all the news is good. AI’s electricity needs are so great that electricity prices are increasing for households and businesses around the country.
Also, at some point the spending is likely to slow, as it has in all past investment booms of this sort (railroads, memory chips, internet connectivity).
This time could be different, of course. But investors need to enjoy the boom while having a plan of action in case the trends change.
What is Ethereum and What’s Behind Its Recent Surge?
Bitcoin receives most of the attention directed at digital currencies, but Ether is in second place, though a distant second place.
There are quite a few digital currencies with many created almost every day. Few of the digital currencies last.
A distinguishing feature of Bitcoin and Ether (also known as Ethereum, the name of the firm that issues it) is that the Securities and Exchange Commission has approved ETFs that buy the currencies at spot prices.
Ether hit a low of under $1,500 in mid-April. Then, it began a strong run. It set new 52-week highs recently and neared its all-time high set back in 2021. During this period, it left Bitcoin far behind, though Bitcoin also had a strong rally.
An ETF that buys Ethereum, iShares Ethereum Trust (ETHA), gained 67.79% in the last three months and 22.47% in the last four weeks.
The reason for the surge in Ethereum seems clear.
BitMine Immersion (BMNR), a digital currency mining firm, announced that it would become an Ethereum treasury company. It wants to be for Ether what Strategy (MSTR, formerly MicroStrategy) became for Bitcoin.
A digital currency treasury company is one that uses its cash and resources to buy as much of the digital currency as it can. Strategy, for example, issues preferred stock specifically to use the proceeds to buy Bitcoin. It also uses leverage, such as futures contracts, to increase its exposure to Bitcoin.
The approach has worked well for Strategy and its shareholders, delivering an annualized return of 123.80% over the last three years. After BNMR announced that it intends to do with Ethereum what MSTR did with Bitcoin, BNMR stock rose over 1,300% from late June through early August.
But both ETHA and BNMR are down from Aug. 13 peaks. It is likely the surge in Ether is going to be followed by a significant correction unless other firms decide to become Ether treasury companies or BNMR receives a lot of additional cash.
The Data
Consumer sentiment declined in the first half of August, according to the Consumer Sentiment Index from the University of Michigan. The index was 58.6 in mid-August, down from 61.7 at the end of July.
Inflationary expectations increased and assessments of current conditions declined.
The Housing Market Index from the National Association of Home Builders was 32 in August, down from 33 in July. For the past three months, the index has hovered just above its November 2022 low, which was its second-lowest level ever.
Housing starts increased 5.2% in July after rising 5.9% in June. The number of starts in July was the highest in five months.
Most of the housing start growth in the last two months was in multi-family units. Single-family home starts trailed far behind.
The Producer Price Index (PPI) surged 0.9% in July after being unchanged in June. The 12-month increase in the PPI was 3.3% through July and 2.4% through June.
After excluding prices for food, energy and trade services, the PPI was 0.6% higher in July and unchanged in June. The 12-month increase of that PPI measure was 2.8% through July and 2.5% through June.
Retail sales increased 0.5% in July following a 0.9% rise in June. After excluding autos and gasoline, retail sales rose 0.2% in July and 0.8% in June.
The Empire State Manufacturing Index was 11.90 in August, up from 5.50 in July. August was the second consecutive month the index increased.
The August level was the highest for the index since November 2024 and second highest in more than three years.
Industrial production fell 0.1% in July after gaining 0.4% in June. Industrial production increased 1.4% over the 12 months ending in July and 0.8% over the 12 months ending in June.
Manufacturing production was unchanged in July following a 0.3% increase in June. The 12-month increase in manufacturing production was 1.4% through July and 0.8% through June.
New unemployment claims fell by 3,000 to 224,000 in the latest week.
Continuing claims, which lag a week behind new claims, declined to 1.953 million from 1.968 million.
The Markets
The S&P 500 lost 0.45% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 1.10%. The Russell 2000 fell 0.26%. The All-Country World Index (excluding U.S. stocks) added 0.53%. Emerging market equities declined 0.16%.
Long-term treasuries lost 0.35% for the week. Investment-grade bonds increased 0.03%. Treasury Inflation-Protected Securities (TIPS) fell 0.12%. High-yield bonds declined 0.02%.
In the currency sector, the U.S. dollar gained 0.29%.
Energy-based commodities fell 0.27%. Broader-based commodities decreased 0.63%. Gold declined 0.97%.
Bob’s News & Updates
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I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.
