SMART INVESTING NEWSLETTER
AI Boom, Bond Allocation, Tariffs on Chinese Goods, Mortgage Payments, UAW, Oil Companies, Travel Season, Walmart Sales, Stock Buybacks and the PC Market
Brent Wilsey • May 24, 2024
AI Boom
You may have missed the AI boom in NVIDIA, but for patient longer-term investors there could be a good investment opportunity in energy going forward. As more companies begin to use AI, the demand for energy will increase. Keep in mind that this is on top of expected growth in the electric vehicle market and if it continues on in future years, cryptocurrency is also a drain on electricity to mine all those silly tokens. To give you an example on the power needed for AI, a ChatGPT request takes roughly 10 times as much power compared to if one did a Google search. Based on some research from Bank of America, they estimate that the current demand for electricity from datacenters is currently one to two percent, but in the next seven years that could increase to eight percent. There will be some great opportunities for the investor who is looking out 3 to 5 years, if they invest in good fundamentally strong companies. The nice thing about many energy companies is they also pay a decent dividend while you wait for the investment to grow.
Bond Allocation
When we see potential clients come to our firm for a consultation and we see they have a 10% to maybe 30% allocation of bonds, I just scratch my head and wonder what the broker was thinking. Maybe they weren’t. Even the Bond King, Bill Gross, who managed the PIMCO Total Return Fund and who was largely responsible for bringing the investment firm PIMCO from assets under management of $12 million to around $2 trillion has said he now dislikes bonds and is investing money in other areas. He had some of the best returns of bond fund managers, but it came at time of declining interest rates from 1981 to 2020 that is now over. With long term interest rates at current levels, I believe the best return that investors could hope for is probably the coupon rate which on a 10-year treasury will be somewhere around 4.5%. This will not only hurt bonds; I believe it will also lead to disappointing returns in the old asset allocation model of 60% in equities and 40% in bonds over the next five to ten years. So, if your broker or advisor has part of your money in bonds, you may want to ask why. I would say be prepared for the weak answer of something to do with asset allocation or that it has worked in the past. In other words, they are taking the easy way out rather than doing some hard research for your portfolio going forward.
Tariffs on Chinese Goods
I was happy to see the Biden administration boost tariffs on Chinese goods from electric vehicles to steel and aluminum. Unfortunately, I’m worried about Newton’s law that for every action there’s an equal and opposite reaction. The Chinese government will probably counteract against these measures by targeting the imports that they receive from us and US businesses. Two that come to mind are Apple’s iPhones and Tesla’s cars. That would hurt these companies and I believe that’s what the Chinese want to do in response. The Chinese economy is suffering and they are producing far more than they can absorb domestically. As an example, they are now producing seven times the number of electrical vehicles they did in 2019 and consumers don’t have the money to buy them. They have also been a big producer of solar cells and they too are up 500% between 2018 and 2023. China has seen their global exports increase by 14%, but exports to the G7 countries now only count for 29% of those exports. This is far below the 48% it was in the year 2000. My guess would be that they are selling more to other third world countries. This means the prices will not be as high as they could get selling to the G7 countries. One area of concern with these tariffs is higher prices in the US and as we are fighting inflation these tariffs will increase the price of products not just from China, but here in the US we may produce some of those products at a higher cost, which makes reducing inflation more difficult.
2 Monthly Mortgage Payments
Making a payment every two weeks only makes a difference because at the end of the year you will have made 26 half payments (13 full payments) instead of the normal 12. This basically means you are paying extra toward the principal which will reduce the loan faster. If you were to actually pay twice a month for a total of 24 payments over the year, you will see no difference than if you had made 12 full payments. This is because with mortgage loans, the interest is based on the balance of the loan at the end of each month, so whether you pay 1 full payment or 2 half payments, the balance at the end of the month is still the same meaning the monthly interest is the same. This is different than other loans like credit cards or HELOCs where interest is calculated based on the average daily balance. With these loans making multiple smaller payments will reduce the amount of interest due and will pay it down faster. With a normal mortgage, the best way to make payments is once per month two weeks after the payment is due. For example, your May payment is due June 1st but you will not have any extra interest or penalties if you pay by June 15th. If you make your payment sooner, those funds are essentially set aside by the lender and not applied to your loan until June 15th, so there is no benefit by making your normal payment early. If you want to make extra principal payments in addition to your normal payment, it is best to make that extra payment at the end of the month. However, this should only be done if you have a high interest rate.
UAW
Mercedes workers in Alabama told the UAW to go home, we don’t want you here. 56% of the workers voted against unionizing, which was a big blow to the UAW. The union had been on a roll with aggressive union leader Sean Fain. Some of the workers who were against unionizing said they didn’t like the idea of paying dues because they’re unsure how the money will be spent. Another concern was the UAW can spend their money on political campaigns and politicians that they don’t agree with. It all makes sense to me, but one thing I don’t think people realize is the UAW is a big business itself. Over the next two years they’ll be spending $40 million of dues they collected from union members to try and convert other auto companies like BMW, Toyota and Tesla. I’m not sure how that would help a worker at a General Motors plant or a Ford manufacturing facility. It is interesting to note that the UAW has assets of over $1 billion.
Oil Companies
Governor Newsom of California seems to have it out for the oil companies. He plans on imposing a tax on refineries’ gross margins, which is the difference between wholesale gasoline and crude prices. Keep in mind that refineries do operate on a rather thin margin and I believe this new tax will ultimately be passed on to consumers at the pump. It’s also important to note there is a difference between gross margin and operating margin. Gross margin does not account for operating costs like employee pay. According to the commission’s data, refiners lost between 10 and 38 cents on each gallon they produced from October 2023 through February 2024, while their gross margins ranged from 56 to 79 cents a gallon. In December, California refineries lost 31 cents a gallon while the state imposed $1.15 a gallon in taxes and regulatory fees. This will also come around the same time that the California Air Resources Board prepares to tighten its low carbon fuel standard and greenhouse emission cap. These regulations currently add around $0.54 to the price of a gallon of gasoline. New rules could increase the price of gas by an estimated $0.88 per gallon in 2026 and rise to over a dollar by 2031. California refineries also supply about 90% of Nevada’s gasoline and half of Arizona’s gasoline, so they will also see price increases. Keep in mind they’re not going to be reducing any taxes and while the cost of true gasoline may stabilize or come down in the future people in California could be paying $6-$7 a gallon for gas while the rest of country is paying roughly half of that. And who does this hurt the most? The lower and middle-class. Maybe we’ll need to launch another task force in a few years to figure out why our gas prices are so high.
Travel Season
Memorial Day kicks off the big summer travel season and it appears that there’ll be no increase in the cost of flights versus last year as consumers have become more cost conscious on what they’re paying. It is expected that after the hot summer season prices may drop as much as 30% in the fall. If you can hold off on your travel until then, you could save yourself a good amount of money. If you’re looking for other tips to save money, apparently demand is lower on Tuesdays and Wednesdays and therefore prices should also be lower.
Walmart Annual Sales
I was surprised to learn that Amazon still has not surpassed Walmart in annual sales. For 2023, Walmart had sales of $648 billion, which was still $73 billion more than Amazon’s $575 billion in sales. With Amazon‘s growth rate on the previous year's revenue at 12%, it is double Walmart's rate of 6% and means in the next couple years they will likely be head-to-head in terms of annual sales. Walmart is not going down without a fight as they are the largest grocer in the US. Unfortunately for Walmart, Amazon is expected to grab 20% of US grocery market by 2030. Walmart has worked on improving some of the brands it offers especially in home goods with Drew Barrymore's Beautiful and their Better Homes and Gardens brands. Walmart is also working on profitability as it is cutting hundreds of corporate jobs and joined the ranks of other corporations that are asking most of their remote workers to move back to the office. As I have said before when companies look towards improving efficiency, I believe employees working from home would be the first target to be laid off or forced to come back in the office.
Stock Buybacks
Companies are sitting on mountains of cash and have decided to use some of it to repurchase their own stock. Part of the way through the first quarter earnings season, companies reported $181 billion of stock buybacks which was an increase of 16% from the prior year's quarter. While I like to see buybacks, there are considerations investors should have. I have seen too many companies over the years repurchase their stock at too high of a price only to see the stock price fall after the buybacks were completed. This leaves shareholders disappointed as it resulted in a waste of capital. Also, I will remind you to verify that the company is not borrowing money to repurchase their stock, especially with these higher interest rates.
PC Market
It was just a short couple years ago when the PC market looked like it was done forever and no one would buy a PC again. We said it would bottom out and that would be the time to invest in PCs. We seem to have hit that point as last year PC sales were down 14.8%, which was the second year in a row they had a double-digit decline. Data from the first quarter of 2024 shows PC shipments have now reversed course and grew 3.2%. As PCs get older, the batteries become less efficient and they appear to be slower than when you first bought them. The numbers now boggle my mind and I can’t even put my arms around them. Apple’s M4 processor can handle 38 trillion operations per second. This has created a new acronym called TOPS, which stands for trillion operations per second. Unfortunately, Microsoft says to use AI on PCs, the minimum requirement is 40 TOPS. Going forward, there could be value investing opportunities in computer makers with lower valuations, rather than the high valuation companies like the chipmakers.
Are tariffs impacting inflation yet? The Consumer Price Index, also known as the CPI, in the month of June showed an annual increase of 2.7%, which was in line with expectations. Core CPI, which excludes food and energy, came in at 2.9% and was also in like with expectations. It was slightly above May’s reading of 2.8%, but given all the news around tariffs I think most would be surprised to see the limited change in prices given all the concerns. Some economists that tried to find evidence of the tariffs pointed to areas like apparel that had an increase of 0.4% compared to the month May. My concern with pointing out limited areas like that is prices can be quite volatile when looking at single areas, plus if you look at prices for apparel compared to last June, they actually decline 0.5%. Shelter is becoming less of problem for the report, but it is still the largest reason why inflation remains stubborn considering the annual increase was above the headline and core numbers at 3.8%. I’m still looking for these tariffs to have an impact on inflation, but as a whole they didn’t seem to have a large impact in the month of June. I also want to point out I don’t think they will be as problematic for consumers as some economists have illustrated. Is the market in a bubble? I have been hesitant to use the word bubble when describing the current state of the market, but as valuations get more and more stretched, I must say I believe we are now in bubble territory. Apollo’s chief economist, Torsten Slok, released a graph showing the 12-month forward P/E today versus where we were in 2000 and other 5-year increments. The forward P/E for the market as a whole is higher than it was back in 2000, but Torsten raised further concerns that valuations for the top 10 companies in the index are now more stretched than during the height of the tech boom. This is problematic considering these ten companies now make up nearly 40% of the entire index. Even looking at just the top 3 companies: Nvidia, Microsoft, and Apple, those now account for nearly 20% if the index. I recently heard a gentleman say on CNBC that valuations don’t cause bubbles to pop and while that may be true, when a catalyst comes the larger the bubble, I worry the larger the pop. All I can say at this time is be careful if you are investing in the index as a “safe”, diversified investment as I believe it is far riskier than many people believe. Retail sales show another strong economic data point Even though people remain concerned about a slowdown in the economy, their fears haven’t showed up yet in their spending habits. In the month of June, retail sales climbed 3.9% compared to the previous year. Due to the lower price for gasoline, gas stations were a large negative weight in the month and actually declined 4.4% compared to last June. If gas stations were excluded from the headline number, retail sales grew at a very impressive annual rate of 4.6%. Strength was broad based, but I was surprised to see areas like health & personal care stores up 8.3% and food services & drinking places up 6.6%. These are two areas that show me people are still getting out and spending money, which generally wouldn’t happen in a weak economy. There are some areas where consumers may be trying to get ahead of tariffs like motor vehicle & parts dealers, which saw an annual increase of 6.5% and furniture & home furnishing stores, which saw an increase of 4.5%, but it has now been a few months of strong sales in these categories. It will be interesting to see if there is a slowdown in those specific categories in the coming months as there could have been some pull forward in demand with consumers trying to beat those tariffs. Even if that is the case, spending still looks strong in areas not impacted by the tariffs, so I anticipate the consumer will remain healthy. Given the current state of the consumer, I still believe the economy is in a good spot overall. While I’m not looking for blockbuster growth, I’d be surprised to see anything close to a recession given all the recent data. Financial Planning: What’s the Deal with These “Trump Accounts” for Kids? Under the new One Big Beautiful Bill, children under 18 are eligible to open special long-term savings accounts, nicknamed “Trump Accounts”, with a unique blend of benefits and caveats. Kids born between 2025 and 2028 will receive a $1,000 seed deposit from the U.S. Treasury, regardless of family income. Parents, relatives, and friends may also contribute up to $5,000 per year in after-tax dollars. The account grows tax-deferred, and extra contributions (but not the Treasury seed or earnings) can be withdrawn tax-free. However, like a non-deductible IRA or non-qualified annuity, withdrawals of earnings or seed money are taxable at ordinary income rates, and early withdrawals (before age 59½) face a 10% penalty unless used for qualified purposes like a first-time home purchase or education. While the free $1,000 should be taken advantage of, families may find that 529 plans, Roth IRAs for teens with earned income, custodial accounts, or even accounts in a parent’s name offer better long-term flexibility and tax treatment for ongoing contributions. Why are the markets hitting new highs? The markets, which are heavily based in technology, still continue to hit highs, even with uncertainty with interest rates, the economy and world trade. I’m not sure who is doing all the buying, but I know with our portfolio when new money comes in we are being very cautious and only investing 20 to 25%. We are being patient and waiting for the right opportunity to invest the new money strategically. We will be ready to invest when there’s a pull back and we can find companies to buy at much more reasonable prices, which should enhance our investors long-term returns. Some warning signs away from the regular stock market would be M&A activity in the second quarter did less than 11,000 deals and that was the lowest level since 2015, excluding the pandemic. Also, when wealthy investors feel good, they generally invest in art and it appears they are concerned as well. Based on sales numbers from the three big auction houses Christie’s, Sotheby’s, and Phillips, there was a decline of 6.2% in global sales for the first six months of 2025. Experts who analyze art investors say concerns include inflation, growth and geopolitical tensions. Another concern in the art world was the percentage of artworks sold at auction with negative returns has increased to 50%, which rose dramatically since 2008 when the percentage of artworks sold at auction with negative returns was only 11%. I will keep ringing the bell for investors to be cautious and day by day you may see some tech stocks rise but we seem to be at a tipping point. Diet drugs known as GLP-1 are hitting some headwinds Diet drugs, along with stocks like Eli Lilly, have done very well especially considering their stock has more than doubled since the beginning of 2023. In late August 2024, the stock of Eli Lilly was as high as $970 per share, but there has been push back in 2025 because of the high costs for these drugs. Today the stock is around $800 per share. Medicare and numerous state benefit plans have declined to pay for the new weight loss drugs because of the high prices and CVS’s pharmacy benefit manager Caremark recently said it is removing coverage of the drug. The company said this will save their clients 10 to 15% year over year. If other pharmacy benefit managers or insurance companies follow the same path, it could be a big hit to the diet drug industry. Some medical professionals and drug companies are complaining that insurance companies should not be dictating what drugs their patients have access to. I have been concerned that if insurance companies covered these drugs, insurance premiums, which are high already could go even higher as more people want an easy way to lose weight. Some people who are on the diet drugs will be upset, but most people that pay for health insurance will likely be pleased not to see their insurance premiums rise. I personally believe health insurance premiums are high enough already. A FICO score is no longer the only game in town After years and years of pretty much being a monopoly, the FICO score, which is run by Fair Isaac Corporation, has competition. Mortgage lenders can now use what is known as VantageScore 4.0. This model was developed by a joint effort between Experian, Equifax and TransUnion. VantageScore has already been adopted pretty well with credit cards and auto lending, but is having a hard time breaking into the mortgage lending business. FICO says its scoring model is used for over 90% of mortgage credit decisions in the United States. Fair Issac has seen its stock dramatically increase in value over the years largely because the fee that FICO charges credit bureaus has increased from sixty cents seven years ago to almost 5 dollars today. VantageScore 4.0 appears to be a little more thorough as it incorporates alternative data like rent, utilities, and even telecom payment history, while the traditional FICO models have ignored these types of payments. It makes sense to me, but it could make it a little bit harder for some consumers to have a good credit score. Fair Isaac’s monopoly appears to be doomed in the coming years, which should benefit consumers but shareholders of the stock will probably suffer because it will likely hurt the growth in earnings for the company. Even with tariffs, producer prices have seen little increase After seeing little lift in prices in the Consumer Price Index, I thought it was possible producers might be covering part of the cost from tariffs. That wasn’t the case as the June Producer Price Index, also known as PPI, showed an increase of 2.3%, which was below the 2.7% reading in May and marked the lowest level since September 2024. Core PPI, which excludes food and energy, came in at 2.6% on an annual basis, the smallest gain since July 2024. Perhaps one thing we continue to discount in the US economy is the fact that it is driven by services rather than goods, which could help reduce the burden of tariffs. As I said with CPI, I am still looking for inflation to increase in the coming months, but it definitely was not a problem in the month of June. China should not own any US farmland I was happy to see that Brooke Rollins, who is the US Secretary of Agriculture, is working with state lawmakers to prevent any US farmland from being bought by the Chinese or other countries of concern. Through the back door, the Chinese already own some farmland through a company that does not sound Chinese at all, Smithfield Foods. 93% of Smithfield’s stock is owned by WH group, which is a Chinese pork company. The Chinese are very sneaky in how they do things because I’ve heard of Smithfield Foods before and from the name, I had no idea that they were majority owned by the Chinese. The Chinese also have other entities that own roughly 300,000 acres of farmland that supplies food for our nation. It is not a big amount yet, but I believe it should be stopped immediately. If the Chinese had more ownership in our food supply from farmland, they could use it as a weapon against us by either stopping food production or increasing prices rapidly to cause inflation across the country. I hope that all the politicians will work together on this to prevent and hopefully even try to reverse what ownership the Chinese have of our farmland. Should interest rates be lower? There are some good reasons why here in the US interest rates should be lower. The current fed funds rate in the United States is between 4.25% to 4.5%. We are the strongest country in the world, but yet there’s other countries that aren’t as strong like Japan that has an equivalent rate of 0.5%, Cambodia has a rate of 0.45%, and Switzerland has a rate of 0.25%. We have the largest economic powerhouse to pay our debt so it makes no sense to me why those countries have lower interest rates than the United States. Unfortunately, the interest expense on the national debt is just about to top $1 trillion. With lower interest rates, the interest expense would decline and it would in theory leave more money to go to principal. The key would be to make sure this money goes to pay down the principal and not to other government programs, which unfortunately has happened in the past. The concern from the Federal Reserve is if they lower rates, we’ll see an increase in inflation. I continue to believe that the tariffs might cause a one-time price increase rather than imbedded inflation, so I believe it would be a mistake to hold off on cutting rates much longer. A major reason I believe this is the tariffs would not stoke a major demand increase, which would be problematic if that increase occurred. What generally causes inflation is too much money chasing too few goods, so if there isn’t a huge surge in demand, I believe long term we should be alright. A big question on the other side though is how this would impact supply. If supply was drastically cut, I do see how inflation could become problematic, but I personally don’t see that concern at this point in time. One other area to consider is these tariffs are helping with the government’s budget as they are bringing in roughly $30 billion a month to the United States. What are your thoughts? Do you think the Federal Reserve is way behind on reducing interest rates?
Crypto losses increase 66% in 2024 At first you may be saying I thought Bitcoin has been increasing in value? While that is true, you have to remember that is only one of the many thousands of cryptocurrencies that are available. According to the FBI in 2024, there was 149,686 complaints for total losses of $9.3 billion. It was somewhat surprising to learn that people over 60 years old, who I thought knew better than to gamble with cryptocurrencies, was the most with losses totaling nearly $3 billion. If you live in California, Texas or Florida that’s where the most complaints came from with a cumulative loss of $3 billion. Mississippi was also largely impacted as the number of crypto scams per thousand was the highest at 42.1. Even though there are a far higher number of investors and larger dollars in stocks, the SEC reported nationwide just 583 enforcement actions for stock scams or stock complaints in 2024. These complaints included charges against advisors for untrue or unsubstantiated statements. Interesting to note there’s now something called AI washing, which charges firms for making false or misleading statements about their use of artificial intelligence. It is hard to make a comparison of stock scams and fraud versus cryptocurrencies, but with the far higher number of people investing in stocks vs cryptocurrencies I think it is safe to say that your risk of being scammed in stock investments is far lower than being scammed when dealing with cryptocurrencies. So not only are you taking a higher market risk by investing in cryptocurrencies, but you are also taking on the risk of being ripped off as well. Have ETFs become too complicated? The first ETF, which stands for exchange traded fund, was launched about 30 years ago. They were simple in design and you generally bought them because they held a set group of stocks or bonds using an index and charged a low fee. Today, there are now over 4000 ETFs that are listed on the New York Stock Exchange. This is more than the 2400 individual stocks listed on the exchange. In 2024 alone, 700 new ETFs were launched and 33 of those tracked cryptocurrencies. The assets have ballooned to $11 trillion and now account for 1/3 of money invested in long-term funds. Some of that growth has come from open end mutual funds, which have lost $1.2 trillion in the past two years. There are now 1300 active ETFs, which actually manage the portfolio for you like a mutual fund. A big difference is those funds can now be sold during market hours. With open ended mutual funds, you have to wait until the close of the market and then sell at the closing net asset value for the day. Nearly half of the 1300 active ETF were launched last year. It gets difficult for investors with over 4000 choices to decide which is best. Back in 2020, Cathie Wood grew to fame with her actively managed ARK Innovation ETF. The fund shot up 150% that year and assets hit $28 billion. Today, the NASDAQ composite has a five-year cumulative return of 108% and the ARRK fund has seen a decline of 2% and the assets are now under $7 billion. If you’re investing in an ETF to benefit from commodities, understand generally they use future contracts to track the underlying commodity. Commodity futures are not a perfect vehicle and they generally work better for speculators that do short-term trading. One exception to this is the SPDR gold shares which is a trust that holds the actual gold. In my opinion, it is far easier to analyze one company to invest in and then build a portfolio rather than trying to understand some of these ETFs that can use leverage or future contracts or whatever. I worry investors could be blindsided when they least expect it. What is a dark pool exchange? A dark pool exchange is an off the exchange platform where institutions can trade without broadcasting their buying or selling intentions publicly. People wonder why when we invest at Wilsey Asset Management we buy a company with the intent of holding it 3 to 5 years. For those who think they can do better by trading you are taking a toothpick to a gun fight. Exchanges and market makers make up nearly 87% of the daily trading volume, but these dark pools are trying to step in and do more of the trading, which I believe will leave the small investor in the dark and they might not know what certain stocks are trading at. I’m getting rather disgusted with how Wall Street is acting like the Wild West. FINRA another regulatory body seems to be OK with this and will be collecting fees from the dark pools. Fortunately, for the past two years, the SEC has not approved this form of trading, but with the new administration and the new SEC chairman, who seems to love the Wild West of trading, I’m sure we’ll see more of this craziness going forward. This does not mean that investors on Wall Street cannot do well. To be frank, I don’t care if we miss a penny or two on a trade since we are looking down the road 3 to 5 years, but if you’re doing multiple trades per day that penny of two adds up. This also seems to be adding a lot more volatility to the markets. This volatility will scare investors out of good quality investments because of what they are seeing on a daily basis and not understanding what is going on behind the scenes. Remember if you are investor, you are investing in a small piece of a large company and there are millions if not billions of shares that are trading so don’t worry about the short-term movements. Instead, make sure the investment you made was of good quality with sound earnings and a strong balance sheet that can weather any storm, even these dark pools. Financial Planning: Is Social Security Now Tax-Free? One of the major topics surrounding the One Big Beautiful Bill (OBBB) was the taxation of Social Security. Now that the bill has been signed into law, we know that the method used to tax Social Security remains unchanged—but many seniors will still see their overall tax liability go down. Most states, including California, do not tax Social Security. Federally, between 0% and 85% of benefits are reportable as income, meaning at least 15% is always tax-free. The taxable portion is based on a retiree’s combined income, which includes adjusted gross income, tax-exempt interest, and half of their Social Security benefits. This formula was not changed by the OBBB. However, the standard deduction is increasing substantially, which reduces taxable income and, in turn, lowers overall tax liability. Prior to the bill’s passage, a married couple aged 65 or older would have had a standard deduction of $33,200 in 2025 ($30,000 plus $3,200 for age). Starting in tax year 2025, that deduction can be as high as $46,700—a $13,500 increase. This results from a $1,500 increase to the base deduction for all filers, plus an additional $6,000 per person for those over age 65. Importantly, this extra $6,000 per senior (up to $12,000 per couple) is not technically part of the standard deduction—it is an above-the-line deduction that can be claimed even by those who itemize. This add-on begins to phase out when Modified Adjusted Gross Income exceeds $150,000 and is fully phased out above $250,000. As a result, taxpayers in the 10%, 12%, and 22% brackets are most likely to benefit. So, while Social Security is still taxable, more of that income may now be shielded from taxes due to the expanded deductions. Additionally, the bill prevents the federal tax brackets from reverting to higher 2017 levels in 2026. The brackets will now remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%, instead of increasing to 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. For retirees with taxable Social Security or other ordinary income, this means lower effective tax rates moving forward. In short, Social Security is still taxable—but seniors will likely pay less, or even nothing, thanks to these changes. Wall Street greed hits Vanguard mutual fund company Vanguard made its mark by charging low fees to investors, so I was disappointed to see that they are now looking at offering private investments to their clients. Private investments have become a booming business, not necessarily because investors are making a lot of money from them, but because the fees are far higher than regular investing and Wall Street loves higher fees. Vanguard is looking at developing with Blackstone an investment that mixes public and private assets. The exact fee was not disclosed, but I know it would be far higher than what they charge on their current mutual funds. I’m sure the founder of Vanguard, Jack Bogle, who was big on low fees will be turning over in his grave. Unfortunately, it’s not just Vanguard as other mutual fund companies like Franklin Templeton and Fidelity are hiring fund managers to build private investment teams internationally. Franklin Templeton already has a private investment fund that charges a 1.25% management fee and a 12 1/2% fee on all profits above a 5% return. Unfortunately, investors get sold these private investments with the hopes of higher returns and less volatility, but many times they don’t realize that their money could be tied up for as long as 10 years. They also don’t understand that the reason for the low volatility is that the investments are not marked to market on their true value, so no one really knows what these private investments are worth. I believe it is even more frightening that these will be allowed in 401k plans. Jamie Buttmer, who is a chief investment officer at Creative Planning, which handles over $350 billion for individuals and 401(k)s, stated with private equity how it is great for someone who wouldn’t in their wildest dreams qualify to invest in private equity can do so in their 401(k). I couldn’t disagree more as many times there’s a reason why they shouldn’t qualify for private investments due to the lack of liquidity and the high risk of loss. Unfortunately, those who benefit from private equity are expecting to see fees increase by $1.5 trillion by 2033. This will come at a cost to investors and I believe it will blow up with many investors losing more than they can handle. My advice as always is to stay away from private investments, no matter how good your broker makes it sound. Harvard may not really have $53 billion in their endowment fund Thanks to private equity, the $53 billion endowment fund for Harvard University may not really be worth $53 billion. It is estimated that nearly half or approximately $23 billion is in private equity funds. The problem for Harvard, which is the same for all investors of private equity is the valuations that are placed on private equity investments could be far off the true value. Harvard said it uses the net asset value, also known as NAV, and this is reported by the outside managers that manage their private equity. To me that sounds like the fox guarding the henhouse. I may always be a little bit skeptical of the greed on Wall Street, but there’s such a huge incentive for the managers to mark up the value of their private investments because their fees are based off of that investment value. This is a problem for the entire private investment sector because if the SEC could command and enforce proper valuations of the stated NAVs, they’d probably find so many that were overvalued and it would likely hurt the entire industry. I still would love to see the Securities Exchange Commission step in and force private investment firms to show real market values. Would investors want to own private investments if they realized they couldn’t legally depend on the numbers that they are being shown? I personally was glad to see that some universities are starting to reduce their exposure to private investments. Charitable organization did well in 2024 Both individuals and corporations felt very charitable in 2024 as they increased their donations over 6% to an all-time record of $592.5 billion. This generally happens when people feel that their wealth is increasing, which they saw in 2024 with a rising prices in the stock market and real estate. The growth did slow down, but overall it still remained positive. I have never heard of this type of donation before, but there’s something called mega gifts which are for those individuals who donate more than $600 million. In 2024 the mega gifts from individuals totaled $11.7 billion. This was an increase of over 40% from the mega giving total in 2023 of $8.1billion. The organizations in the US that received the most were religious groups, who received $146.5 billion. Humanities saw a 5% increase to $91.1 billion. Education, which could come in many forms saw a double digit increase of 13.2% to $88.3 billion. I think in 2025 we could see a reduction in charitable giving because of the uncertainty in the markets and a slowdown in real estate, which has largely been caused by higher interest rates along with the higher price of homes that have caused an affordability. There are a lot of manufacturing jobs that need to be filled I say it all the time, but not everyone needs to go to college because there are other jobs that can pay well and provide a good living for a family. I have talked about plumbers, electricians and carpenters, but people who work at a manufacturing plant should also be included in that realm. Across the country the average annual salary for manufacturing jobs is $88,406. This is according to the National Association of Manufacturers and the number does include both pay and benefits. According to another source, ZipRecruiter, manufacturing salaries range from just under $70,000 to over $100,000 and top earners can make as much as $110,000 annually. No surprise if one is just starting out with no experience the entry-level manufacturing positions will pay you somewhere between $15-$20 per hour. Going forward some of these jobs will be replaced by automation and robotics, but I believe there will still need to be humans to work with and run the machines. It is important for anybody in virtually any job to continue training going forward to keep up with changes in their respective field of employment. Just because you’re not a doctor or an attorney doesn’t mean you should not continue to learn and keep up with advancements in your field. If you do not continue to train and learn new things for your job, you could be replaced and have a hard time finding a new job with updated technology. 18 to 24-year-olds are spending less At first glance, it could be a good thing that this young age group is spending less and based on online and in-store spending it was down 13% from January to April of this year over last year. The hope would be that they’re spending less and putting more into their 401(k)s, but unfortunately that is not the case. From the year 2022 to 2024 this group experienced a 25% increase in difficulty paying expenses. They claim they are buried with debt which includes credit card debt and auto loans from over extending themselves trying to live an expensive lifestyle and buying cars they can’t afford. The Urban Institute shows 16% of those in this age group with a credit record have debt in collections because they can’t meet their financial obligations. The high cost of housing for this young group has been a tough hill to climb since many are still just starting out in the workforce and have not seen wages large enough to handle all their financial obligations. It is interesting to know that 39% of parents with children ages 18- to 24-year-old are still paying their children’s cell phone bill. Some of these young adults do work very hard, but some do not. I tell people who are struggling, there are 24 hours in a day, if you sleep eight hours in a day that gives you 16 hours to be productive, not including weekends which is another 48 hours. If you work eight hours in the day, you still have roughly eight hours left perhaps for a part-time job or some type of gig employment that could improve your financial situation substantially. They are still young at 18 to 24 years old and should have more energy than someone in their 50s. Can you invest in OpenAI and SpaceX on Robinhood? Robinhood made some big news when they announced a new “Stock Token” product on June 30th. They claimed the product would give investors the opportunity to buy shares in the form of blockchain-based tokens, even for privately held firms like OpenAI and SpaceX. The first problem here is that this is currently just for users in the EU, but even more troubling is it is not clear how this is an investment in these companies. OpenAI came out and said, “These ‘OpenAI tokens’ are not OpenAI equity. We did not partner with Robinhood, were not involved in this, and do not endorse it.” The company also said, “any transfer of OpenAI equity requires our approval- we did not approve any transfer.” They then warned users to be careful. I don’t know how it could be clearer that these so-called tokens have nothing to do with an ownership stake in these businesses. Even the CEO of Robinhood, Vlad Tenev, said, “It is true that these are not technically equity. In and of itself, I don’t think it’s entirely relevant that it’s not technically an equity instrument.” So, the big question is … What the heck are these things? Is it just a cryptocurrency that uses a company’s name? To me this truly exemplifies the state of the market and the fact that prices are distancing themselves from the actual fundamentals of these businesses. I would say this is just another concerning product in today’s world of investing. I wouldn’t necessarily say we are in a bubble at this point in time, but there are so many assets that appear to be approaching that level.
The June jobs number looks stronger than it really is I want to be clear; I wouldn’t say this was a bad report, but the headline number that showed an addition of 147,000 jobs in the month of June doesn’t show the full picture. The number did come in well above the estimate for 110,000 jobs and it follows upward revisions in the months of April and May that have totaled 16,000 jobs, but the concerning part I saw was government accounted for 73,000 new jobs in the month of June. This did not come from the federal government as that actually saw a decline of 7,000 jobs, but rather it was state and local governments which added a combined 80,000 jobs in the month, most of which came from education. The speculation is that this had something to do with seasonal adjustments and that obviously gains of that magnitude will not continue moving forward. Other areas that were strong included healthcare and social assistance, which was up 58,600, leisure and hospitality, which was up 20,000, and construction, which was up 15,000. Many of the other areas in the report were quite muted and manufacturing and professional and business services actually saw a decline of 7,000 jobs each in the month. There was good news on the unemployment rate as it ticked down to 4.1%, which was the lowest level since February and came in below the expectation for 4.3%. Unfortunately, this largely came due to the decline in the labor force participation rate, which dropped to 62.3%. This was the lowest level since late 2022. The problem here is the working age population continues to shrink, while the retirement population continues to grow. In fact the prime working age participation rate was recently near a record high of 83%. A potential problem to future job growth is the fact that we are running low on workers in their prime. This report largely erased any chance of a Fed rate cut in July, but I would say there was more positive news on the inflation front as average hourly earnings saw a manageable year over year increase of 3.7%. As I said, this wasn’t a bad report and in fact I would say it continues to show that the labor market is in a good spot for the most part, but it definitely wasn’t an overly strong report in my opinion. Job openings remain strong The Job Openings and Labor Turnover Survey, also known as the JOLTs report, showed job openings rose 374,000 in the month of May to 7.769 million. This easily topped the estimate of 7.3 million and it also comes during a month where layoffs declined 188,000 to 1.601 million. While this is positive for the economy and shows the labor market remains resilient, it does hurt the chances of a July cut from the Federal Reserve. Fed chair Powell during a panel said, ““In effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs.” With the labor market staying strong and many Fed members likely waiting for more data on how tariffs are impacting inflation, I would be surprised to see a cut in July. Although there have been a couple members saying a cut in July is possible, I still believe it would come as a surprise as many other members have expressed their desire to remain patient. I can see the case for a July cut, but I believe it is more likely we will see one in a couple months at the next meeting in September, if inflation remains in check. Why did Apple produce the new movie F1? Apple is obviously known for the iPhone, the iPad and the Mac, but a top producer of mega hit movies, not so much. Since 2019 they have tried to produce big hit movies like Killers of the Flower Moon in 2023 that starred Leonardo DiCaprio and Robert DeNiro, but the world box office receipts were only $159 million. Another hit movie they tried for that ended up as their top movie in 2023 was Napoleon with $221 million in box office receipts. So why did Apple agree to spend almost $250 million more to produce F1, which stars Brad Pitt? No one seems to understand. Brad Pitt will be paid $20 million for this movie and will get a cut of the films revenue if it’s a hit. It does have some chance for success since it was directed by Joe Kosinski and produced by Jerry Buckheimer, who were successful with Top Gun Maverick as that movie grossed $1.5billion in 2022. This past weekend F1 was the top box office hit with $55.6 million, but it appears to be struggling with the mass audience as most viewers were older men like myself who love cars and racing. I have not seen the movie yet but would like to soon. Apple seems to struggle in this space as it is spending billions of dollars annually but continues to lose on the development of hit movies. Apple TV+ only has roughly 27,000,000 subscribers and is known for subscribers canceling their subscription after watching a particular show or movie. Netflix has a 2% cancellation rate while Apple’s is 6% in any given month. It’s also interesting to note that the big movie production house Warner Brothers is responsible for distributing F1 and will receive a percentage of box office revenue that increases as ticket sales rise. There is some concern that in less than two weeks, Warner Brothers will be releasing their hit movie Superman and that could override the promotion of F1. If you want to see the movie F1 and you have Apple Pay you can get a discount on the tickets, which is something Apple has never done before. I won’t make any judgments on the movie till I see it myself, but I don’t see this boosting the lagging stock price of Apple and I do not understand why they’re in the movie business. Don’t be fooled by ultra-high-income ETF’s I wouldn’t think I would have to warn people that if you’re being offered a yield of 100% or more on a fund, the risk has to be extremely high and there is probably a good chance for loss. However, with that said this year alone $6.4 billion of new money has been placed into these high-risk funds that I assume are unsuspecting buyers who don’t really understand how these funds work. Regulatory filings show that at least 95% of these ETFs are held by individual investors or small financial advisors. The way they generate this high income is by trading options contracts on a single stock. It is misleading how they come up with those ultra-high yields of 100% plus as they take the ETF’s payout from option trading in the most recent month then multiply it by 12 and divide it by the fund’s net asset value. As an example, we can go back to November 2022 when a fund called the YieldMax TSLA Option Income Strategy ETF (TSLY) sold options on Tesla stock and promoted the yield was 62.8%. The fund has now dropped down to under $9 a share, roughly a 80% drop in the fund. This is somewhat surprising to most since during that timeframe Tesla stock is up around 70%. Sometimes people think just because there’s income or a nice yield that the fund is safer, but investors should remember that in most cases, the higher the yield the higher the risk. Financial Planning: Pension lump sum vs monthly income? When deciding between taking a pension benefit as a lump sum or monthly payments, it's helpful to compare the guaranteed income stream to the return you'd need on the lump sum to generate the same income yourself. Monthly payments offer steady, reliable income for life, essentially acting like a personal pension annuity, but most pensions do not include inflation adjustments, meaning the purchasing power of those payments may decline over time. Additionally, choosing a joint life annuity to continue payments to a surviving spouse will offer a lower monthly amount compared to a single life annuity. Since Social Security income drops when the first spouse passes, a joint annuity is usually more appropriate than a single life annuity to help maintain household income for the surviving spouse. In contrast, rolling over the lump sum into a retirement account gives you full control and the potential for growth. It also provides flexibility to structure income in a tax-efficient way allowing you to manage taxable distributions around other income sources, perform Roth conversions, or plan for inheritances and legacy goals. To make an apples-to-apples comparison, it is helpful to calculate the internal rate of return (IRR) you'd need to earn on the lump sum to replicate the monthly pension payments over your expected lifetime. For example, if your lump sum is $500,000 and your pension offers $3,000/month for life, you'd need to earn a little over 5% on the lump sum to match that income. Keep in mind, the lump sum is also an income source and this return calculation can help clarify whether the guaranteed income or potential flexibility and growth better align with your overall financial plan. Could there be problems ahead for Meta? Meta, which owns Instagram, Facebook, and WhatsApp, has been extremely successful in the advertising space. As a user of these platforms though I have been increasingly concerned with the number of spam messages and comments I received from what I believe are fake accounts. It led me to question how many of these fake accounts are out there? I was shocked to see from a simple Google search that while the exact number is unknown, some sources indicate that as much as 10% of Instagram accounts could be fake. I was then even more surprised by comments from a Meta executive that said as much as 40% of all activity on Instagram was “fake.” This statement came from an email exchange in 2018 between Instagram’s current boss Adam Mosseri and an executive that was worried the social-media app had “mis-prioritized and under-funded integrity efforts.” My concern with the advancement in AI is that these numbers could even be worse in today’s world. From an investment standpoint, this would concern me as I do believe further regulation may be justified in this space, which could increase costs and limit growth. Also, from an advertising standpoint it would bother me that I was paying for advertising that could be going to fake accounts. If that problem continued to grow it could cause reputational damage, I know I won’t be advertising on Meta at this point in time. Home equity is dropping for some homeowners I knew it was just a matter of time before the overheated real estate market took a break and that appears to be happening in certain areas around the country. Overall, I’m not too worried for most of the homeowners who still have trillions and trillions of dollars in equity across the country, but there are some who paid too high of a price for the home they bought and they are now underwater. Some areas in Texas and Florida seem to be in the worst shape as it is estimated 4 to 7% of homes have negative equity. There’s no need to panic at this point in time because as long as we have a strong job market and people can afford to pay their mortgage, they will continue to do so because it makes sense. If we were to see a weak job market, which we do not see in the near future, that could become problematic because people would start falling behind on their mortgage payments and perhaps go into foreclosure or sell their house for a very low price. Also, we have to remember that banks and mortgage companies have had very stringent lending standards unlike what we saw in the years prior to 2008. One downside for some homeowners is if rates were to fall, they might not be able refinance their home to take advantage of a lower rate because of that negative equity. At this time, there is no need to hit the panic button, but it is important to be aware of the overall real estate market and to remember that is important to be patient during the home buying process to make sure you are making a good, informed decision. Do you eat at casual dining restaurants? I ask because they’re trying to make a comeback in this difficult competitive market. Many restaurants are spending millions of dollars to update their menus, remodel the dining rooms, and place a priority on good service over gimmicks to give you a good dining experience for a reasonable price. Excluding the pandemic in 2020, US restaurant bankruptcies have hit their highest level in decades. Names you may recognize would be TGI Friday’s, Rubio‘s Coastal Grill and Red Lobster. Other well-known names such as Denny’s, Applebee’s and Hooters have closed slow performing locations to improve their profitability. Chili’s and Texas Roadhouse seem to be doing well attracting new customers by offering good quality service and a fun atmosphere. Many other restaurants are struggling as they try to attract new, younger customers without offending their older loyal customers. When it comes to investing in these restaurants, there could be something there, but be careful with what you pay for their stocks because it is currently not an easy economy to run a profitable restaurant.
Watch out for this Chinese stock scam! Yes, there’s another scam out there trying to part you from your hard-earned money. This has happened many times in recent years and it’s occurred in very small Chinese stocks that are vulnerable to manipulation. For some reason some US investors see these and think they’ve hit it big. US regulators try their best, but typically cannot get access to information in China to go after these people. They’re so good they trick people who should know better like businesspeople and even a university professor lost $80,000 in the scam. Their advertisements show up on social media or in messages on WhatsApp and they contain investment advice that looks very convincing with the alure of big, quick returns. They trick investors into thinking that this company is on the verge of something very big and they show that there are already short-term gains, which are engineered by the scammers through manipulative trading. The hucksters come from Malaysia, Taiwan and other places around the world. Some have been so bold that for some investors who lost money, they come back with a second better offer to make up losses on the first investment. Obviously, these people have no shame and the only thing I can recommend is to stay away from small Chinese stocks, especially if you see them advertised on social media. Remember the old saying if it sounds too good to be true, it probably is. Is the current 401K system out of date? The current 401(k) system was first established 42 years ago in 1978 when the use of normal pension plans was in place and when people still worked for a single employer for most of their career. This change in 1978 was beneficial to both the employees and employers, because it gave employees control over their retirement plan and reduced the long-term financial risk for many companies with underfunded pension plans that caused multiple problems form companies during the 2008 financial crisis. Today, times have changed and employees might experience over their 40 years plus work career different jobs that may include side gigs, the launch of a business or two and potentially a change in their job that could take place as much as 12 times over their career. The benefit for employees of the 401(k) is it gives people the ability to control their retirement. If they do leave an employer, they can take their retirement with them and invest it as they see best. The problem of today with changing jobs so many times is unfortunately these employees decide to take and use the money, even though the penalties and taxes due are sometimes as high as 50%. In my opinion, there is not one good reason why you should be taking your retirement money early as you’ll pay for it many times over if you reach retirement with little or no retirement funds. Believe me, it is hard being older, but it is devastating to be older with no retirement funds. It has been estimated that frequent job changes over a career can cost as much as $300,000 in retirement savings. I like the new system that has made auto enrollment the default for employees starting a new job, but there is talk that they also want to require when a worker leaves an employer that their 401(k) automatically follows them to the new job and it should contain the same contribution rates as well. I think this is a terrible idea as it could get employees that are changing jobs locked into a terrible new 401(k). It could perhaps be additional administrative work for the new employer who already has enough to take care of when you include all the regulations, they have along with health insurance and current retirement plan administration. Being an employer myself one would not believe how much employers have to do already. The unknown risk of the S&P 500 Many people love investing in the S&P 500 because the recent performance has been very strong. We have talked in the past about the over concentration of technology in the index, but I was shocked to learn that 71% or roughly 351 companies in the index report either non-GAAP income or non-GAAP earnings-per-share. This is dangerous for investors because you’re not comparing apples to apples and 89% of those 351 companies that made adjustments had results that appeared better. Wall Street has forced companies to continue to report higher and higher earnings each year and sometimes each quarter or else the stock gets pulverized. Non GAAP numbers were supposed to be allowed to explain extenuating or extraordinary circumstances like a factory fire or a sale of a division, but companies have abused the rule and exclude items like stock based compensation, amortization of intangible assets and currency fluctuations. The one that bugs me the most is restructuring charges that occur every year. For example, Oracle has had a restructuring charge for the past five years. Unfortunately, the SEC is absent on enforcing the rules and non-GAAP earnings have just about become the standard. The problem for investors is with no standard, you cannot compare true earnings of a company. If you have been investing as long as I have, you’ll remember the last time the abuse of non-GAAP earnings was during the tech boom and bust. Some people say we are too conservative with our investing and we are missing out on some big gains, but I do believe fundamental investing and understanding the true numbers of a company is far safer and it should produce better returns in the long run. Financial Planning: What is the Net Investment Income Tax? The Net Investment Income Tax (NIIT) is a 3.8% federal surtax that began in 2013 under the Affordable Care Act, targeting high-income individuals. It applies to any net investment income that exceeds a single taxpayer’s modified adjusted gross income (MAGI) of $200,000 or $250,000 for married couples filing jointly. Crucially, these thresholds are not indexed for inflation, so while they may have seemed high in 2013, today they would equal roughly $270,000 and $337,500 in 2025 had they been indexed for inflation, meaning more taxpayers are caught by the tax over time. Net investment income includes interest, dividends, capital gains, rental income, passive business income, and the earnings portion of non-qualified annuity distributions. While non-investment income sources such as wages, IRA withdrawals or conversions, and active business profits aren't directly subject to NIIT, realizing large amounts of those sources can push your MAGI above the threshold, thereby exposing your investment income to this additional tax. Also keep in mind, most investment income is still taxed as ordinary income as well. Only long-term capital gains and qualified dividends receive the lower capital gain tax treatment, but all investment income may trigger the NIIT if income exceeds the thresholds. Republican or democrat there’s an ETF for you If you’re a strong Republican or Democrat and you want to back your political beliefs by investing in companies that do best under each political party, it is now possible to do that. If you’re a Republican, you want to look at Point Bridge America First ETF with the symbol MAGA. This ETF has been around for about eight years. It only has about $30 million of assets and it has an expense ratio of 0.72%. In this ETF, you will find companies in oil and chemicals along with home builders. If you’re a Democrat, there is the Democratic Large Cap Core ETF with the symbol DEMZ. This one has only been around for five years and has slightly more assets at $43 million and a lower expense ratio of 0.45%. In this ETF, you will find stocks in technology, entertainment, and high fashion companies. I’m sure you’re wondering which one has the better performance going back five years since that’s as long as the Democratic Large Cap Core ETF has been out. The DEMZ ETF had a return of 78%, while the MAGA ETF had a return of 99%. No matter what your political affiliation, I’m sure you’re happy to know that there’s an ETF that you can invest in to match your political beliefs. With that said, I do believe playing politics with your investments can be a dangerous game and I would not recommend doing it. Consumers are confused on what the tariffs are costing them Consumers are very confused on how much the tariffs are actually costing them as they consume many different products. It is difficult to even say when the tariffs really began. In reality, you’d have to go back seven years to 2018 when the first tariffs were imposed on Chinese goods. The most recent tariffs began to come into play on February 1, 2025 when President Trump signed an executive order. Consumers don’t know if the tariffs are being passed onto them or are if companies are just increasing their profit margins and padding their bottom line. In a recent survey when consumers were asked why have prices gone up lately? 75% said it was caused by the tariffs, but also 75% of people when asked about inflation said inflation was the problem. My guess is the consumer is confused. It was interesting to note in the same survey that 29% of the shoppers said it was brand or retailer greed. Consumers are asking for transparency, which they probably will not receive on how much the tariffs are increasing the price of the products they are buying. I say they probably will not receive that because companies that tried that were immediately scolded by the President not to add the cost of tariffs to the products they were selling. When will this all be over? I believe we have at least another few months even though July 9th, which is the end of the 90 days pause on reciprocal tariffs is just around the corner. Also, August 14th is the end of the US China tariff de-escalation. I believe we’ll see a lot of volatility in the markets, but don’t sell your investments based on the volatility. I think you’ll regret that within a very short timeframe. Do you know who has the second largest trade imbalance with the US? Let me give you a hint, they only have 5.4 million people and the country is only 33,000 square miles compared to United States at over 3.8 million square miles. if you were thinking Ireland, you are correct. In the first four months of the year, the trade deficit was $71 billion and it was mostly attributed to shipments of drugs for weight loss and cancer. Years ago, corporations moved to Ireland to take advantage of their favorable tax policies. For corporations, the tax rate in Ireland can be as low as 12.5%. In the US, it is now 21% but it was much higher years ago at 35% before the Tax Cut and Jobs Act of 2017. Some of the best-selling drugs that come from Ireland are Botox, Keytruda, which is Merck’s cancer treatment, and peptide and protein-based hormones for the GLP – 1 weight loss drugs. Much of this imbalance was inventory stocking prior to the tariffs, but there is no slowdown in the growth of these drugs with the weight loss drugs expected to double next year to $30 billion. It’s also interesting to know that many drugs can fly in the cargo section of passenger planes and primarily all the drugs are flown by air rather than transported by ship. Eli Lilly, a drug giant in the weight loss and diabetes space, will be hurt most by the cost of tariffs, which I believe they will pass along to their consumer. Drug company Merck has already broken ground on a $1 billion plant, but because of construction and regulations it probably will not be completed until 2028 at the earliest or perhaps 2030 at the latest. Are cars of today too good? As the cars of today become safer, more fuel efficient, and more automated, the cost per vehicle along with repairs has gone up dramatically. The depreciation rate on new cars has also increased. Here in the United States, 80% of households depend on an automobile with a typical driver spending about one hour per day in the car. The cost of operating an automobile over the last 10 years has increased by 30% with the average annual cost at nearly $12,300 in 2024. Contributing to that factor is the cost of auto insurance now averaging $2680. It has increased 27% since the end of 2022. Nearly 25 years ago car manufacturers in an effort to save cost and make cars lighter for fuel efficiency increased the amount of injectable molded thermal plastic components. At last count, the average American car has over 400 pounds of plastic somewhere in the vehicle. As good as plastic can be, it still can degrade in the daily extreme heat cycling under the hood. I also learned that now instead of timing chains belts they have what they call wet timing belts. This is where the belt that synchronizes an engine cam timing with a crankshaft gets partially submerged in hot engine oil. At first glance that sounds pretty good until you realize that these belts can erode and put contamination in the oil system, which can block the oil pick up and kill an engine. Repair costs since 2019 have increased by 43% according to the Bureau of Labor Statistics and this has caused an increase of cars to be salvaged rather than repaired. A small fender bender that looks easy to repair can cost as much as 75% of the cars value. The saying what you don’t see is what can hurt you applies here. Even though the bumper may not look that bad from the outside, behind the bumper you’ll find automatic lane control sensors, dynamic cruise control, along with emergency braking that has camera sensors and transceivers all built in. This now essentially means with new cars, there is no such thing as a minor fender bender. Online internet and information car retailer Edmunds.com discovered that a Tesla cyber truck that was parked was struck in the rear by a small sedan and the total cost of repair was $58,000. They ended up selling it to a salvage yard for $8000. Doesn’t look like they had it insured. And there’s no such thing as just replacing your headlight any longer, you now have to replace the entire unit and if you love BMW or Porsche be prepared to spend around $7000 to $8000. Even if you own a simpler vehicle like a Ford F150, you’re still going to pay almost $1700. The average car on the road is over 14 years old and while the excitement of getting a new car is still there, you should understand that you are buying a very expensive piece of equipment not just a car. Fees on premier credit cards are increasing, is it worth it? I’ve never been a fan of the premium credit cards because of the annual fees they charge. Maybe some people are paying for the status, but I think for many people if you do the math, you can see you’re not making your money back on the high annual fees. This year if you hold the popular Sapphire Reserve credit card from JP Morgan Chase, the fee is rising 45% from $550 a year to $795 a year! Don’t think you’re safe if you have the American Express Platinum card, it is expected they will raise their $695 annual fee above what Sapphire Reserve’s annual fee is. If you hold these cards, you really have to do the math to see if it makes any sense. If you only travel two or three times a year, you’re probably wasting your money. It’s also important to know that several merchants are now charging merchant fees, sometimes as high as 3 1/2%. This too can wipe out the benefits of a reward card. It is amazing the number of people that have rewards that have not used them. The most recent data from 2022 by the Financial Protection Bureau showed that card holders earned over $40 billion in rewards that year, but consumers have only redeemed $7 billion of those rewards. You may also find that they’re making it more difficult to claim your rewards and, in some cases, they’re changing how you redeem your rewards. I’ve always been a big fan of cash rewards and I do have a premium card with US bank, which was paying me 2% cash back. It worked out well for a couple years, but now all of a sudden, they charge an extra fee for redeeming the 2% cash back unless you have a checking account at the bank that they can deposit the cash into. I will be closing my credit card account with US Bank in the near future. As always, read the fine print and understand that these fees for the premium cards that you are paying could be costing you more than you’re saving. Maybe it’s nice to throw on the counter a platinum card to show status, but personally I would rather save hundreds of dollars a year in fees and put that money in my pocket. What are your thoughts? Silver is up this year almost as much as gold, should you sell? Gold has captured the headlines, but maybe you were thinking about investing in silver, which is another precious metal. If you did that in January, you’re up around 30%, depending on the day/time you bought it. Gold is really just used as a store of value, but people may not realize that 80% of the demand for silver comes from manufacturers. Silver consumption is used in electronics, cutlery, jewelry and solar panels. What is so surprising about the rise in silver is with the president trying to unwind renewable energy incentives, the demand for solar panels has continued to grow. One concern is it’s possible this demand was pulled forward ahead of the trade restrictions and it could taper off as we move forward, especially if the incentives change dramatically. If you are investing in silver, you may want to consider that the second half of 2025 could see a complete reversal for the commodity. If you look at a 45-year chart for silver prices, you will see a few major spikes and the high prices generally did not last long. One that stands out even today is the record for the price of silver at $48.70 when the Hunt brothers tried to corner the market in 1980. If your account for inflation that $48.70 today would be over $200. People have been flooding jewelry stores, pawnshops, and wherever else they can unload their silver holdings from coins to jewelry to cash in on the high price. If you do happen to find some old quarters made before 1965, you could get as much as 6 to 7 dollars per coin. Will the price of silver continue to rise? No one knows for sure, but I do believe it is a speculative bubble and if demand does fall as expected in the second half of the year, you may be wishing that you unloaded the silver that you are holding in your safe.