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Retail Sales, Value Companies, Home Owners Insurance, Pensions and Social Security, Service Fees, Copper Price, US Postal Service, Bitcoin, Real Estate Investors, Entrepreneurs and Chinese Government

By Brent Wilsey • 19 Apr, 2024
Retail Sales People may be complaining about higher interest rates, but it does not appear to be slowing down the consumer. Retail sales climbed 0.7% in the month of March, which is easily topped the estimate of 0.3%. Compared to last year, sales were up an impressive 4.0%. Areas of strength continued to be nonstore retailers, which were up 11.3% compared to last year and food services and drinking places, which were up 6.5% over the same time period. Areas that continued to weigh on the report were furniture & home furnishing stores (-6.1%), electronics and appliance stores (-0.6%), and building material & garden equipment & supplies dealers (-0.6%). While energy prices have increased lately and gasoline stations saw an increase of 2.1% compared to February, compared to last year sales were actually down 0.7%. This makes the retail sales number even more impressive considering the fact that if gas stations were excluded from the headline number, it would have been up 4.4% compared to last year. Overall, this report provides further proof that the consumer remains resilient. This could bring into question the number of rates cuts this year. If the consumer remains strong, we may only see one or two cuts this year. Value Companies With the market’s recent highs, we have had a few companies that reached their target sell price. We sold those companies and now we’re sitting on a large amount of cash. We were considering investing into an oil and/or natural gas company because based on the valuations they are still not that expensive. One thing that has concerned me is that we are probably near the peak for gasoline consumption, but oil is also used in chemicals with a big demand coming from plastics. Approximately 102 million barrels of oil are produced every day and roughly 60 million barrels go to diesel, gasoline and jet fuel. Only 12 million of that ends up in chemicals. What concerned me even more is how all the oil companies like Chevron, Shell and Saudi Aramco have a big push to produce more for chemicals. For instance, Shell opened a chemical complex with capacity to produce about 1.6 million tons of plastic pellets per year. Saudi Aramco is working on turning 4 million barrels of crude oil per day into chemicals by the year 2030, today just 1 million barrels go into chemicals. For many years China has been a major consumer of plastic and they accounted for 70% of plastic demand. Now they are producing their own plastic capacity, which is exceeding demand. On top of all this, you have the push for recycling plastics and statistics show that only 10% or less of plastic gets recycled. Even a doubling of that over the next few years would mean less oil needed for plastics. Recycled plastics are roughly 50% more expensive than virgin plastic, but I believe that will come down in future years. In summary, at this point it does not make any sense that I can see to invest in an oil company or the chemical companies. It may look like they could be on sale, but with the large supply going forward sales and earnings could decline, which would mean they are currently fully priced. The abundance of plastics is estimated to go on until the year 2030. So…. the search for that great value company to add our portfolio continues! Home Owners Insurance You hear and read that insurance companies are dropping homeowners for no reason. Well, it turns out that insurance companies are becoming wiser on how to verify that policy owners are following the rules. To keep costs and risks down, insurance companies are now using drones, satellites, and airplanes to take aerial photos of your house. If you neglected to tell the insurance company that you have a pool, trampoline, a roof in bad shape or yard debris and hanging tree branches that are fire hazards, these will show up in the aerial views. You may think this is unfair, but when you sign your policy, you agree to home visits to verify that you’re telling the truth. Another question for consumers, is it fair for you to pay the same insurance premium with a brand-new roof then your next-door neighbor whose roof is 25 years old? At first thought it seems unfair that insurance companies can take pictures of your home from the sky, but if you neglected to tell them the truth about that pool or trampoline, maybe they have the right to drop you. In the long run, this could help insurance companies keep premiums lower for those who follow the rules and disclosed to the insurance company all the insurable risks that they have. Avoiding Social Security Reductions Caused by Pensions If you receive a pension from work that was not covered by Social Security, you may see a reduction in any Social Security benefits you are entitled to which includes benefits from your own earnings or any spousal benefits you are claiming. This is caused by the Windfall Elimination Provision and the Government Pension Offset. Keep in mind, if you earned a pension from a job where you also paid into Social Security, you will not see any reduction. One of the common pension systems we see in California is CalSTRS for teachers. Teachers do not pay into Social Security so their pension will reduce their Social Security amount. One way to get around this is by taking a “refund” from the pension. This allows you to withdraw all your contributions plus interest and roll them into your own retirement account so you can invest how you would like, and you will no longer have any reduction to your social security benefits, including any spousal benefits. The reason this works is because the refund only includes your own contributions, not the contributions made by the employer. This doesn’t work with all pensions as some lump sum options include employer contributions, so the same Social Security reduction would apply. Taking a refund from CalSTRS is not appropriate for everyone. If you are close to retirement or have been part of the CalSTRS system for many years, it likely makes sense to stay with it to receive your pension and any Social Security reduction that comes along with it. However, if you are younger, have a limited earnings history with CalSTRS, or are entitled to sizable Social Security Spousal or Survivor benefits, rolling over your CalSTRS pension to a retirement account may make sense so you get the benefit of both your pension dollars and Social Security. Service Fees Service fees at Restaurant just drive me crazy. My wife and I went to a beautiful brunch at the Rancho Bernardo Inn and they first told us the price was $85 per person. I thought it was a little high, until I saw the nice spread, they did. I thought OK beautiful restaurant and a very large buffet, I’ll pay the $85 per person. We enjoyed the brunch and then I got the bill and discovered on top of the $170, they added a $49 service charge. When I asked what that was for, they said it goes to the waitress, the kitchen, and the staff. So, I asked if the bill already included the tip? With hesitation, they said yes. If you do the math, $49 divided by $170 is over 28%. I normally tip about 20% for good service. So, when you dine out, receive your bill, and see a service charge on top of the food and beverage charge, do you also add a tip? Copper Price Many commodities have been rising lately, including copper which last week hit $4.25 per pound. Like many things in 2024, year to date copper is up around 9%. Unlike gold which is up around 15% year-to-date, copper has many industrial uses like wiring. If oil prices continue to increase, that could send people back to buy more electric vehicles, which require quite a bit of copper. Companies that come to mind in this area would be Rio Tinto and Freeport-McMoRan. U.S. Postal Service The cost of a US stamp could hit $.73 come July if the Postal Regulatory Commission approves the US Postal Service’s request for the 7.4% increase. If you feel that it seems the price for stamps is rising rather quickly, you would be correct. From 2010 to 2020 stamp prices rose seven times and if the Postal Regulatory Commission approves this increase, it would be the sixth time in just four years. The US Postal Service did not give any specific reasons as to why they need to raise the price of a stamp, all they said was the price increase is necessary because of the rising cost for delivering mail. That sounds rather weak to me. If I had to speculate why, I think the price of mail is going up because the volume is declining but the service is still costing the same to get less mail to your home. However, when I open my mailbox every day, there still seems to be quite a bit of mail there. Could it be the post office is mismanaging their operation? Investing in Bitcoin There’s been a big push for Bitcoin by the CEO of Blackrock, which is the largest investment company in the country. This means when he speaks, people tend to listen. He has become a Bitcoin bull since they came out with the iShares Bitcoin Trust. I researched to see if I could find how much he has personally invested in Bitcoin, but unfortunately, I couldn’t find any concrete data. Personally, I don’t believe he holds any. Himself and some other Wall Street executives have tried to get brokers to allocate just one percent of their portfolio into bitcoin. In reality, that would not do very much for investors. Keep in mind if you have a $100,000 portfolio, 1% would only be $1000. If Bitcoin were to double that would only be a one percent return in your portfolio. In my opinion, such small allocations do not move the needle for your portfolio and ultimately, I believe they serve little value. I believe the only reason why people like Larry Fink are pushing Bitcoin is the greed on Wall Street. They’re just trying to push people into Bitcoin because they know there’s limited volume and this could increase fees for doing nothing other than talking up a hype investment. I continue to believe Bitcoin is not a real asset as it does not generate cash flows, provide much tangible value, and ultimately there’s nothing to analyze on it to derive its intrinsic value. As far as the talk of it being a currency is still a silly idea. The best currency is one that provides the most stability, not one with the volatility of Bitcoin. Just in case you’re unsure, we are still against investing in Bitcoin even as a speculative investment. Real Estate Investors Many people and real estate investors just look at the cost of the real estate, but there is so much more to it. A smart investor must look at the affordability of homes. The housing affordability index has dropped to levels not seen since the late 80s when the index was at 100. After the Great Recession in 2008, the affordability index rose dramatically to over 200 as rates fell and prices for homes stabilized. The affordability index, according to the National Association of Realtors, looks at family incomes, mortgage rates, the price of the home, property taxes, insurance costs, maintenance and repairs. When one adds it all up, you get a pretty ugly picture for the housing market. Home maintenance costs across the country on average are $6663 per year, which is an increase of 8.3% from one year ago. It’s also important to note that 50% of owner-occupied homes across the US were built 44 years ago. Keep in mind that repairs go up as the house gets older. Local governments are also pushing harder for more taxes from homeowners to meet their strained budgets. According to real estate data firm, Attom, property taxes were up 4.1% from 2022. Add it all up and I don’t care what people say, I just don’t see how housing prices can rise much above current levels for years to come. With today’s market don’t buy a house thinking you’re making great investment, buy a house to raise your family to live in. Entrepreneur Ideas I’m always impressed with simple ideas that make money like laundromats and vending machines. The first vending machine in the US sold gum back in 1888, today there are over 7 million vending machines doing business in the U.S. Entrepreneurs can make a good living off of vending machines, but don’t think it’s easy work. The cost of a machine is around $1000-$2000 and stocking a machine averages around $250/month. The income per machine is about $350/month and it will take about 2 to 3 hours per week of your time. If an entrepreneur would spend about 50 to 60 hours per week and had around 20 machines, they could earn around $100,000 per year. I just love capitalism and American business. There are no barriers to entry here if someone wants to do the work. Chinese Government I have said for many years that people do not understand the major differences between China and the United States. Let me give you a good example of how different things are in China. Here in the US, if you get yourself too far into debt, you can file bankruptcy and move on with your life. In China, there is no such thing as bankruptcy, you carry that debt for the rest of your life or until it is paid off. As I have said, China controls the country. If you cannot pay your debts in China, the government can seize your salary and restrict you from getting a government job. That may sound somewhat normal, but in addition to that, since everything is run by the government, they can restrict you from riding the high-speed trains and air travel. Forget about going on that vacation, if the government says no then you’re not going. Even if you try to go on vacation, the government will not let you stay in nice hotels and authorities can detain you if you don’t comply. Could you imagine if the US government tried to tell you that you can no longer take a vacation and where you can and can’t stay? China is a communist country and the government has major control over their people, businesses and the press. When investing in China, please understand it is not run at all like the United States.

March CPI, March PPI, Investing High & Lows, Semiconductor Industry, Reinvest Dividends, Tax Refunds, AI Legal Issues, Venture Capital, Tax Brackets, World Population and California Politics

By Brent Wilsey • 12 Apr, 2024
March CPI The March Consumer Price Index (CPI) report spooked investors and sent the likelihood of a Fed rate cut in June to around 20%, which was a sharp drop from the greater than 50% chance that was priced in before the data was released. The concern came as headline CPI was 3.5% over the last 12 months, which topped the estimate of 3.4% and core CPI rose 3.8% from a year ago, compared with the estimate of 3.7%. Last month the annual rate for headline CPI was 3.2% and for core CPI it was 3.8%. Energy prices were a benefit to headline CPI over the last year or so, but with the recent increase in energy we are beginning to see them not benefit the headline number as much and I soon worry they will cause the headline number to top the core CPI reading. In the March report, energy was up 2.1%, but as we lap the easy comparisons from last year the annual increase could climb substantially which would cause the headline CPI to increase. Shelter continues to be a major weight on the numbers as the index climbed 5.7% compared to last year and accounted for over 60% of the climb in core CPI. Transportation services were also a major negative as they climbed 10.7% compared to last year. I believe this can largely be attributed to rising energy prices. Also, motor vehicle insurance continues to be a major negative as it saw an increase of 22.2% over the last year. While this report wasn’t overly positive, I would like to wait and see the PCE release on April 26th before abandoning the idea for a potential of three rate cuts this year. March PPI The March Producer Price Index (PPI) report looked much more favorable than the CPI. Headline PPI rose 0.2% for the month, less than the 0.3% estimate and core PPI matched the estimate as it also rose 0.2% in the month. On a 12-month basis, PPI rose 2.1% which was the biggest gain since April 2023. While that may sound concerning, the inflation rate is near the Fed’s target so I would not say that is problematic. Core PPI rose 2.4% over the last year, which was the highest since September. Like the headline number, I don’t believe this is problematic considering the rate is still very reasonable in relation to the Fed’s 2% target. Investing Highs and Lows I love to read information from smart people like Daniel Kahneman, who unfortunately passed away at age 90 on March 27. He was a pioneer in behavioral economics, although he felt he was really a psychologist. If investors would listen to his advice, their returns would probably be much higher and their psychological well-being would be far better when it came to investing. He mentions that people who lost on an investment feel at least twice as much pain as the gains feel pleasant. He also discusses how people do not incorporate all available information and people believe that short streaks in a random process enables them to predict what will come next. Interestingly, he also points out that based on research of asking people if they want to take a risk with an 80% chance of success, most people say yes. However, if you flip-flop that around and ask if they incurred the same risk with a 20% chance of failure, they say no. Obviously the risk is the same, but the psychology is different. I believe this is why many people get into bad investments. Sales people just focus on the positive side and leave the unsuspecting investor to do their own risk analysis. Semiconductor Industry While the semiconductor industry is likely to continue growing, I do worry about China hurting the growth of US semiconductor companies. Shares of chip companies like Intel and Advanced Micro Devices fell after the Wall Street Journal reported that China is ordering the country’s largest telecommunications carriers to cease use of foreign chips. According to the Journal, Chinese officials issued the directive earlier this year for the telecom systems to replace non-Chinese core processors by 2027. China also recently set new guidelines to remove U.S. chips from government computers and servers. The problem here is China still remains a major market for US chip companies as the country accounted for 27% of Intel’s revenue in 2023 and AMD generated 15% of sales from China. Data from S&P Global showed that U.S. chip giants Intel, Broadcom, Qualcomm and Marvell Technology all generate more revenue from China compared with the U.S. The relationship with China is definitely worth keeping an eye on if you are investing in semiconductor companies, especially since most of them now trade at lofty valuations. To Reinvest or Not Reinvest Dividends From a retirement planning standpoint, it can be helpful to not reinvest dividends, especially in non-retirement accounts. In a non-retirement account, or a taxable account as they are called, dividends are taxed exactly the same way whether they are reinvested or not. In retirement, the focus shifts from accumulation to building tax-advantaged cashflow. When a dividend is automatically reinvested, it repurchases the same holding it came from. On the other hand if it is paid in cash, it will remain in the account where it can be invested or withdrawn. Therefore, when a dividend is paid in cash and incurs its normal tax, that cash can be accessed without any additional tax consequences. Alternatively, when dividends are automatically reinvested which is still taxable, if cashflow is needed, sells will also need to be made to generate that cash which can result in additional capital gain taxes. In a way, you’re getting taxed twice to create the same amount of cashflow. From a tax perspective, if a dividend is produced from a holding that is held for more than 60 days within the 121-day period surrounding the ex-dividend date, it will be considered a qualified dividend and taxed at the lower long-term capital gain rate. That criterion is a little technical but basically it means dividends from long-term holdings are taxed at the lower rate. It is popular to have dividends reinvested but this can force unnecessary taxation in retirement and can limit other planning opportunities like Roth Conversions. Tax Refunds April 15th is fast approaching and 40% of Americans are really counting on a tax refund to help their financial situation. That is up 4% from the 36% last year. It really doesn’t surprise me because many people look at that as a windfall, not realizing that they gave the government a free loan of the money for the past year. Depending on your income, people generally should be shooting for a refund of $100 or to have a tax bill of $100. If one were to receive a $1200 refund in taxes, they may be excited but unfortunately that could’ve given them the opportunity to put $100 a month in a 401(k) or IRA and receive a tax reduction along with tax deferred growth. AI Legal Issues It seems these days you can’t pick up a paper or turn on the TV and not hear something about artificial intelligence. One thing you’re not hearing about is the legal issues that are starting to arise. Section 230 protects social media companies from being sued, but that is not going to extend to the AI companies or companies that use artificial intelligence. In early 2023, even Supreme Court Justice Neil Gorsuch said, “Artificial intelligence generates poetry. It generates polemics today that would be content that goes beyond picking, choosing, analyzing, or digesting content. And that is not protected.” That sounds pretty concerning to me, but as time passes, we will see many more lawsuits against not just the AI companies, but also companies that use AI for the general public to read or see. This could definitely slow down the growth of AI and the elevated prices that are being paid for stocks related to AI. Venture Capital Venture capital is one of the more speculative areas of investing. In 2023 venture capitalists only raised $67 billion, which was the worst year since 2016. In the first quarter of 2024, investors seemed a little more comfortable with taking on some extra risk. Venture capitalists have raised $30 billion in the first quarter of 2024, which on an annualized basis would amount to $120 billion, close to twice the amount raised in 2023. Tax Brackets The current President and the media try to promote that the wealthy pay no tax or should be paying their fair share. Numbers from the IRS in 2021 prove that is totally incorrect. According to the data from the IRS, the top one percent, which is about 1.5 million returns with earnings above $682,500, paid 45.8% of the total income tax. However, they only make 26.3% of the country’s adjusted gross income. Compare that with the bottom half of earners, which was 76.8 million returns with adjusted gross income of $46,500, they only paid 2.3% of all the income tax. What the media and President Biden point to are the exceptional years for certain corporations or individuals who received large tax write offs for such things as setting up a foundation, a large charitable deduction, maybe some type of large loss on an investment or perhaps investing in equipment. These types of events generally do not occur every year. If one were to look at the wealthy’s tax returns over 10 years, they would see the numbers that I discussed in the beginning are very true. World Population I remember back about 40 years ago or so there was a big concern about overpopulation and the world running out of resources. Now, the US fertility rate stands at 1.7 births per woman and is expected to remain around that level for next 30 years. In 2007, it was 2.12 children per woman. If you do the math, you can understand the problem. If you have two parents only producing 1.7 children, the population will decline overtime. As our population gets older, they tend to want to slowdown and not work as much or maybe not at all. They live off their investments (hopefully they listen to us at Wilsey Asset Management and funded their 401(k) program) along with government programs. If the younger generation is shrinking, the only way to support a larger aging population is to increase taxes, or perhaps extend the retirement age, which in my opinion is probably the better way to go. One problem is if you increase taxation too much on the younger generation, they will lose their incentive to work and be less productive. There are some things that could save our country like immigration and AI along with automation. Immigration can immediately bring in working age people to produce in the economy. AI and automation should not be feared because what it will do is instead of taking maybe three or four people to do a job, it may only take one or two to do that same job. Throughout history, technological advancements have always been feared considering concerns all the way back to the Industrial Revolution. Technology advancements are coming faster than they used to, but if we use them properly, they can help the economy become more productive, which will help support an aging population who can then enjoy their golden years. California Politics The games that California plays with our voting system is just criminal. A coalition of California businesses is fighting Governor Newsom and his Democratic allies over the fact that they can increase local tax in California with a simple majority. The business coalition is putting on the ballot for November that for any tax increases, it would take a 2/3 approval, not the simple majority. They are calling it the taxpayer protection act. Sacramento is fighting this and has asked the California Supreme Court to take the rare step of taking it off the ballot, saying it’s unconstitutional. In case that doesn’t work, democratic legislatures are putting on the ballot that the taxpayer protection act would require a 2/3 majority to become law.

Krispy Kreme x McDonalds, March Jobs Market, JOLTs, Stock Market, Office Rents, Vehicles, Chinese Auto Makers, Tesla and Designer

By Brent Wilsey • 05 Apr, 2024
Krispy Kreme x McDonalds Do you like Krispy Kreme doughnuts? If you do, you’ll be able to get them at McDonald’s as they signed an agreement with Krispy Kreme after testing some locations a couple years ago. The rollout to McDonald’s for Krispy Kreme doughnuts will begin in the second half, but it will take until around the end of 2026 to be available at all McDonald’s. Krispy Kreme doughnuts is a public company and the stock had fallen below its IPO price many years ago which was under $12 per share. When the news released from McDonald’s the stock rose over 30% to $17 per share. This could be a profitable endeavor for Krispy Kreme, but it’s going to take years for the profits to flow through to the bottom line. Krispy Kreme trades under the symbol DNUT and pays a 0.9% dividend and has a 2025 forward P/E ratio of around 35x. No deal here, if you like the donuts enjoy them at McDonald’s but it appears you won’t make much dough with the stock. March Jobs Report I must say, I was very surprised by the strength in the March Jobs Report. Nonfarm payrolls increased 303,000 in the month, which easily topped the estimate of 200,000. Unlike prior reports, there wasn’t a major change to the previous months as February saw a negative revision of just 5,000 and January’s revision brought the total up by 27,000. There were many positives in the report considering the unemployment rate ticked lower to 3.8%, the labor force participation rate actually increased 0.2 percentage points to 62.7%, and average hourly earnings increased 4.1% which was lower than last month’s reading of 4.3%. Areas of strength in the economy included health care and social assistance (+81,300), government (+71,000), leisure and hospitality (+49,000), and construction (+39,000). According the BLS, the leisure and hospitality sector is finally now back to its pre-pandemic level. If the economy and labor market continue to remain resilient, I do worry we may not see those three interest rate cuts we have been expecting during the remainder of the year. JOLTs In the Job Openings and Labor Turnover Survey (JOLTs) it showed there were 8.8 million job openings in February, which pretty much matched expectations and last month’s reading. The job market has continued to remain resilient and I do believe that it will need to enter a Goldilocks period where it is not too hot or too cold. Too many job openings may deter the Fed from considering rate cuts and obviously we do not want a weak labor market as that would be bad for the economy. Stock Market The stock market has gotten off to a strong start and in the first quarter the S&P 500 was up 10.2%, which marked the best first quarter performance since 2019. The Dow and Nasdaq also had good quarters as they were respectively up 5.6% and 9.1% in Q1. In a recent study, it was pointed that of the 16 times the S&P 500 rose 8% or more in the first quarter from 1950 through 2023, only once (1987) did the index lose ground the rest of the year. In the remaining years, the index gained an average of 9.7% over the next three quarters. In 10 of the 15 years the first quarter’s gains were higher than those seen over the remainder of the year. While this is bullish for the remainder of the year, I do worry about the concentration of the market. With Nvidia’s strong start and large market cap it accounted for close to half of the entire gain for the index. I don’t believe this will be able to continue, but I am optimistic that the rally could continue to broaden which would be beneficial to other stocks. Office Rents Across the country office rents are holding firm and they are higher now than they were back in the fourth quarter of 2019. The average US office rent has an asking price of $35.24 per square foot. This is an increase from $34.92 per square foot in 2019. It is not a high increase, but compared to a lot of the negativity that the media is spreading, it shows office rents as a whole are still doing OK. I would recommend for investors looking into office real estate to really do their due diligence to make sure they are not buying or investing in a declining property. Gas, Hybrid and Electric Vehicles The US car buyer seems confused on whether to buy an electric vehicle or a gas-powered vehicle. So, they have decided to cut it down the middle and get a hybrid. In the first two months of 2024 this caused sales of hybrid vehicles to increase 50% over last year. Chinese Auto Makers China’s EV maker, BYD, surpassed Tesla last quarter in global sales of electric vehicles. BYD sold over 526,000 electric vehicles in the fourth quarter and made a profit of $1.2 billion. This was an increase of 19% from a year earlier. This Chinese auto maker is coming on strong and could cause more problems in the EV market. Credit Card Merchant Fees You may have heard that Visa and MasterCard are being forced to reduce their merchant fees to help merchants and consumers. It still requires approval from a federal judge in Brooklyn, New York, but as it currently stands the credit card companies would lower all rates by 0.04% for three years and the average rate across the networks would be lowered by 0.07% for five years. The legal team that struck the deal for the merchants makes the deal sound big talking about eliminating $30 billion in fees over five years. But as a consumer, before you get too excited, I don’t think you’ll see any difference at all. There is talk that some of the credit cards with big rewards (which benefits consumers) might have a disadvantage at the checkout counter. I think the only ones that will really get a big benefit from this is yes you guessed it, the attorneys. Tesla Stock I was shocked to see Tesla wasn’t down more on the day it released delivery numbers. If the company can’t return to growth, I’d say the stock is still extremely overvalued even with the rough start to the year. Tesla reported Q1 deliveries of 386,810 which fell well short of a mean of 11 estimates compiled by FactSet of around 457,000. It’s also important to understand these estimates have fallen since the start of the year, so Tesla couldn’t even clear a lower bar. I would say the bigger problem here is that deliveries actually fell 8.5% compared to last year. Even though the stock is down over 30% to start the year and it is still down close to 60% from its all-time high of $409.97 in November 2022, it still trades at 42x 2025 estimated EPS. For a company trading at that multiple, it better be growing! Secondhand Designer Purchases With high end purses like Chanel selling brand new at $10,200, consumers are picking up secondhand bags at sometimes half the cost from $3000-$8000 for the same Chanel bag. Worldwide the secondhand market for luxury bags is now nearly $50 billion, which has invited many scammers and copycats that pawn off their bags as the real thing at high prices. It has been estimated by some that about 20% of the high-end bags sold on the secondary market are good fakes, but yet sell at high prices. My suggestion to anyone paying such high prices for these secondhand purses is to verify the authenticity BEFORE buying. There are people out there who are experts that certify the bag for anywhere between $35-$100. Here are three people listed in the WSJ article. Keep in mind myself and the Wall Street Journal are not endorsing these three people, but just giving you their names as a suggestion. I would recommend you also verify their experience and again, please before you buy a secondhand bag and pay thousands of dollars for it get it certified by some expert. If you wait to get it authenticated after you buy it, you’ll be heartbroken to know that you’ve overpaid for it and the chances of getting your money back are extremely low. The three people listed in the Wall Street Journal were: Paola Tapia age 35 Atlanta, Georgia, Michelle Peeters age 38 Brooklyn, NY and Zekrayat Husein age 43 San Antonio, TX. I would highly encourage anyone to again pay to have the bag certified before paying for it and you should even take a few minutes to read the article in the Saturday/Sunday, March 23/24th 2024 edition of the Wall Street Journal Section B page one titled “You spent big on a bag. Now find out if it’s real”

EV Sales, History of Hype Investing, PCE, Roth IRA 5-Year Rules, Investing in Equities, Cyber Security, Unilever, Credit Score and Sam Bankman-Fried

By Brent Wilsey • 29 Mar, 2024
Electric Vehicle Sales Electric vehicle sales have really not kept up with expectations and I’m concerned for the smaller companies such as Lucid, Fisker and Rivian, which besides Tesla may be the only other exclusive electric vehicle company that may survive. Digging deeper into the numbers for Lucid, since 2021 they’ve only built 10,495 cars and the most recent quarterly loss per vehicle was $145,824. When the company first went public back in 2021, they had $4.8 billion in cash, but as of the end of 2023 the company is down to cash of $1.4 billion. In 2023 the company burned through $3.4 billion in cash. The only thing that could save this company would be another billion-dollar investment from the Saudi Arabia Public Investment Fund as they did back in 2018 when they invested $1 billion. I really like the look of the Lucid Air, but do not see how this company will survive. I would speculate that by 2025 this company will be in bankruptcy. The sad part is for people buying the cars today because of the great deals they may be receiving, think ahead a few years about who will be around to service these cars and they may be stuck in your garage with no way to get them serviced. I would encourage people if you’re going to buy an electric vehicle, buy it from a well-known brand like Ford or General Motors who will be around for years to come to service that vehicle. History of Hype Investing Are people so smart that they really don’t need to look at what happened in history? We have said many times we stay away from the hype investments like Nvidia and cryptocurrencies and back this up with reality. Let’s go back and learn from the late 90s about a company called CMGI, which helped fund internet startups. It was claimed to be one of the hottest investments in history and the CEO, David Wetherell, was deemed to be a hero and a genius. Keep in mind this was 24 years ago and when the company hit a $34 billion market cap, it was larger than Alcoa or Texaco. All the financial talk shows could not talk enough about CMGI and why the stock would continue to go up and what a great investment it was. Anyone on the other side who warned about this was considered a fool, or an idiot. They were told they didn’t understand enough about the company. In 1999, the stock rose 940% and everybody wanted a piece of it. Starting to sound familiar yet? However, the next year when the curtain came down, the stock fell 96%. That was the end of the story for many investors! PCE No real exciting news from the personal consumption expenditures price index (PCE) as it was right in line with expectations. The headline number showed an annual increase of 2.5%, which matched the forecast. This was however above the January reading of 2.4%. This increase was likely a result of energy prices as they climbed 2.3% in the month. Core PCE, which excludes food and energy also matched expectations with a 2.8% rise compared to last year. This was slightly lower than last month’s reading of 2.9% and marked the smallest gain since March 2021. Roth IRA 5-Year Rules There is often confusion around the nuances of the 5-year Roth IRA rules. There are two separate 5-year rules that apply depending on whether a contribution or a conversion is made. In a nutshell, the rule for contributions dictates how long you must wait to access the earnings without taxes or penalties, while the rule for conversions dictates how long you must wait to access the conversion principal. When making a contribution to a Roth IRA, you can always withdraw the contribution principal no matter your age. This is because contributions are made with after-tax funds. To access the earnings, the account must have been funded at least 5 tax years ago, and you must be at least age 59.5. Being age 59.5 alone is not enough to access those earnings. A contribution of any size will start this 5-year clock and after those 5 years it will no longer be relevant. After making a Roth Conversion, there is a separate 5-year rule which states that 5 tax years must pass for each individual conversion or the account holder must reach age 59.5 in order to access the conversion principal. Upon reaching age 59.5 this rule no longer applies. Therefore, if a conversion is made by someone who is 60, they can immediately access the conversion principal, or if someone who is 58 makes a conversion, they can access conversion principal upon reaching age 59.5 without waiting the 5 years. In these cases, the accounts must still be funded for at least 5 years to access any earnings. Since the conversion rule is triggered by the sooner of reaching age 59.5 or 5 years, a 30-year-old could make a conversion and withdraw that conversion principal after 5 years without tax or penalty even though they are not age 59.5. It is common for people to question making a contribution or conversion in fear that money will be locked up for 5 years, but if done correctly there can be ways to access funds without waiting. Investing in Equities When investing in equities, it is important to understand who the customers are of the company you are investing in. Currently companies who serve the lower end consumer like McDonald’s, the dollar stores and other fast-food restaurants have seen a slowdown in sales. From what I can see this is caused by two factors. First, consumers who are under the age of 30 and are now ninety days late on their credit card payments or behind on auto loans has reached levels last seen in the 2008/2009 financial crisis according to the Federal Reserve Bank of New York. Please keep in mind this is not the average consumer. I believe this age group not being financially savvy, overextended themselves and tried to keep up with their friends to appear like they were doing well. This group is now struggling and has to come back to reality and not overextend themselves. The second thing hurting the lower end consumer is that according to the Bureau of Labor Statistics, the poorest fifth of society was hit harder by inflation as it was 1.6 percentage points higher than for the richest fifth of society from March 2020 to June 2023. However, during this time period wages for low wage jobs have risen faster than for the higher paying jobs. Now these consumers in the lower 20% of society appear to be just keeping pace with inflation in 2024. In my opinion, this is all good news for the overall economy as this will slow down demand for the next few months, which should ease inflation and allow interest rates to be cut by the Federal Reserve three times in the second half of the year. This will allow economy to continue to grow in the 2 to 3% range in 2025. Cyber Security In 2023, the US reported 3,205 data breaches from US organizations. If that scares you, it should because it was a record and climbed 78% from 2022. I would love to invest in a cyber security company, but unfortunately, they are all too expensive and maybe at this point in time for what is going on that could be justified. However, being a value investor, I will still stick to my discipline and avoid investing in expensive stocks. Unilever It appears that Unilever, who purchased Ben & Jerry’s ice cream in 2000 has had enough of dealing with the independent board of Ben& Jerry’s and the rising cost of making ice cream paired with declining sales. There is concern that ice cream sales are slowing down and with the new weight loss drugs, sales could get hurt even more. I know myself; I will never cut back on my evening consumption of ice cream. I’ve never been a consumer of Ben & Jerry’s, but since they feel the need to not just be in the ice cream business and instead be involved in politics as well, it may not be easy to sell this to another company or on the public market. The independent board will still be retained on decision-making about its “social” mission. There have been times throughout the last 24 years that its independent board and Unilever have had some major disagreements. At one point, it got so bad that Ben & Jerry’s sued Unilever. This is unheard of in the corporate world. The two sides did eventually settle but it appears the scars still run deep. To sweeten the deal, it will also include other leading brands such as Magnum, Breyers, and Klondike. I do believe the independent board will be a problem and it could cause a low sale price for Unilever. Credit Score Do you know what your credit score is? Are you above 800? Below 700? Looking at October 2023, the average credit score in the US was 717 and was down from a high of 718. Even though this was a slight decline, consumers still have great credit scores considering that in 2019 FICO scores hit a then record of 703. Sam Bankman-Fried Prison Sentence I was happy to see that Sam Bankman-Fried received 25 years in prison for his fraud in the cryptocurrency market. He was very defiant all the way until the day of sentencing when he became very apologetic. In my opinion too little too late. I hope this shows other financial predators that there are big penalties for defrauding the public in the financial arena.

Apple Lawsuits, Retirement Assets, Investing, Mortgage Points & Lender Credits, Banning TikTok, Dollar Stores Closing, Investing in Bitcoin, Healthcare Costs, Liquid Money and Shopping Malls

By Brent Wilsey • 22 Mar, 2024
Lawsuits Against Apple On Thursday, March 21st, the Department of Justice (DOJ) filed an anti-trust lawsuit along with 16 states against Apple. The DOJ claims Apple’s iPhone ecosystem is a monopoly that drove its “astronomical valuation” at the expense of consumers, developers and rival phone makers. The lawsuit claims that Apple’s anti-competitive practices extend beyond the iPhone and Apple Watch businesses, citing Apple’s advertising, browser, FaceTime and news offerings. The DOJ also said in a release that to keep consumers buying iPhones, Apple moved to block cross-platform messaging apps, limited third-party wallet and smartwatch compatibility and disrupted non-App Store programs and cloud-streaming services. With pressure also surrounding the App store in the EU, I worry the expected growth from the services business could be under pressure. We have often said Apple is a great company, but trading at such lofty levels has left many investors open to declines in the value of their investment. The stock trading around $170 per share is down from the high of over $200 per share, and while this lawsuit will take a couple years to go through the court system, it could have a major impact on the growth of Apple’s earnings. At Wilsey Asset Management, we do continue to believe that Apple is overpriced and has no potential for growth going forward. Looking out a couple years from now the stock could still be trading around these levels due to the high valuation and limited prospect for business growth. We do believe it’s very possible for the stock to drop at least another 10% to 20%. Retirement Assets and Target Date Funds I was so disappointed to read recently that Vanguard has 63% of their US retirement assets allocated to Target Date Funds. I cannot stress what a poor investment these are. They make nice fees for Wall Street and people think it’s an easy way to retire but the allocation and numbers are just so wrong. A good example is as recent as 2022 when the bond index went down about 14% that year. Based on the theory of Target Date Funds and how they are invested, most of a 65-year-old retiree’s money would be invested in bonds. On a million dollar account a 14% decline would have led to an account value of $860,000 and now a couple years later, bonds are still lower. I do believe in buying and holding, but you must understand what you’re holding and why you’re holding it. It does make sense to just implement a blind strategy. If you have a target date fund, I would highly recommend that you sit down with a knowledgeable financial advisor that really understands and can explain how they work…. Yes, I’m available! Mind Games of Investing I learned a new word this weekend, counterfactual. In my 40+ years of investing I believed what this word meant, but I just didn’t know there was a word that described what I knew. What I’m talking about as it stares in your face where you would have been if you would’ve bought Microsoft, Nvidia or Tesla a few years ago. The emotional psyche is great at tracking the big misses and convincing you why you should’ve invested, but it never seems to remember the investment losses that you missed because you didn’t take that risk. Over the years we’ve talked about these types of companies many times. Just to remind you, take a look at the cannabis companies or during the pandemic had you invested in Zoom or Peloton. More recently, we just discussed in our newsletter about had you invested in electric vehicle companies you would’ve lost about 90% of your investment had you purchased at the top. Investing is hard, throughout your lifetime there will always be some companies that you “knew” were going to go up after the fact. Comeback to reality and realize if you can average about 10% on your investments, in 21 years a $100,000 investment would be worth close to $800,000. But if you lost principal along the way by taking on risk, you may not even have your $100,000. And if one of your friends tells you they bought one of these high flyers and they brag about it, ask them percentage wise how much does it make up of their entire portfolio? More than likely it’ll be less than one percent, but even at one percent be sure to inform them that the investment, even if it doubles in price would only add a one percent increase to their entire portfolio. And if you would like to use the new word counterfactual, the definition is what might have been an imaginary alternative to the actual past. Mortgage Points and Lender Credits When you apply for a mortgage, there’s a lot more to consider than just the interest rate. When you get a mortgage, there are closing costs that include things like title and escrow fees that are not part of the loan itself. Then there is prepaid interest which is the interest that accrues from the closing date through the remainder of the month. Since mortgage payments are paid in arrears, your first payment will be two months after the month you close. For example, if you close your mortgage in the beginning of April, you’ll have more prepaid interest at closing since you’ll have to pay interest for the bulk of April, but you won’t have to make the next payment until the middle of June. Also, at closing you might have points or credits. A mortgage point is an extra fee you pay in exchange for a lower interest rate. A lender credit is the opposite where you receive a higher interest rate, but the lender will provide you funds that can be applied to closing costs and prepaid interest. You can also choose to pay no points and receive no credits for an interest rate in the middle which is called the par rate. For example, if you were to get a mortgage right now your par rate might be 7%, or you could pay a few thousand dollars in points to receive a 6.75% rate, or you could receive a few thousand dollars in credits in exchange for a 7.25% rate. With where interest rates are at now, pretty much everyone agrees that mortgage rates will be coming down in the coming months and years. This means if you are considering buying or refinancing, even if you are using a 30-year mortgage, it is best to think of it as a 6, 7, or 8 month loan as there should be an opportunity to refinance in a few months at a lower rate. Therefore, if you are getting a loan now, you want to structure that loan so you have the lowest overall cost during the next 6 to 8 months. During a decreasing interest rate environment, this typically means accepting a higher interest rate and using the accompanying lender credits to cover as much closing costs and interest as possible. You might pay a few hundred dollars more in interest over the next several months, but that is worth it if you receive a few thousand dollars in credits upfront. Banning Tik Tok in the US I’m sure by now you have seen that the House of Representatives has overwhelmingly passed a measure to ban TikTok in the US. I don’t see why the Senate will not do the same, so I do believe that TikTok as we know it today is going to be history here in the US. It is unclear at this point in time when the official date it will be banned is, but you may be thinking this is going to be a great opportunity to invest in Meta which owns Facebook. After all, the advertising on TikTok will go somewhere which is estimated at around $6 billion. Will all of that go to Meta? Probably not, but a lot will. Before you go out and purchase shares in Meta thinking there will be a big boost from the $6 billion in advertising if Meta were to get it all, it is important to understand it would only be about 5% of Meta's total advertising. Not enough to move the needle much on their earnings. Dollar Stores Closing The owner of Dollar Tree and Family Dollar is going to be closing 1000 locations across the country bringing their total store count down to 15,700. The merger between Family Dollar and Dollar Tree has not worked out as well as the company expected. Trying to keep their low prices with inflation on products has been a struggle and add on top of that the increase in store theft, the company could no longer post a profit. The company will lose about $700 million in annual revenue going and forward full year sales should be around $31 billion. In the most recent quarter the company lost $1.71 billion, which compares to a profit one year ago of $452 million. The good news was sales were up about 12% to $8.6 billion. I’ve always thought the Dollar stores were an interesting investment, but if they can’t turn back towards profitability I would recommend staying away. Investing in Bitcoin Yes, here is another post about why to stay away from investing in Bitcoin in hopes of saving some people big losses. Over about the two months they have been trading, $20 billion has gone into nine new ETF Bitcoin funds and investors have pulled $10 billion from Grayscale’s Bitcoin trust. It appears that the ETFs are not bringing in new investors but instead it is current people who own Bitcoin are moving to the ETFs because it’s easier and the fees are lower. A big disappointment in the ETFs has been that the $30 trillion managed by professional advisors are not recommending people put any other money into Bitcoin. Being a professional advisor myself for nearly 40 years now, it makes perfect sense to me. The reason why this will not change is brokers and investment advisors could easily be sued and lose if Bitcoin were to fall anywhere near the 70% drop like it did after its peak in November 2021. Professional advisors still hear in their heads SEC chairman, Gary Gensler, that investors should remain cautious about Bitcoin and the Department of Labor also has concerns about cryptocurrencies in retirement accounts. If Bitcoin were to have a substantial drop, investors and attorneys would have a field day with lawsuits and settlements with professional advisors. Think about it, there would be no reason that a financial advisor could give to defend themselves why they put any of a client’s money into Bitcoin or any cryptocurrency. Healthcare Costs Healthcare costs have risen dramatically over the last few years, which means health insurance premiums have also gone up at an unprecedented rate. Now both employers and insurance companies are wrestling with the new weight loss drugs such as Wegovy and Zepbound that can cost $1000 per month per employee. These drugs were originally designed to help patients with diabetes, but it was discovered that they can also help people lose weight easier than going to the gym and dieting. Unfortunately, some people feel it is their right to take these drugs and have the insurance company pay for them not understanding that the insurance company is a risk pool and the higher the payments, the higher the premiums for everyone. Some employers are putting limits either on the dollar amount that they will pay out for these drugs or including factors such as a Body Mass Index (BMI) must be over a certain percent before they will pay for the drug. I learned in life years ago that when something is too easy, like taking a pill to lose weight, there are some other factors to balance the scales. I think everyone needs to know that every drug has some side effects and before trying to take the easy way out of losing weight, be sure you understand the side effects of these drugs and don’t simply ask your employer or your insurance company to pay for these just so you can lose weight. Liquid Money in the US I continue to talk about the trillions and trillions of dollars of liquid money in the United States. Proof of that is the average price of a home in Manhattan in New York City is $1.6 million. Back in 2022, 55% of the homes in Manhattan were paid for with cash. In the fourth quarter of 2023 the percent of homes paid for with cash jumped to 68%. There still is a lot of cash out there and I believe it will be there for at least a couple more years. Shopping Malls I remember a few years ago people were claiming that the malls in America were done and would eventually be gone. I believed they wouldn’t and that they would change how they do business and they will still be around and not only survive, but thrive. That is happening now and we are in the midst of that change. Our top-tier malls have surpassed the 2019 tenant sales levels even though traffic is lower. Shoppers are spending less time in the malls but they are spending more in high end retailers like Coach, Tory Burch, Lululemon and Gucci just to name a few. The big anchor department stores like Macy’s are becoming a thing of the past and being replaced by high-end gyms, pickleball courts, mini golf and high-end food markets. When a mall remodels to top-tier, they are receiving record high leasing volume and strong rent growth from previous years. New types of malls see attendance from a younger crowd with higher incomes who enjoy high-end shopping. I have to question if this is a trend of the future that young shoppers are not so conscious when it comes to spending on expensive items? Could this be trouble for retailers like Costco where it is all about price and not the experience of shopping in the warehouse? Trends change and people change. It’s so important for investors to understand this and to avoid buying high when it comes to investing. What is hot today could be out of business tomorrow.

CPI, PPI, 401k, Bitcoin Peaking Point, Tax Brackets vs Your Tax Rate, Military Spending, Apple Stock, Experience in Investing, Legal Immigration, Banning TikTok, BlackRock, Growing Economy and Unions

By Brent Wilsey • 15 Mar, 2024
CPI The Consumer Price Index (CPI) came in a little bit hotter than expected as the headline number for February showed an annual increase of 3.2% versus on expectation of 3.1% and the core CPI showed an annual increase of 3.8% versus an expectation of 3.7%. While it was not much progress, there was still a decline from last month’s core CPI reading of 3.9%. This marked the lowest reading since May 2021 when core CPI was 3.8%. Food was a bright spot in the report as the annual increase was just 2.2%. Food at home came in at an annual increase of 1.0%, while food away from home increased 4.5%. With wage pressures continuing, I believe this discrepancy will continue. Energy was also an interesting sector as the annual reading showed a decline of 1.9%, but the monthly reading was up 2.3%. Energy has been a big positive for the headline number, but as we lap easier levels it will likely not be as big of a benefit. One of the areas that remains very hot is motor vehicle insurance as it was up 20.6% compared to last year. I believe this item will remain hot for the next several months, but as we lap higher prices it should subdue. Shelter also remained a large weight on the report as it increased 5.7% over the last year and accounted for about two-thirds of the annual increase in core CPI. I feel like I sound like a broken record, but I continue to believe that this is heavily distorting the numbers and is it declines over the remainder of the year it should be a benefit to both headline and core CPI. I don’t believe this report does anything to change the expectation for three cuts in the back half of the year. PPI I was somewhat surprised to see the negative reaction to the February Producer Price Index (PPI). It seems as if people were fixated on the monthly jump of 0.6%, which doubled both the estimate and January’s reading of 0.3%. Looking year-over-year though the numbers still look quite manageable. The headline number increased just 1.6% and core PPI, which excludes food and energy was up 2%. I don’t think this report should have a major impact on the Fed’s expected interest rate direction. 401k It's no secret that I'm a big advocate of saving in your 401k, but I was surprised to see that according to a recent survey 77% workers believe that the unavailability of pensions is making it harder to achieve the American dream and 83% say all workers should have a pension to be independent and self-reliant in retirement. I was also surprised to see some UAW members are still unsatisfied with the automaker’s retirement plans as some are continuing to push for pensions. A Ford spokesperson recently shared the current retirement structure at their company, "The company contributes 10% of employee base wages, plus $1 per hour worked (capped at 2,080 hours a year), with zero employee contribution required.” I would take that over a defined benefit plan any day. 401ks give participants the power to grow their wealth more effectively, they are much better estate planning tools, and they are much more portable if changing employers. The key is you have to take accountability and actually participate in your 401k to reap the benefits. Bitcoin Peaking Point I admit it myself that I have no idea where bitcoin will peak. But the truth is, no one does. I do know that demand is high right now because Wall Street continues to build their ETF’s to collect their fees, which I have talked about before. But can we please get off some of the comparisons of Bitcoin to make one feel better, especially the one with gold and saying it is a digital gold. The value of all mined gold is around $15 trillion. A good portion of that is in gold jewelry. I know when I buy a gift for my wife like a gold bracelet or necklace, she’s going to be pretty happy, but I can’t even write the words how to compare if I gave her a gift somehow of a Bitcoin that she can open and do something with it. I think if I would try, I could be sleeping on the sofa that night. Also, let’s stop saying this will be the replacement currency if the dollar falls. Just think of the calamity the country would go through with a fall of the dollar in the United States. Do you think you will still be able to plug into the Internet and access your Bitcoin? You may not even have electricity to plug-in your electronic devices like phones, computers and laptops? Let’s really understand what Bitcoin is, it is a speculative game that is being played right now, and it really cannot be used for anything that is really of any value. There are smart economists like David Kelly from JPMorgan who have similar feelings. He recently told Barron’s, “I worry about the silly decisions investors make. People get misled by all sorts of fads and fantasies as to how they should invest. I worry about the money that’s been poured into things like Bitcoin, which is absolute nonsense. It is simply a focus of speculation. I worry that someday that’ll all go poof and people will lose money.” I’ve said it before, but congratulations if you have made money on Bitcoin, if you want to continue to hold it you should really think through what it is. If you don’t have a sound answer, you should sell it. Tax Brackets vs Your Tax Rate Most people believe tax rates are going up, which may be true. With the level of government spending and debt, it is logical to conclude taxes will need to increase to keep up. Starting in 2026, the federal tax brackets are set to increase due to the sunset of the current tax rates implemented in 2018. We may also see further tax increases to address issues like the deficit or Social Security. However, there is a difference between the tax brackets and the tax rate you will experience as an individual. Just because tax rates increase, doesn’t necessarily mean the rate you will be subject to will be higher or that your tax bill will be higher. Currently the federal tax rates are 10%, 12%, 22%, 24%, 32%, 35%, 37%, and they are expected to change to 10%, 15%, 25%, 28%, 33%, 35%, 39.6%, which is technically an increase. These are brackets which means the more income you have, the higher you get pushed into the brackets. What most people don’t understand is that your individual level of income will also fluctuate up and down over time, not just the tax brackets. In retirement you have much more flexibility in choosing where your income comes from, so while you’re working you might find yourself in the 4th tax bracket which is 24%, but in retirement with the right planning you may get to the 2nd tax bracket which could be 15% at that time. Even though tax rates increased, your tax rate could go down because you will be in a lower bracket due to your income level. I’m not saying taxes aren’t a problem in retirement, because they absolutely can be, but the way to address them is to understand how your individual income will change over time so you can take advantage of the tax system all along the way. Military Spending We can’t build those chip factories fast enough here in the US to make sure we can fabricate our own chips. Why do I believe that? It was released that China increased its military spending by 7.2%, this adds to the 20 years of increasing their defense budget. They now have sophisticated new weaponry and cyber capabilities along with military bases in Africa, Cambodia, and other areas around the world. Back in November, President Biden met with President Xi and he was not shy to mention that one day Taiwan will be unified with China. I’m happy to see China’s continued difficulties with their economy. This makes it more difficult for them to spend on a military budget. As our economy continues to grow here in the United States, we can continue to strengthen our military. It is nice to know that in 2022, the United States spent $812 billion on the military. I remember a saying from a long time ago from President Theodore Roosevelt to “speak softly and carry a big stick.” I hope the United States’ stick is big enough and going forward we continue to invest heavily in our military. Apple Stock Apple stock has struggled this year as there have been concerns about the health of its business in China and potentially another weak iPhone cycle. More bad news is coming because Europe’s new Digital Markets Act is going to give Apple some difficulty. In Europe, Apple will now have to allow third-party App Stores and also provide alternative payment options on their platform. Going back to 2007 when the iPhone first came out, they have had a closed ecosystem keeping competitors off their platform. How many phones in Europe this will affect is the question? Overall, Apple has about 33% market share of the mobile market in Europe. This could be a hit on Apple’s revenue and also open the door for other options on mobile phones that are less expensive than Apple. Experience in Investing I’ve been in finance or accounting for I hate to say it, but looking at 45 years. I love the experience that I’ve accumulated over all those years, but then I realize oh shoot, I’m old. I guess the only good thing about being old is how much wisdom you accumulate over those years. I have said many times over my years that the average investor returns on their entire portfolio overtime about 3%. Why is this? It is because the average investor spends very little time understanding what they are investing in and they want to be part of the latest fad or speculation that will give them great returns. Investments like technology and other high flyers (I will include Bitcoin here) are not invested in because the investor is buying something of value for today or tomorrow, but instead are looking for a quick get rich scheme. Unfortunately, today’s investors invest in things like Bitcoin, cannabis and too many others to mention not because they understand the value, but because it has gone up in price. Over my many years, I have always tried to look out for and help the small investors and tell them if you’re earning an 8 to 10% return per year on average over long-term on your entire portfolio you’re doing pretty well. But, if you’re regular reader of our social media post you’ll see some people push back on this and try to give me all kinds of reasons why Bitcoin or whatever the hype investment they’re into will make them a lot of money. I always try to be polite, but having been in the finance world for about 45 years I have seen a lot and I realize that experience and wisdom is more valuable than youth, excitement and ignorance. Legal Immigration Our economy is doing OK and our job market is strong with many unfulfilled positions. I have said many times I am for legal immigration. We need people to come into our country who want to work and while I do believe many people that are coming in illegally really just want a better life for them and their families and will work hard for that, we still need the immigration to occur through a legal process. Behind-the-scenes, the government agrees with this because back in 1986 employing undocumented immigrants was a criminal offense. However, on a yearly basis, only 15 to 20 employers are prosecuted for violating this law and the penalties are very low at between $676-$5404 per worker for the employers first offense. It is very obvious to me that the government realizes the benefits of people coming to our country to work at jobs that have high vacancies. Democrat or Republican I think it would be better if we focused on legal immigration and allowed immigrants to work and pay taxes above board. We could then focus on building our economy and spending money to keep out the terrorists and drug dealers that are currently slipping through. Maybe that’s too easy of a concept for the government to understand? Banning TikTok I can’t even believe that there’s a debate about getting rid of TikTok here in the United States. Do young people not realize the data that the Chinese government, which is a communist government, is getting? They are building so much information on what we are doing here in the US. Think about what they now know. The communist government of China now knows what our young people favor to buy, where to go, and their vulnerabilities. The young people of our country need to wake up and be on the side of banning TikTok. BlackRock If you’re a Bitcoin enthusiast, you’re probably telling everyone you know that the big Wall Street firm Blackrock, which back in 2017 said Bitcoin was for money laundering, is now a proponent. Why has Larry Fink, CEO of Blackrock, done a U-turn? If you understand how they charge fees for the Bitcoin ETF, it becomes clear. Blackrock will earn 0.12% for the first $ 5 billion in assets or the first year of the funds launch. After the first year or once the fund hits $5 billion, the fee will essentially double to 0.25%, so there’s a huge incentive for them to get more people into this fund. Surprise, they are already at $5 billion and are now charging the 0.25%. At my firm, Wilsey Asset Management, we are a fee based advisory firm and our fees work the opposite of BlackRock in this case. For an account of $100,000 our fee is 1.5%, but if you invest $2 million with us your fee drops down to 0.6%. Generally, the more money that is invested the lower the fees, which sounds fair to me. But the greed on Wall Street seems to be getting worse as time goes by. I don’t believe this will end well for the small investor. Growing Economy While February Retail Sales missed the headline number, we still saw a 1.5% increase compared to last year. I believe this is consistent with an economy that is still growing, but at a softer rate. Gas stations had a negative impact on the report as lower gas prices lead to a 4.5% decline on spending at gas stations. If this was excluded from the headline number, Retail Sales would have come in at a more impressive 2% increase compared to last year. As food price inflation has leveled off, spending at food and beverage stores has moderated and the report showed a gain of just 0.4% compared to last year. I would say less pressure on prices for food and energy is a positive for the consumer. Areas of the report that remained strong included nonstore retailers (+6.4%) and food services and drinking places (+6.3%). Building material & garden equipment & supplies dealers (-6.1%) and furniture and home furnishing stores (-10.1%) continued to be two categories that are struggling. Unions I’ve never been a big fan of the unions, but now they have definitely gone too far. Laura Sacks, the regional director of the National Labor Relations Board (NLRB), concluded that the basketball team at Dartmouth college, an Ivy League school, are employees and have the right to control the work performed by the men’s basketball team. They will be part of the 1500 Union members of SEIU local 560. I’m sorry but aren’t they supposed to be going to school to get an education to enter the workforce when they graduate? Playing a sport in college is a privilege and part of the college experience, so what is the team going to do? Are the players going to picket the games if they’re not happy with whatever the union comes up with that, they should be unhappy with? Fortunately, this will take years to play out in the courts, but the NCAA will have to pay attorneys to defend the legal challenges of the union. The sad news is this will line the attorneys’ pockets with money which is money that could be used to give scholarships or reduce tuition.
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