Crypto Crash, ETF Complexity, Dark Pools, Tax-Free Social Security?, Vanguard Greed, Harvard Endowment Doubts, Charity Boom, Manufacturing Labor Gap, Gen Z Spending Drop & Investing in OpenAI?

How much will EV car makers lose in credits? The nations Corporate Average Fuel Economy, or CAFE, standards are still in place; however, penalties for violating those standards have been removed. So obviously there’s no incentive for any car maker to abide by them. The National Highway Traffic Safety Administration is focusing on standards to try to make cars more affordable again. But the big EV car makers, I will call them the big three which are Tesla, Rivian, and Lucid will have some difficulties. The credits were tradable and the EV car makers were making a lot of money selling the credits to car makers who were not meeting the required standards. Tesla will probably be OK, but I think their stock could be at risk because the credits have amounted to more than $12 billion in revenue since 2008 and that essentially is pure profit. In the most recent quarter Tesla said a loss of the credit revenue will reduce revenue by about $1.1 billion. Rivian, whose stock price in May finally showed some sign of hope trading above $16 a share has now dropped back down to around $12 a share and has said they had received over $400 million in revenue over the years and the credits accounted for 6.5% of the total revenue in the first half of 2025. I do believe with the loss of the credits and lower gas prices, Rivian may have trouble staying afloat in future years. Lucid will probably be hurt the most as they said the credits represented a significant share of their revenue. I have not looked at this company recently, but I still believe their balance sheet looks very risky and this could be the final nail in the coffin for this business. A couple years ago the stock was trading around four dollars a share and it is now trading just above two dollars a share. I’m pretty confident we will not see this company around in the next two or three years. The winners in this situation are the legacy automakers that were buying the credit, GM for example has spent $3.5B since 2022 to purchase CAFE credits. Stay away from interval funds! I have been seeing more of these interval funds when we take over accounts for new clients and let me tell you I am not a fan of them. They appear to be normal mutual funds, but when you go to sell them, you find out you can only sell once per quarter. The other problem is when you enter the sell, the next day you realize you still own shares in the fund. The reason for that is product’s unique structure typically allows investors to redeem just 5% of a fund’s assets! I’m sure most people have no idea when their advisor or themselves buy these funds that they will be locked in them for years to come. For example, I first saw these about 4 years ago with a new client and we still have not been able to fully exit the position. The reason withdrawals are limited is because the funds generally invest in illiquid assets, so managers want to make sure investors can’t exit in masse and force the manager to sell securities at fire sale prices. As many of you know, we are not fans of illiquid investments because if things go south, you have no way of exiting these positions in an efficient manner. The allure here for many is that retail investors with less investible assets generally don’t have the same access to as many private equity, venture capital, real estate, and private debt deals, so interval funds enabled those investors with minimums as low as $1,000 to gain exposure to the space. I would not recommend investments in any of those assets, but it just appears these are sold as a way for people to invest “like the wealthy”. A big problem here is the fees are just crazy! According to Morningstar, of the 307 interval fund share classes currently available, the median fund’s total expense ratio is 3.02%. A big reason for the high fees is they include the cost of leverage, which these funds use in many cases to amplify returns…. That doesn’t risky! Even if we exclude leverage costs though, the median expense ratio is still 2.18%. Brian Moriarty, a principal on Morningstar’s fixed-income strategies team had some interesting things to say after researching the space. He concluded before deducting any fees or incorporating any leverage, there was little difference between private-credit interval funds and public bank loan mutual funds and exchange-traded funds. However, after incorporating leverage, interval funds have beaten traditional loan and high-yield bond funds, as they’ve had about 1.3 times exposure on average to such debt in a rising market, but the problem is they will also have that exposure in a falling one. Needless to say, you will not fund us buying any of these funds in our portfolios at Wilsey Asset Management! ESPN just launched a new streaming product and I’m more confused than ever! I like streaming because it gives more flexibility in choosing what you want to watch, but gosh there are so many different apps and so many different bundles to choose from now. I believe it has just gotten more and more confusing and companies seem to keep increasing the prices for their services. Just this year Netflix increased their prices for various tiers, but the tier with ads went from $6.99 to $7.99, Peacock went from $7.99 to $10.99, and Apple just recently went from $9.99 to $12.99. Apple has been aggressive with pricing considering in 2022 you could get the service for just $4.99 and I personally believe it may be the worst value as I don’t think their content justifies that price point. In terms of new services, ESPN just launched it’s new service to allow consumers access to its programming without needing to get cable, but the price is quite high at $29.99 per month. Fox also just announced its new streaming service for $19.99 per month. You add these services to other like Disney+, Paramount+, HBO Max, and Hulu and the costs seem to just get quite ridiculous. For me I don’t use all the services so I save money on streaming vs traditional cable, but during football season they really get you. Since the league splits its games among so many providers you’re almost forced to have Fox, ESPN, Peacock, Paramount+, Amazon Prime, and now even Netflix carries some of the games. I’m not even going to throw in Sunday Ticket into that mix, which now costs almost $480 for returning users. It’s now gotten to the point where I wish these sports leagues would just go direct to consumer to keep things simple. What do you think, has the complexities in streaming gotten out of hand? Financial Planning: Form SSA-44 to Reduce Medicare Premiums When you retire, your income often drops significantly, but Medicare bases its Income-Related Monthly Adjustment Amount (IRMAA) on your tax return from two years prior when you may have been earning much more. This can result in unnecessarily high Medicare premiums at the start of retirement. For example, in 2025, a married couple with income above $212,000 begins to trigger IRMAA increasing premiums by $1,000 to over $6,000 per person per year depending on how high the income is. If that couple retires and their income falls to less than $212,000, they would still be charged the higher IRMAA unless they file Form SSA-44 to report “Work Stoppage” as a life-changing event. By filing, Medicare will use their new, lower income to set premiums, potentially saving thousands of dollars per year. If you’re nearing retirement or have recently retired, beware of the Medicare costs and consider filing this form to avoid paying too much. A new week and another warning about risks with the S&P 500 Many investors feel comfortable with the S&P 500 because it keeps going up and investors feel that it will continue. We can’t tell you when it will decline, but I believe it will and let me give you some scary information when it comes to risks with the S&P 500. Technology now accounts for almost 35% of the index and that is an increase from 32% at the end of 2024. Seven years ago it was just 20%. You may be surprised by this, but tech companies like Meta, Alphabet, Amazon and Tesla are not considered technology companies. If you were to add those to the tech weighting, which I believe most people would consider them tech companies, technology makes up 45% of the entire index, that’s scary. Another concern with the overconcentration in the market is Nvidia with a market cap of $4.4 trillion, now accounts for 8% of the entire index. It’s crazy when you compare that number to the entire healthcare sector at $4.7 trillion and energy at $1.5 trillion, which is now just 3% of the index. With investing it is important to understand what price an investor is paying for the sales of a company. On a historical basis, paying 10 times for the sales of a business used to be considered way overvalued. Today, Nvidia trades at over 20 times 2025 sales and the hot stock Palantir is around 100 times sales. Healthcare, energy and financials are looking far more attractive trading at 15 times earnings rather than the top line sales. Tech companies trade at higher valuations because they generally have less expenses on capital expenditures like an energy company would have, but AI has changed that considering Alphabet will probably spend somewhere around $85 billion in expenses this year compared to only $52 billion in 2024. Meta is estimated to spend about $70 billion on capital expenditures, nearly twice the $39 billion it spent in 2024. No one knows when the big downturn will come, but I’m sure you’ve heard the old saying, the higher it goes the greater the fall. Investors need to be aware of what they’re paying for their investments and not think that it will continue to go up just because it’s gone up in the past. Is your 401(k) worth less than you would like? I’m sure many people would like to see their 401(k)s much higher than they are, but unfortunately that wish is not a reality for many people. Even though 401(k)s across the US now total over $12 trillion, there are still people that are way behind in saving for a good retirement. It is not the fault of the 401(k), it is generally the fault of the saver/investor. Why? Such things we have talked about in the past like not rolling over your 401(k) when you go to a new employer or taking early distributions for what you thought was an emergency. Workers who are 45 to 60 years old known as generation X have an average balance in their 401(k) of $192,300. It is not that much higher for baby boomers who are at or are very close to retirement and have an average balance of only $249,300. At our firm, we have used a 6% distribution rate for our income accounts over 25 years and even at that rate a retiree based on the baby boomer’s average balance would only receive $1245 per month in retirement. The 401(k) is a long term investment and it requires some sacrifice and discipline, but in my mind there’s no reason why a 25-year-old earning $60,000 a year should not become a 401(k) millionaire. Besides the obvious of not investing enough or taking money out during the accumulation phase of your retirement, poor investment decisions are a big problem as well. If a 401(k) investor can average even seven or 8% per year and invest 15% of their salary, which would include the company match, a $1 million 401(k) is easily obtainable. People become too emotional in their 401(k) when they see a drop of 10 maybe even 20% and they panic and move everything to the money market or bonds, forgetting that retirement is five, 10, maybe 15 years or farther away. We also tell people that even when you retire at 65 you still have at least another 20 or 30 years of investing and should not be all in bonds or money markets during retirement. If you have a good advisor, they should be there for you when times get difficult, which they will, and not just tell you to stay the course, but explain to you in understandable terms of why your investments may be down now and why they are still the right investments for the long-term. Target date funds have been pushed by many as an easy way to hit your retirement goal and nearly 60% of plan participants were invested in a single target date fund in 2024. That is an increase of 50% from just 10 years ago. The problem with target date funds is the fees can be excessively high and even if you pick the correct year for your target retirement date, you may find that you’re invested too conservatively and not have enough exposure to quality equities. At our firm, Wilsey Asset Management we do not recommend target date funds but more of a managed approach using value investing, which has proven to be a great investment strategy for many years. A warning for 401(k) investors! There is a lot of pressure to allow private investments into 401(k) plans and I believe these will benefit the fat cats on Wall Street more than the individual investor. I highly recommend that you avoid these high fee, high risk investments. The federal government is reducing taxes and some states are now going to increase their taxes. Not all states will do this, but if you live in Washington, Rhode Island, Connecticut, California, or New York, in 2026 you may see higher state taxes. The states will generally be going after couples with a combined income of over $500,000 or individuals making around $250,000. The way states will likely try to get more revenue is by increasing tax rates on annual incomes, capital gains, or putting levies of some sort on luxury vacation homes. We won’t even imagine what their plan is for estate taxes. It is possible that even though many politicians of these states don’t think it will happen, many high income people may decide to move to another low tax state. I have seen this happen before and with states like California already having the highest tax bracket at 13.3%, if they increase the tax rate further and start taxing people on their second homes, it may make sense and save people tens of thousands of dollars by moving to another state. I think politicians are blind to this and don’t realize that these high-income individuals spend a lot of their income on purchases and services. When they leave the state, that is revenue that other businesses have lost and that does not include the lost revenue on sales tax and wages other people earned from those purchases and spending that came from those higher income individuals. Stock buybacks could be the highest in over 40 years With markets at all-time highs, why would public companies be buying back their stock? It is unfortunate, but many times they’re not looking at the true value of what they’re paying for their own stock but are trying to boost their stock price by buying their own stock. It is forecasted for 2025 that stock buybacks will hit $1.1 trillion and that is a high going back to 1982. However, if you look at the number on an inflation adjusted basis, I think you would find it is not that spectacular. Also, with market capitalizations higher for many companies, the percent of the outstanding shares being purchased may not be that large. So, while the headline looks good about companies buying back a higher dollar amount of stock, a smart investor will look at how much the company is paying for the stock and how much the buyback is reducing the shares outstanding. Bed Bath and Beyond is returning, but not in California Two years ago, Bed Bath & Beyond filed for bankruptcy as the business struggled with inventory, debt and cash flow and they had to close their doors. You may remember Marcus Lemonis, who was the star of the show on CNBC called the Profit. He’s a smart businessman and has run many businesses and now he is the executive chairman of the new Bed Bath and Beyond. He is very excited about bringing Bed Bath & Beyond back and will be opening roughly 300 stores nationwide within the next couple years. The first opening will take place in Nashville, Tennessee on August 29th and I was glad to see him stand up to California and say they will not be opening any stores in the state because California is one of the most over regulated, expensive and risky environments to run a business compared with anywhere in the United States. He says California has made it harder to employ people and make a profit as a business. He was accused of not wanting to pay his employees, but he said that was not true and they pay their employees very well but they don’t want to have the state of California tell them how to run their business. Even though there will be no brick and mortar locations, the company will still have an online presence for people in California. He also said he is tired of California bragging about being the 4th largest economy in the world, but yet taxes it’s citizens and businesses at unreasonable rates. There have been other businesses that have left California and I think that trend will continue with less businesses coming to California until Sacramento wakes up to the reality that people and businesses have pretty much had enough and California needs to get its state finances in order and stop wasting money! The markets loved Powell’s speech in Jackson Hole, BUT....! After Federal Reserve Chairman, Jerome Powell, spoke at Jackson Hole, the markets surged as they apparently loved what they heard. Like everyone else we are very pleased with the movement in our portfolio, but we are also realistic and people must understand that there’s a lot of time between now and the Federal Reserve meeting that starts September 16th when the Federal Reserve meets to determine what to do with interest rates. When I listened to the speech, two things stood out to me. First, I could hear concern about the most recent employment numbers, but I also heard concern about the tariffs and inflation. What really concerns me and should concern you as well is September 16th is a couple weeks away and during that timeframe, we will get the PCE report (Personal Consumption Expenditures Price index), a jobs report that will be released on September 5th, and also another CPI report (Consumer Price Index). This is important data and if there is more signs of inflation from the PCE and the CPI and improvement in the jobs numbers, it is possible that Chairman Powell will decide to stay the course and hold interest rates where they are. So enjoy the nice increase, but we still recommend being cautious and remember valuations are really high for many stocks.

Unfortunately, more Americans are using their 401(k)’s for financial emergencies I’m sure some will disagree with me based on the headlines arguing they were so happy that they had their 401(k) to tap for whatever their financial emergency was. In my opinion, people are thinking short term and not thinking about the long-term crisis when they retire in 20 or 30 years and then might be living at the poverty level because their 401(k) was not large enough to generate a decent income and social security was far less than they thought. I also want people to understand based on how fast medical technology is moving, in 20 to 30 years you may be spending more time in retirement than the 20 years or so that you were thinking. The numbers are frightening when I look at them and I have wished many times that the 401(k) would eliminate the ability to access funds before retirement like the old pension plans from companies. According to Vanguard, 2024 saw a record of 4.8% of workers that took a hardship distribution for a financial emergency. This was more than double the 2% level in 2019. Even more frightening was nearly 33% of people decided to take and cash in their 401(k) when they changed jobs in spite of the fact of paying taxes and penalties as opposed to rolling that retirement over to an IRA rollover or their new 401K plan. Congress in their infinite wisdom has made it easier to qualify for withdrawals from 401(k)’s for emergencies. I believe the Congress that set up the 401K in 1978 under The Revenue Act of 1978 did not envision the raiding of 401(k)’s for emergencies. I’m pretty confident in 1978 Congress felt this would be a great retirement plan for all Americans, not an emergency fund of to pay off debt. I highly recommend before people take any money out of the 401(k), they talk to a real financial professional to understand the taxes and penalties they are paying. It’s not just the taxes and penalties, and one should also figure out the future value of what that account could have grown to and how that withdrawal could devastate their retirement! Inflation report shows some positives and some negatives The July Consumer Price Index, also known as CPI, showed an annual increase of 2.7%, which was in line with June’s reading and below the expectation of 2.8%. The headline number was helped by energy, which showed an annual decline of 1.6%, largely thanks to a decline of 9.5% for gasoline. Energy services on the other hand were not as favorable considering an increase of 5.5% for electricity and 13.8% for utility (piped) gas service. I do wonder if the power demand for these large data centers is starting to put a strain on the grid and I worry this could become even more problematic. As for core CPI, which excludes food and energy, it was up 3.1% from a year ago and was slightly above the forecast of 3%. This was a slight increase from the 2.9% level in June and the highest annual increase since February. Surprisingly, shelter continues to be a large reason for the elevated inflation rate as it was still up 3.7% compared to last year. In terms of tariffs showing up in the report, it still appeared to be subdued. Furniture was up 7.6% compared to last year, but other areas that I would anticipate seeing pressure like apparel and new vehicles saw little change. New vehicle prices were up just 0.4% compared to last year and apparel prices were actually lower by 0.2%. I did see an economist point out the fact that core goods inflation on an annual basis registered the largest growth in over two years, but at 1.2% I wouldn’t say that is putting strain on the economy. These tariffs will likely put continued pressure on inflation, but if other areas like shelter continue to see less inflation that could counteract that pressure and keep overall inflation in a manageable situation. Based on the slowing labor market and these manageable levels of inflation I do believe the Fed should cut in September. What does the national debt surpassing $37 trillion mean for you? On Tuesday, August 12th, the United States national debt passed $37 trillion for the first time ever. The debt is growing at about $6 billion per day, but that appears to be better than last year. In July 2024, the national debt passed $35 trillion and then in November 2024 it surpassed $36 trillion. Looking for some positives here, it did take nine months for the debt to grow another $1 trillion to the $37 trillion mark. At the end of the second quarter, debt to GDP stood at 119.4%, which is manageable but should not go much higher. Hopefully we can have a slowdown in debt expansion or maybe even a reversal and still have the GDP increase. The reason having a high national debt is a negative is it takes investment out of the private sector to fund our national debt, which can slow down the growth in our economy. A large national debt can also cause interest rates to increase as the need for more debt often means offering higher interest rates to attract buyers. It is also important to know that even when the Federal Reserve cuts interest rates, that generally has a larger impact on the short end of the curve, which includes instruments like treasury bills. Your long-term debt, such as 5–10-year notes are not controlled by what the Federal Reserve does and instead is based on supply and demand. It would not be a wise move for the government to only issue short-term debt for a lower rate because if rates were to increase in the future for whatever reason, that could cause our national debt to grow out of control and potentially cause a financial collapse. Also, keep in mind that generally mortgage rates align with the rates for longer term debt and now with some car loans being six or seven years, the interest rates for those loans will probably not drop because they are now longer-term loans not the old 3-to-4-year loans they used to be. We are not in trouble yet, but we are getting close to the edge and we need to grow the economy and still reduce the national debt so our country can continue to prosper and grow. Financial Planning: Changes Coming to Charitable Giving The One Big Beautiful Bill Act, signed on July 4, 2025, delivers some new changes coming to how charitable giving may be deducted. For the first time since the pandemic-era CARES Act, those who claim the standard deduction will be able to deduct cash donations up to $1,000 for single filers and $2,000 for joint filers. This will act as an above-the-line deduction in addition to the standard deduction. For itemizers, however, the law imposes a new 0.5% of AGI floor, meaning only contributions above that threshold will count toward deductions, potentially reducing benefits for those making smaller annual gifts. For example, a tax filer with an AGI of $200,000 receives no tax benefit on the first $1,000 (.5%) of donations. Also, itemizers are not able to take advantage of the $1,000 to $2,000 above-the-line charitable deduction that standard deduction filers can. In addition, high earners who are in the 37% tax bracket will only receive a 35% deduction on charitable donations. All of these changes go into effect in 2026, so those claiming the standard deduction may want to wait until then while itemizers and high earners may want to make donations before the end of the year. Pack your bags, it’s a good time to visit Las Vegas 2025 has not been a good year for Las Vegas in regards to revenue and visitors. Through May 2025, visits to Las Vegas were down 6 1/2% compared with the first five months of 2024. Occupancy in the hotels was down nearly 15% in June when compared to June 2024 and the revenue per available hotel room was down 19% in 2025. Since the pandemic in 2020 when revenue fell 55% and only 19 million people went to Las Vegas, the city has seen growth each and every year through 2024. In 2021 visitors came on strong increasing 69% to just over 32 million visitors and last year 42 million people went to Las Vegas, which was close to the same numbers they experienced in 2019. Part of the reason for the decline is Las Vegas has continued to be blind to consumers spending and are still charging higher prices for everything from rooms to meals and expecting higher tips as well. We are now more than halfway through 2025 and I think the consumer is in the driver seat to ask for and receive good discounts for rooms, meals, and entertainment. If you don’t get what you want at one casino/hotel contact another one or two and don’t be shy about telling them that you’re comparison-shopping because they want your business. Have fun, but be sure to budget your spending at the gaming tables and slot machines. It looks like customer service at the Social Security office is improving. After Senator Elizabeth Warren came out and blasted the Social Security Administration, Frank Bisignano, who is the commissioner of the Social Security Administration, released some interesting facts about their improvement. He said now 40% of field office visits are scheduled in advance compared with 18 months ago when no field office visits were scheduled in advance. What was even more impressive was in July 2025 the time to answer a phone call was 7.6 minutes, compared to the same time last year when people were on hold for 27.6 minutes before their call was answered. This also allowed the administration to answer 33% more calls. To help with fraud detection and improve their service, the administration has also installed artificial intelligence programs to try and catch fraudulent players. For years customer service has been non-existent at the Social Security Administration and while they still have a long way to go, I believe it appears there has been some improvement and hopefully we’ll see even more improvement as time progresses. Do you or do you know someone who has talked to the Social Security Administration recently? Did they have a good or a bad experience? There’s been a big surge in delinquent student loan accounts Recently, the Federal Reserve Bank of New York released data showing in the second quarter of 2025 10.2% of student loans were considered delinquent. Total student loan debt now stands at $1.64 trillion which was an increase of $7 billion from the first quarter of 2025 and I was surprised to learn who the worst offenders were. If I didn’t see the data myself, I would think the younger generation or those maybe between 18 to 29 years old would be more likely to be in a delinquent status vs the older generation or those who are over 50 years old. Looking at the numbers, starting with the worst generation those over 50 years old were 18% delinquent. It improved as the ages got younger with the 40- to 49-year-olds showing 14% of them delinquent and 30 to 39-year-olds were 11% delinquent. As I said, the surprise was in the 18 to 29-year-olds where only 8% of those loans were delinquent. As I think about it, I believe part of the reason for this could be that those that are between 18 and their early 20’s is likely still accruing debt and aren’t in the repayment phase yet. I do believe this will improve going forward as I think some of the people that had student loans did not realize that it was now time to pay them back and if they didn’t, it would be reported to the credit agencies. It’ll be interesting to see where we stand in six months. Eastman Kodak is still around? This past Monday, Eastman Kodak announced a filing with the Securities Exchange Commission, also known as the SEC, that there is substantial doubt that the company will stay in business. Well, it was a surprise to me and maybe you as well that the company was still around. I thought for sure this company was gone years ago. Back roughly 30 to 40 years, Eastman Kodak, which was known simply as Kodak, held 80% of the US market for film development. They were actually the pioneer in developing the first digital camera in 1975, but they pulled back on that idea because they knew it would hurt their film development business. I guess they thought no one else would invent a digital camera. However, as the years passed companies like Canon, Sony and Nikon develop their own digital photography and the rest is history as they say. The company did file bankruptcy years ago and emerged from bankruptcy protection in 2013. Unfortunately, they have been unable to capture any type of real market share in any business as it tried to switch to commercial printing and technology. It even did some licensing deals with clothing stores Forever 21 and Urban Outfitters to sell their products. The stock trades under the symbol KODK and is around five dollars per share. I see no reason why to gamble on buying this stock and this post was mostly just about a walk down memory lane. Are producers eating the tariffs? The Consumer Price Index didn’t seem to have much impact from tariffs, but the Producer Price Index, also known as PPI had a big headline miss as the monthly increase of 0.9% greatly exceeded the expectation of 0.2%. This was the largest monthly gain since June 2022. Core PPI, which excludes food and energy, also was problematic with a monthly increase of 0.9% vs the expectation of 0.3%. Even with the potentially concerning monthly increase, the annual gains of 3.3% for headline PPI and 2.8% for core PPI don’t look overly problematic. It does appear that producers are absorbing some the potential prices increases from tariffs as goods inflation for the month was 0.7%, but services really drove the monthly increase with a 1.1% gain. One of the main areas that drove this was portfolio management fees as they surged 5.4% in the month. This was likely due to a rising stock market and definitely had nothing to do with tariffs. My standpoint at this time remains that tariffs still are not showing up to a major extent for the mass economy, it will be interesting to see if they do have a larger impact in the months ahead. The consumer is still spending! Even with all the concerns around the economy, the consumer is apparently ignoring them and choosing to still spend money. July retail sales showed a nice gain of 3.9% compared to last year and they were even more impressive when excluding the decline of 2.9% at gasoline stations as growth was 4.5%. Outside of gas stations, only two other major categories saw declines with electronics & appliance stores falling 2.3% and building material & garden equipment & supplies dealers declining 2.6%. Strength was broad based in the report, but areas that stood out included nonstore retailers as sales increased 8%, food services and drinking places advanced 5.6%, health & personal care stores were up 5.6%, and motor vehicle & parts dealers climbed 4.7%. With strength like this I can see why the Fed is in a pickle when it comes to lowering rates. If the economy is strong, why would they need to goose demand with a rate cut? On the other hand, you don’t want to be late to the party and start cutting after the slowdown takes place. It will be interesting to see what conversations Fed members have between now and September.

Will the stock market crash? With the market continuing to march higher and setting record high after record high, I do worry more and more that a crash could be coming. It doesn’t mean it will happen tomorrow, next week, or maybe even this year, but I do believe the risk to reward of investing in the S&P 500 at this point is not favorable when you take all the data into consideration. I have talked a lot about the fact that the top 10 companies now account for nearly 40% of the entire index and the forward P/E multiple of around 22x is well above the 30-year average of 17x, but there are also less discussed factors that are quite concerning. There is something called the Buffett Indicator that looks at the total US stock market value compared to US GDP. Buffet even made the claim at one point that this was “the best single measure of where valuations stand at any given moment." The problem here is that it now exceeds 200%, which is a historic high and well above even the tech boom when it peaked around 150%. Another concerning measure is the Shiller PE ratio, which looks at the average inflation-adjusted earnings from the previous 10 years in relation to the current price of the index. This is now at a multiple around 39x, which is well above the 30-year average of 28.3 and at a level that was only seen during the tech boom. While valuation isn’t always the best indicator for what will happen in the next year, it has proven to be a successful tool for long term investing. Unfortunately, valuations aren’t my only concern. Margin expansion is even more frightening as the reliance on debt can derail investors. Margin allows investors to buy stocks with debt, but the big problem is if there is a decline and a margin call comes the investor would either have to add more cash or make sells, which causes a further decline in the stock due to added selling pressure. Margin debt has now topped $1 trillion, which is a record, and it has grown very quickly considering there was an 18% increase in margin usage from April to June. This was one of the fastest two month increases on record and rivals the 24.6% increase in December 1999 and the 20.3% increase in May 2007. In case you forgot, both of the periods that followed did not end well for investors. Looking at margin as a share of GDP, it is now higher than during the dot-com bubble and near the all-time high that was reached in 2021. One other concern with the margin level is it does not include securities-based loans, which is another tool that leverages stock positions and if there is a decline could cause added selling pressure. Unfortunately, this data is not as easy to find since they are lumped in with consumer credit. The most recent estimate I could find was in Q1 2024, they totaled $138 billion and with the risk on mentality that has occurred, my assumption is the total would be even higher now. We have to remember that we now are essentially 18 years into a market that has always had a buy the dip mentality. Even pullbacks that occurred in 2020 and 2022 saw rebounds take place quite quickly. This has created a generation of investors that have not actually experienced a difficult market. I always encourage people to study the tech boom and bust as it was devastating for investors. The S&P 500 fell 49% in the fallout from the dotcom bubble and it took about 7 years to recover. Investors in the Nasdaq fared even worse as they saw a 79% drop and it took 15 years to get back to those record levels. Unfortunately, this isn’t the only historical period that saw difficult returns. If you look back to the start of 1964, the Dow was at 874 and by the end of 1981 it gained just one point to 875. This was an extremely difficult period that saw Vietnam War spending, stagflation, and oil shocks, but it again illustrates that difficult markets with little to no advancement can occur. So, with all of this, how are we investing at this time? We are maintaining our value approach, which generally holds up much better in difficult markets. For comparison, the Russell 1000 Value index was actually up 7% in 2000 while the Russell 1000 Growth index fell 22.4% that year. We are also maintaining our highest cash position around 25% since at least 2007. I continue to believe there are opportunities for investors, it just requires discipline and patience. One other person remaining patient at this time is Warren Buffett. Berkshire now has near a record cash hoard of $344.1 billion and the conglomerate has been a net seller of stocks for the 11th quarter in a row. I’d rather follow people like Buffett at times like this over the Meme traders that have become popular once again. Consumers are doing a better job managing their credit card debt Data released by Truist Bank analysts show that card holders of both higher and lower scores are doing a better job paying their bills on time. This is based on a drop in the rate of late payments from last quarter. Also improving is debt servicing payments as a percent of consumers disposable personal income. The first quarter shows debt-servicing payments were roughly 11% of disposable income, which is a strong ratio to see considering that level is below what was typical before the start of 2020 and it’s far below the 15%-plus levels that were seen leading up to the Great Recession in 2008. According to Fed data, card loan growth was only 3% year over a year, which could be due to lenders increasing their credit standards. Stricter standards also made it more difficult for subprime borrowers to obtain new credit cards considering the fact that as a share of new card accounts, this category accounted for just 16% of all new accounts. This was down roughly 7% from the last quarter in 2022 when it was 23%. Consumers may also be more aware of the high interest costs considering rates stood at 22% as of May. There has been a decrease in rates from the peak last year, but Fed data reveals before interest rates began rising in 2022 interest rates stood at 16% for card accounts. If the Fed were to drop rates a couple of times between now and the end of the year, we could see a small decline in the rate. With that said borrowing money on a credit card and accruing interest is a terrible idea as even a 16% rate would not be worth it! Real estate investors may be supporting the real estate market. This may sound like a good thing, but this could be dangerous long-term since investors don’t live at the property. It would be far easier for them to default on the mortgage and let the house go into foreclosure or sell at a price well below market value just to get their investment back. So far in 2025 investors have accounted for roughly 30% of sales of both existing and newly built homes, which is the highest share on record. This is according to property analytics firm Cotality and they started tracking the sales 14 years ago. Most of these investors were small investors, who own fewer than 100 homes as they accounted for roughly 25% of all purchases. This compares to large investors which accounted for only 5% of purchases of new and existing homes. Within the small investor space, the stronger category is those with just 3-9 properties as this group has accounted for between 14 and 15% of all sales each month this year. The data also shows that the large investors like Invitation Homes and Progress Residential have become net sellers in the market and are selling more properties than they are buying. This is likely due to reduced rents from the high competition in the rental market and a softening of the overall real estate market in certain areas that has not provided the expected return that they wanted. I do worry that the small investor here has less access to good data and is less disciplined with their investment strategy. They are likely buying homes because real estate has been a good investment for the last several years, but if the market were to turn, they would be more likely to panic and sell and they may not have the means to continue holding the real estate. I do believe if interest rates remain, housing prices could remain stable or perhaps even drop a little bit. It’s important to remember long term mortgage rates generally stem from longer term debt instruments like a 10-year Treasury, rather than the short-term discount rate set by the Fed. Financial Planning: When and How a Refinance is Helpful After several years of elevated mortgage rates, steady declines have made more homeowners candidates for refinancing, but a smart decision requires looking beyond the headline interest rate. The first question is whether the refinance actually reduces the rate, and if so, what third-party closing costs and discount points are involved. Every mortgage carries these costs, and paying points may not make sense if rates are expected to fall further and another refinance could be on the horizon, especially since few 30-year mortgages last their full term before a sale or another refi. The structure of the new loan also matters: should costs be paid upfront or rolled into the loan balance, and how long will the loan likely be kept? The real goal is to borrow at the lowest overall cost over the life of the loan, factoring in both the rate and the cost to obtain it. A lower rate and payment may feel like a win, but without careful structuring, it may not be the most cost-effective move, something mortgage brokers often overlook when focusing solely on rate reduction. Here’s a real example from just last week. A homeowner with a $580,000 mortgage at 6.875% and a $3,900 monthly payment has the opportunity to refinance to 5.5%, lowering the payment to $3,500 with no additional cash due at closing, and saving roughly $80,000 in total interest over the life of the loan. At first glance, this looks like a no-brainer. However, this structure would only be ideal if the homeowner never had another chance to refinance, which is unlikely given their current rate of 6.875%. In this case, all costs were rolled into a new loan balance of $616,000—an increase of $36,000—explaining why no cash was required at closing. A better approach might be to refinance to a rate only slightly lower than 6.875%, still reducing both the monthly payment and lifetime interest, but without dramatically increasing the loan balance by rolling in discount point costs. Refinances can continue as long as rates are expected to decline, and the best time to pay points is in a “final” refinance when rates are no longer expected to drop so the benefit can be locked in for the long term. Is any man worth a $24 billion pay package? I’m obviously talking about the new pay package that has been put together for Elon Musk to stay at Tesla. The company is trying everything to keep him focused on Tesla as opposed to the many other endeavors that he ends up getting involved in. Mr. Musk said it is not about the money and that he doesn’t want to commit to a company and then a year or two later be thrown out by a group of activist investors who want to go a different direction than he does. If Mr. Musk were to receive this pay package, which would be about 96 million shares worth approximately $24 billion, he would have to stay at the company for two years either as CEO or as some other type of an executive head. At the end of the two years, he would have to pay $2.2 billion to vest the roughly 96 million shares. It also appears at that time the company would have to take some type of accounting charge for the roughly $24B. This could all change if the Delaware Supreme Court rules in favor of the previous $50 billion worth of stock options that was approved by shareholders, but has faced roadblocks as courts felt Mr. Musk had too much influence with the directors in that deal. While I’m not a fan of the overvaluation of the stock, I have to say it is a great company and has done great things. I do believe much of the top talent would leave if Mr. musk decided to leave and that would likely lead to many problems for the business. I also believe if he was not part of Tesla, the stock would take a huge hit, perhaps as much as a 50% decline! Small companies buying crypto, what could possibly go wrong? The crypto craze has caught on with some small businesses, including small public corporations likely trying to boost their stock price. In the last couple of months almost 100 companies have announced that they will be raising almost $50 billion to buy bitcoin and other cryptocurrencies. Since the beginning of 2025, almost $90 billion dollars has been raised to purchase cryptocurrencies on their balance sheets. You may be wondering if this is a smart move, I have to say no and it appears to be done for greed. There have been reports of companies’ stocks jumping 200 to 300% after the announcement only to fall back very close to the price before the announcement. It appears some company executives were able to profit on these moves as it has been reported some executives sold shares after making the announcement, giving them a nice windfall before the stock dropped. I thought it’s interesting to note that Meta and Microsoft had shareholder proposals to see if their shareholders wanted to add cryptocurrencies to their balance sheets. The shareholders voted it down by a wide margin. The board of directors also recommended voting against the idea. The craziness of cryptocurrencies continues and I will continue to remind people, the only reason why bitcoin continues to go up is people continue to buy it. Unfortunately, most are only buying it due to the fear of missing out, rather than for a fundamental reason, which never ends well. Company reports show the consumer is still doing well We look at a lot of data to get a pulse on the consumer, but sometimes the best source is to see what businesses are saying, especially consumer focused businesses. This past week we got earnings from several companies that rely on the consumer and overall, the economy still looks healthy. Uber reported bookings for mobility were up 18% compared to last year and bookings for delivery were up 20% compared to last year. I was surprised it’s a pretty even split with mobility accounting for $23.76 B of revenue in the quarter and delivery accounting for $21.73 B of revenue. CEO of Uber, Dara Khosrowshahi, also added, “At this point, we’re not seeing weakness in the consumer. It’s steady as she goes, and for Uber, that’s great news.” Shopify also had good news with Q2 sales surging 31% year over year to $2.68 B. Shopify President, Harley Finkelstein, said, “So far we’re seeing no slowdown from the tariffs and that includes up until early August, where we are today. The millions of stores on Shopify are doing really, really well.” Looking at Disney, the company had some weakness in the traditional TV business, but the experiences segment, which includes theme parks, resorts, cruises, and some consumer products, did very well. Revenue for this segment was up 8% to $9.09 billion and domestic theme parks were even stronger with revenue up 10% to $6.4 billion. There was an increase in spending at theme parks and higher volumes in passenger cruise days and resort stays. The CFO, Hugh Johnston, said, “I know there’s a lot of concern about the consumer in the U.S. right now. We don’t see it. Our consumer is doing very, very well.” There are companies reporting softness and concerns, but I do believe the consumer as a whole is still doing alright at this time. Proof that increasing the fast-food worker minimum wage in California hurt more than it helped Politicians in Sacramento a year ago thought it would be a great idea to help people out working in the fast-food industry by giving them a raise to $20 an hour. Our concern when it was announced was that businesses would have to either increase prices or cut staff and use automation, or maybe a combination of the two. Based on recent numbers, 18,000 fast food workers have lost their jobs and employment in the fast-food industry is down 3 to 4% because employers are putting more money into automation versus hiring new employees. This is sad because many of these jobs were helping out kids in high school or college. I always thought it was a great space for kids to earn a little bit extra money and now many of those jobs are gone. Minimum wage is always a tough subject to discuss, but ultimately businesses need to make a profit to survive and if labor costs become too problematic businesses will look for other alternatives. Luxury brands still seem to be struggling It has now been two years since luxury brands like Christian Dior, LVMH and Cartier, just to name a few, started having problems with declining sales and struggling stock prices. It appears younger consumers, like Gen Z shoppers have really exited the luxury space considering last year sales to this cohort fell 7%, which is roughly a $5.7 billion decline in spending and the biggest pullback of any of the generations. Evidence of continued problems for these retailers was LVMH’s 9% decline in Q2 sales from one year ago. Those in generation Z were born between 1997 and 2012 and their ages range from 13 years old to 28 years old. This group grew up with the Internet, smart phones, and social media and may not be into high fashion as much as what is going on digitally. They also seem to be more excited about experiences rather than material items. This could also hurt prices in the secondhand market as the appeal to pay thousands of dollars for purses or other luxury brands seems to be declining. The secondhand market is currently booming with demand as consumers realize they can get luxury brand items below the initial cost. It should also be noted that for the last few years, the economy has been doing rather well and that has likely helped increase prices. Unfortunately, it’s possible that some of these luxury items that people paid high prices for end up selling them for $.50 on a dollar or maybe even less when a slowdown in the economy appears.