SMART INVESTING NEWSLETTER
Fraud, Airline Stocks, Private Prison Boom, Social Security Changes, Dogs of the Dow, Santa Claus Rally, Stock Market & Buying a Car
Brent Wilsey • January 3, 2025
Watch out for record fraud when shopping.
With technology, shopping has become so easy and set records in 2024 of around $5.3 trillion. While this by itself is a problem as some people are over shopping, it has also invited more fraud than ever before and for the first three quarters of 2024 there was an increase of 14.5% to $8.7 billion of shoppers who lost money to fraud. Two things are happening here. First, consumers may be too emotionally excited about the purchase and they forget to look for scams that could be happening to them. The second item is the scammers are becoming smarter about how to scam people and they are making it more difficult to detect. To avoid being scammed, it is always wise to deal with a company that you know. However, even that may not guarantee your safety. Scammers can now use names that look very similar to the names you know. They can do this by simply adding or deleting a period or a letter somewhere in the title. So before you make that purchase, be sure it is the correct site that you want to be at and you’re not sending your money to some scammer from across the world!
Should you be investing in airline stocks with the record year they’ve had?
It has been quite the year for airline stocks and there have been huge one-year gains for United Airlines at 138% and Delta Airlines at 49%. While it was a laggard compared with its peers, American Airlines still posted a strong return of 29%. It is forecasted for holiday travel between December 19th and January 6th, there will be a record number of travelers at 54 million. Since our economy was reopened after Covid, consumers continue to enjoy traveling, which has benefited the airlines. Even with the record number of travelers and the large gains for the airline stocks, they still trade at reasonable price to earnings ratios of 9.7 for United Airlines, 10.1 for Delta and 10.5 for American Airlines. My concern is could this be a value trap going forward? The low price to earnings ratio might suck you in only to see a slowdown in travelers in 2025. We could also see a little bit higher oil prices based on production not coming online quick enough to keep up with demand, which would hurt the profit margins for these companies. While they might look enticing, I wouldn’t be interested in adding these positions to my portfolio at this time.
Could you benefit from the private prison boom that may happen in 2025?
In 2025 there could be a huge demand for detention centers and investors may benefit from investing in the private detention center called CoreCivic Inc, trading under the symbol CXW. CoreCivic has a market cap of about $2.4 billion and a FFO on a forward basis of $1.79. The company could benefit from recent statements from ICE saying it will need enough beds to detain a minimum of 100,000 migrants. The agency already has funding for 41,500 beds. Their competitor GEO has a head start already housing about 40% of ICE detainees. It should be noted that CoreCivic was at $14 the day before the election and it climbed to $22 the day after. There was concern that some banks would withdraw funding from companies who participated in the immigrant detentions, however it appears that CoreCivic does not need any new capital to bring on new facilities or bring back idle facilities. The high estimate for deportation would be 1 million people in one year at a cost of $88 billion. It is estimated that there were 11 million undocumented migrants in the US as of 2022. These higher dollars could benefit the private prisons as a quick alternative if there is no room in the county jails. I was disappointed that the company does not pay a dividend, but it has pulled back from a recent high of $24.99 a share to under $22 a share. At the price the stock would trade at a reasonable 12.29x the estimated FFO for 2025. An executive from the private company GEO group spoke about an unprecedented opportunity for their company, it could be a good investment opportunity for the small investor as well.
“Big Social Security Changes Coming”
The Social Security Fairness Act is set to be signed into law next week and will impact Social Security benefits for millions of Americans. This bipartisan bill will eliminate the “Windfall Elimination Provision (WEP)” and the “Government Pension Offset (GPO)” which currently reduce social security benefits for workers and spouses who have public pensions. The Windfall Elimination Provision applies when someone has worked a job where they paid into Social Security and also a job where they did not pay into Social Security and receive a pension instead. In this case, the Social Security benefits are reduced based on how many years they paid into Social Security. The Government Pension Offset applies when a spouse is entitled to a Social Security spousal or widow benefit but they also worked a job where they did not pay into Social Security themselves. In this case, the amount of their pension reduces the Social Security benefits they are entitled to receive. With the passing of this new Social Security act and the elimination of the WEP and GPO, Americans who were having Social Security benefits reduced will no longer see a reduction. This is one of the largest changes to Social Security in the last several years. The downside is, the increased benefits will cause the Social Security trust fund to run out sooner, even if the elimination results in a fairer benefit system.
Should you invest in the Dogs of the Dow for 2025?
The Dogs of the Dow has been a theory that is very popular after good years of performance but unfortunately people lose interest during the bad years. The concept was made popular in 1991 by Michael O’Higgins as a simple way to be a lazy value investor. The idea is from the Dow’s 30 stocks you invest in the 10 that have the highest yield, which in many cases can be due to a pullback in the stock price over the past year. The concept can make sense, but it’s not full proof and there are years where you could lose more than if you just invested in the Dow Jones. People tend to forget that investing is a long-term strategy and should not be done for one year, but because of simplicity investors have tried it from time to time. The strategy can be very volatile and it can scare investors, which leads them to sell at the wrong time when they should maybe be buying instead. If you want to try the concept with an ETF, there is one called the Invesco Dow Jones Industrial Average Dividend ETF. It has around $300 million in assets and its approach is similar. The exception is that opposed to an equal weighting of the 10 highest yielding stocks in the Dow, it uses a weighted average on yield to invest in all stocks in the Dow that pay a dividend. If you’re thinking of using the Dogs of the Dow strategy for 2025, your first investment would be Verizon Communications with a 6.8% yield. The other nine would include Chevron, Amgen, Johnson & Johnson, Merck, Coca-Cola, IBM, Cisco Systems, McDonald’s and lastly Procter & Gamble. If you try this concept, I believe it is best to do in a tax deferred account or a Roth IRA because you could have large taxable gains at the end of one year. As I mentioned it’s also important to remember that it doesn’t work every year. In fact the Dogs of the Dow have underperformed the Dow in five of the past six years. The year the strategy outperformed was 2022, when it beat the Dow by 9.1%. If I had to place a bet, I believe the Dogs of the Dow will top the Dow next year considering they trade for an average forward P/E of about 16, which compares to the S&P 500 at 22x.
Where was the Santa Claus Rally?
Here it is January 3rd and it seems like Santa Claus wanted to go back to the North Pole early this year as the Santa Claus rally never materialized. This period of time includes the last five trading days of the year and the first two trading days in the new year. It is generally a good period for stocks and is positive roughly 80% of the time. Unfortunately, this year the measure fell short as the index was down about 0.5% during those trading days. I believe there was a lot of tax selling in the last couple weeks of December as investors were either taking gains or realizing losses. It’s always tough to guess what will happen in the short term, but I do believe we will see a good couple weeks in the first part of January as investors step back in to buy shares of some companies that were beaten up. I also believe many things have changed since the first recorded Santa Claus Rally back in 1972 from Yale Hirsch in his Stock Trader's Almanac. Back then trading was much slower, you had to go through a broker and a much smaller percent of the population held individual equities. The Santa Claus Rally still sounds exciting and I think it still has some merit to it because I believe people feel better around the holidays, which can lead to more optimism in the markets. However, with the ease of trading today, I don’t think it is as effective as it was when it first came out over 50 years ago. With that said we’re looking forward to a good 2025. My optimism is not based on the overall market as I believe it will be the year of investors looking to get good value for their investing dollars, rather than chasing the Mag Seven higher.
Can the stock market continue to climb higher?
Even though the S&P 500 ended 2024 with four-straight down days, which would mark the first time that happened since 1966, it did have an impressive return of over 23% for the full year. While it was a great year, I find it even more impressive considering 2023 had a return over 24%. This means the two-year return for the index was a staggering 53.2%. This sounds exciting, but consecutive gains of 20% or more are extremely rare and it has only happened a few other times: 1935-36, 1954-55, 1995-96, 1996-1997, and 1997-1998. The following year returns varied for these periods as 1937 saw a decline of 38.59%. 1956 saw an increase of 2.62%, but that was followed by a 14.31% decline in 1957. The tech boom was extremely crazy as the good times rolled on for several years and even 1999 almost hit a 20% return with a gain of 19.53%. Unfortunately, the party ended terribly as 2000, 2001, and 2002 all saw double digit declines. I have talked at length about my concerns over the valuations for the index so I’m not optimistic 2025 will be a boom year and I believe the downside risk is higher than the upside potential. If we did witness another tech boom like period and had strong returns this year, I would be extremely worried in 2026 as I believe we would then be in bubble territory. The concentration of the index in the tech names and in particular the Mag Seven is also extremely concerning as they are a major reason for the gains, we have seen the last two years and if they don’t continue to move higher, the index would likely stall or possibly even fall.
If you’ve been waiting to buy a car, it looks like now you could be back in the driver seat!
On average across the country car dealerships now have good levels of inventory, which has given them an incentive to discount their cars on average by $3400. That is over a 25% increase from last December. When you go to the dealer, you may find low or 0% interest rate loans, cash back offers, and good deals if you are willing to lease a vehicle, especially an electric one. For 2024 it is expected that US car sales will come in around 16 million vehicles. That’s a pretty good number, but it still has not hit the 17 million annual vehicle sales before the pandemic that caused havoc in the U.S. car market. There also appears to be a shortage if you’re looking for the smaller less expensive cars. Electric vehicles really seem to have some great deals as their sales have lost momentum and leasing may be a great option as sometimes your leasing payment could be nearly half of what it would be if you purchased the car. If on the other hand you are trying to find a deal on a popular car everyone else wants, the dealer will not be willing to negotiate at all. On a recent shopping trip, I discovered that problem myself as I was trying to replace my 2021 Escalade. I discovered only one or two new Escalades on the lot and when I was called the previous evening that the one, I wanted came in, it was sold by two o’clock the next day. The same holds true for many Toyota lots as well. There are about 2.7 million vehicles on US dealer’s lots and on the road heading to the dealership, which is a 17% increase in inventory from last year at this time. It’s important to understand, if you want to buy the car of your dreams and it’s a care everyone else wants you likely won’t find a deal, but if you’re looking to find good transportation and aren’t so picky on what you would like to drive, you will likely be able to find some good deals now and probably even in 2025.
We have gone through four industrial revolutions in the US, why does the AI revolution scare us the most? Industrial revolutions are nothing new in the United States as we have had four including the current one we are in. The first one came in the mid-18th century when changes came for waterpower, steam engines, and textile manufacturing. The second industrial revolution was in the mid-19th century when steel became a big factor along with electricity and mass production. We also saw transportation by railroads and automobiles during this revolution. The third industrial revolution came around the mid-1990s. Some of us who are 50 years or older may remember the effects. Electronics including personal computers, information technologies, and this scary thing called the World Wide Web were developed during this revolution. The fourth industrial revolution is happening now and it’s scary because we don’t know what the future holds. This revolution includes digital, physical, and biological technologies. This includes AI, the Internet of Things, and robotics as well. The reason this is scarier than the third revolution with personal computers was that people could see how they could benefit and get more done and maybe use that computer to start a web-based business. Currently with AI, people are not seeing how it will benefit or improve their lives but only how it could take away their livelihood by making their job obsolete. There could be a slowdown in the advancement of AI similar to what happened in the late 70s with nuclear power. People as a whole rejected nuclear power, and it has taken almost 50 years to be accepted as we can see in today’s newspapers. Based on history, it looks like the acceptance of AI may slow down because polls show that just 40% of people said the AI industry could be trusted to do the right thing, and 57% say the government needs more regulation on tech and AI. Maybe your job is safe for longer than you thought. Bitcoin holder Strategy should be getting nervous about the price of Bitcoin The public company Strategy, which used to be known as MicroStrategy and trades under the symbol MSTR, should be getting nervous about its 650,000 Bitcoins that are worth around $56 billion depending on the day. The problem is the company has about $8 billion of convertible bonds outstanding that require interest payments and about $7.6 billion of perpetual preferred stock that also pays dividends. The cost to pay the interest and these dividends is about $780 million annually and since all the company’s assets are essentially in Bitcoin, they don’t receive any interest or profits from that asset. The CEO, Michael Slayer, is saying if they must, they will sell Bitcoin to raise the cash to pay the dividends and interest payments. The convertible bonds could also be problematic down the road as they are due in about 4.4 years on average and come with a combined interest rate of 0.421%. The stock itself has been pulverized, and its market cap has been as low as $49 billion from a high of $128 billion in July. MSCI has proposed cutting digital asset treasury companies from its indexes if crypto tokens make up a major part of the assets. This decision will come in a little over a month on January 15th and if this happens, Strategy could see $2.8 billion in passive outflows. JPMorgan estimates that about $9 billion of the company's market cap is tied to passive and index ETFs and mutual funds. This could put more pressure on the stock if more indexes also decide to remove these treasury companies. You won’t believe how the company makes their profit and loss statement. When the price of Bitcoin rises, the company books a paper profit even if it did not sell any Bitcoin. Obviously, if Bitcoin goes down in value, they must book the losses as well. One must love the estimates for the earnings of Strategy for 2025. Strategy is expected to report a loss of $5.5 billion or a profit of $6.3 billion or something in between. That is some great guidance! I don’t know where Bitcoin is going today, tomorrow or anytime in the future, but I would be sweating bullets if I held Bitcoin or Strategy in my clients’ portfolios or my portfolio! Holiday shopping hits record levels! We continue to see conflicting data when it comes to the health of the consumer. They continue to say they don't feel good, but the hard data and the actual numbers remain quite strong. In a positive note from the National Retail Federation (NRF), an estimated 202.9 million consumers shopped during the five-day stretch from Thanksgiving Day through Cyber Monday. That is the largest turnout since data for the five-day period started being collected in 2017, and it easily tops last year's level of 197 million shoppers. Expectations for the period were also quite low considering the estimate was for just 186.9 million shoppers. While online shoppers increased 9% year over year to 134.9 million people, in-store shoppers still saw a nice increase of 3% to 129.5 million people. Adobe also provided sales data for the five-day period that indicated consumers spent $44.2 billion online, which was a 7.7% year-over-year jump. Black Friday in particular saw strong online sales as they totaled $11.8 billion and grew by 9.1% year over year. A big question here is if the shopping was done to capitalize on deals in an attempt to save money. That could be an indicator of a weaker economy, but I don't believe that's the full story as shoppers told NRF at the end of Cyber Monday that they had about 53% of their holiday shopping remaining, which was similar to a year ago. For the full holiday season, the NRF expects record sales of between $1.1 trillion and $1.2 trillion from Nov. 1 through Dec. 31. This would be the first time sales would top $1 trillion, and it would represent a 3.7% to 4.2% increase from the year-ago holiday period. Financial Planning: When Tax-Loss Harvesting Makes Sense and When It Doesn’t Tax-loss harvesting is often promoted as a smart tax-saving strategy, but investors should understand its pitfalls before hitting the sell button. Selling a position at a loss may reduce taxes today, but it could also mean missing a rebound in that investment potentially costing more in lost gains than the tax benefit received. For example, if an investor buys a stock for $50,000 and harvests a $5,000 loss when the investment drops to $45,000, and they are in a 24.3% combined tax bracket (15% federal + 9.3% state), the tax savings is just over $1,200. That means the investment only needs to rise 2.7% to wipe out the benefit of harvesting, something that could easily occur during the required 30-day wash-sale waiting period. Even if the position doesn’t rebound, repurchasing after 31 days locks in a lower cost basis, potentially increasing future taxable gains possibly in a higher tax bracket. Many investors, especially retirees with lower taxable income, are already in the 0% long-term capital gains bracket, meaning losses may not even be needed; a married couple in retirement could have income near $150,000 and still realize long-term gains tax-free. Tax-loss harvesting can still be valuable when losses are large in percentage terms, when it helps avoid a higher tax bracket or IRMAA surcharges, when offsetting short-term gains (which long-term losses can do), or when exiting a position you don’t plan to repurchase. It may not be a great deal to take advantage of that builder's cheaper home loan Your monthly payment with that new home may be lower because the builder brought down the mortgage for you so you could qualify and get into that home, but it could be artificially propping up the price of the builders' new homes they are selling. It is estimated that for a builder to cut the price of a home by 10% to what may be the true value is more costly to them than buying down the mortgage for you to qualify. It is believed that it costs them half as much. You may say what is the risk? I still got that new home for a reasonable mortgage payment. A major problem is that we are seeing 27% of those new homes underwater based on 28,300 FHA loans. This comes from the builders such as Lennar that were tracked by Ginnie Mae’s MBS database. It was better for home builder DR Horton as they had a lower rate of houses under water at 10%, but I would say that is still a negative effect. It is also estimated that the cheaper loans are inflating property values for new home prices. Data shows prices for new homes between 2019 and 2024 from large builders have increased 6% more than existing homes. Another major risk is if you find a new home in a development underwater with say 100 other new homes, the whole lot could be underwater because the home prices were artificially high from the mortgage buy downs. If you or someone you know is negotiating on buying a new home, you may be wise to ask for a reduction in the home price as opposed to a lower mortgage payment. Rising cost are starting to weigh on middle class consumers We have seen the lower end consumer cut back on spending at companies like Wendy’s and Chipotle, but it looks like the middle class is starting to feel the strain as well and is cutting back on their spending too. You may wonder what middle class household income looks like and really depending on where you live in the country it is anywhere between $66,000 up to $200,000. Target, which has more middle-class income buyers, said it is starting to see a slow down on purchases in areas like home decor and apparel. One may be wondering why Walmart had such strong sales; they claim it’s because the middle class to upper class are starting to shop at Walmart to save money. The last University of Michigan consumer sentiment survey revealed that 44% of middle-income respondents are becoming concerned with their financial situation. That’s a 21% increase from a year ago as just 23% had concerns at that time. It is believed that the higher income or more affluent households are feeling fine because their stock investments are doing well. I do worry that many of them have the highflying AI related companies in their portfolios and if they see their investments decline, they too could pull back on their spending. It looks like prices are still staying high partly because demand is on the high side. If demand was not strong, prices would have to fall. Even if things are slowing down, what appears to still be happening is in all income classes people may be complaining about prices but still spending on items they want and need. AI spending is currently unrealistic People think AI is coming very quickly, but I have heard some of the experts say it’s going to take longer than many people believe. There are factors to consider even though there’s record spending for AI infrastructure to keep in mind. The reality is that there are other pieces to the equation like data centers, chips, servers, HVAC systems, transformers, gas turbines, powerlines, and power plants that could slow down the buildout. A recent global model projects the global AI infrastructure through 2030 has limitations because of the $5 trillion investment that is needed. Currently OpenAI has revenue of about $20 billion, and it's important to remember that is revenue, not profit. It is also estimated that AI products would have to generate $650 billion a year going forward just to give investors a 10% return. The global footprint for data centers is currently at a capacity of 455,000,000 ft.². Just to keep pace in a little over two years that footprint will need to increase to over 645,000,000 ft.². If you have a hard time comprehending how big that is, every Costco warehouse in the world is 132,000,000 ft.². I just don't see no matter how much money is thrown at AI that type of expansion is going to happen anytime soon. And let's think about that $650 billion a year in hopeful revenue, how will that be paid for? At this point no one seems to know, but if you took every iPhone owner in the world, they would have to pay an extra $35 a month to reach that level. Artificial intelligence is coming, but it may slow down, and companies that are putting billions of dollars into AI like Microsoft, Meta and Amazon may have lower earnings as expenses continue to rise. I've said it before, but be careful with over ambitious expectations in the AI investment space. Berkshire Hathaway sold more Apple stock In the most recent quarter, Berkshire Hathaway sold 41.8 million shares of Apple stock. The price of Apple stock was anywhere between $212 a share to $250 a share, so proceeds were probably somewhere around $9 to $10 billion. It did purchase 17.8 million shares of Alphabet for probably somewhere around $250 per share, which would be an investment of about $4.5 billion. Before you get too excited about what a great purchase that was of Alphabet stock, keep in mind that while the dollar investment of about $4.5 billion sounds like a lot, that is only 0.6% of the entire portfolio, which is worth close to $700 billion. To put that into perspective, if you had a half million-dollar portfolio and you made an investment of 0.6% that would only be $3000, which would not move the needle on your investment portfolio. Also interesting to note is that the cash position of $382 billion has now surpassed the value of the equity positions. Berkshire Hathaway has continued to be a net seller of equities as even though in the most quarter they did purchase $6.4 billion, they also sold $12.5 billion of equities, raising their cash position a little bit more. Warren Buffett steps away from management January 1, and I’m not sure if it makes any sense to continue to follow Berkshire Hathaway investments because they will no longer be managed by Warren Buffett Will California ever get out from underneath all the debt they have? It doesn’t look good based on the most recent numbers that show California has a $497 billion of state liabilities and the debt continues to pile on. The State Legislative Analyst Office, known as LAO, is a non-partisan policy advisor and is projecting an $18 billion budget gap in the coming fiscal year. The LAO also says that spending continues to far outpace revenue growth. That's even with revenue growing at a nice clip. Based on data from the first four months of this year revenue was up about $12 billion or 20% higher than the previous year for the same period. Revenue from the state does come from taxes and because of stocks that have done well because of AI, the capital gains from stock sales and stock options has boosted the revenue for the state of California. We all know from history that capital gains do not continue to grow for ever and the concern I have is if the liabilities continue to climb and the revenue drops because of a slow down or a reversal in AI stocks, California’s debt will rocket even higher. The US consumer is addicted to shopping Today, consumer spending accounts for 68.2% of US GDP, and there are no signs of it slowing down, tariffs or not. Psychologists say that the human brain is wired toward short term pleasure over long-term goals. When shopping we justify things that will maybe make our life a little more convenient, pleasurable or stylish and people can really get a rush of feel-good dopamine from shopping. However, the good feeling dissipates very quickly, and another purchase needs to be made quickly to continue to get that good feeling. From 2019 to 2024, the increase in purchases is easy to see from examples such as home and garden purchases up 16% from 95 to 110 per household. Children toys climbed 15% from 33 to 38 and unfortunately many of these toys come from China. Women’s clothing was up the most climbing 27% over that period of time from 15 items to 19 items per household. As items have become cheaper over the years, nothing gets repaired anymore. It is easier to just throw it away and buy something new. According to experts, people now wear articles of clothing for only seven times on average and then either donate it or throw it away. Ways to reduce this addiction would include unsubscribing from all the marketing emails that one may receive. I know this next one is hard but cancel your Amazon subscription. Lastly, if you really do need something, go to the store to buy that particular item and leave the store after you get it. This will take more time but sometimes the effort is worth it. Also, making a list of what you need and focusing on that as opposed to all the in-store promotions will keep you on track. These few items will help, but it also does take will power to fight off a shopping addiction.
Fast food restaurants like Wendy’s are experiencing a slowdown in business The fast-food restaurant Wendy’s is planning on closing hundreds of locations throughout next year because they continue to see a slowdown in spending from their customers. They said most of their low-income consumers are cutting spending and making fewer trips with smaller purchases at the restaurants. Wendy’s increased prices after the pandemic at a higher rate than grocery stores and now other fast-food restaurants have begun to add value menus to keep customers coming back, but Wendy’s has held firm and not created any values for their customers. Because of this they have seen their net income decline to $44.3 million from a year ago when it was $50.2 million. Over the past year the stock has declined from around $18 a share down to under $9 a share, which is a decline of 53%. With the reduction in the stock price, the dividend yield is now 6.5% and the company trades at 10 times earnings on a forward basis. This company may be worth looking into as an investment as within in the next 6 to 12 months we could see lower end consumers stabilize. The affordability index for people buying a home is the worst in 50 years People may be excited about buying a home because mortgage rates are around the lowest they’ve been in over a year, but the affordability of a home is still far out of reach for many. The reason for this, and we have talked about this for the last few years, is that the increase in the price of homes has far outpaced the increase in people’s income. The 50-year average for a price-to-income ratio is around four times, and it reached a low in 1999 of around 3.6 times. But with the rapid increase of homes over the last few years, the price to income ratio has climbed to slightly over five times. Also not helping are the increases in home insurance costs and property taxes. Back in the summer of 2019, when looking at households earning $75,000, nearly 50% of those people could afford to buy a home. Today, when looking at those same households earning $75,000, only 21% would be able to afford a home. Back in 2012, the home affordability index was over 200, but it has now been cut in half to just about 100 with no signs of improving any time soon. I believe it will probably take 3 to 5 years to correct itself. If you look back in history, the affordability index does not change overnight. What will happen is probably incomes will increase slightly over the next 3 to 5 years and maybe the price of homes will either stay the same or decline slightly, which would increase the affordability index. What this means for people buying a home today is you should not have any aspirations of a rapid increase in the value of your home. What caused the problem was during the pandemic mortgage rates dropped to lows not seen in 50 years and that pushed up demand and the prices for homes climbed at a rapid rate. I believe this scenario is extremely unlikely to play out again! The brokerage firm Robinhood looks more like a gambling platform than a brokerage firm Robinhood initially went public at $38 a share in 2023 and the stock then fell to under $10 a share. It has recovered nicely since then as it’s now trading around $110 a share. What has caused this shift and the huge increase in the stock price? One big reason is that the company has really allowed major speculation for their investors. Starting off with crypto, they have allowed people to buy coins like BONK, Dogwifhat and Pudgy Penguins. Just when you think there’s no way they could come up with anything more speculative, surprise; they have come up with an investment known as prediction markets and event trading. Somehow the regulators have let this slide or maybe since government agencies don’t move that quickly, it just has not been addressed yet. It appears for investors on their app that you can predict what the outcome will be of a football game, politics, contracts over economics, even if aliens will exist on earth this year. Chief Brokerage Officer, Steve Quirk, says this is the fastest growing business we have ever had. Robinhood stock trades over 50 times projected earnings and is looking for about $4.5 billion in revenue, which is an increase of 53% over last year. The growth appears to be there for the company, but there is so much speculation and insane crazy things there is no doubt in my mind that in the future many people will lose more money than they ever thought was possible by speculating on crazy things rather than investing into good quality businesses. A fallout in those risky "investments" could hurt Robinhood's reputation, which I believe would be bad for long term growth. Financial Planning: The Real Cost of Employer Coverage vs. Medicare When reaching age 65, sometimes there is the option to join Medicare or stay with an employer health insurance plan. This is most common when a spouse retires after age 65 and they have the ability to join their spouse’s work plan. When comparing the cost of coverage, there is a key difference in how each affects your tax bill. Premiums paid through payroll for employer-sponsored health insurance are pre-tax, meaning you avoid federal, state, and payroll taxes such as the 6.2% Social Security, 1.45% Medicare, and 1.2% CA SDI tax in California. This is different from a 401(k) for example where contributions are only pre-tax from federal and state taxes. For someone in the 22% tax bracket, a $500 premium would be around $300 after the tax savings. Medicare premiums on the other hand are paid with after-tax dollars and are only tax-deductible for people who itemize and have total medical expenses exceeding 7.5% of AGI, which means very few retirees actually receive any tax benefit. Additionally, Medicare Part B and D premiums may be elevated due to higher levels of income because of IRMAA. Employer health insurance can vary in coverage and cost so at times Medicare may be a more comprehensive and cost-effective option, but it is necessary to compare the after-tax costs to be sure. What to do before the spouse who manages the investments passes away In most relationships either the husband or the wife takes on the primary role of managing the financial affairs, including the investments. Not always but most of the time the husband is the one who takes on the primary role of investing the couple's assets when they are seniors. The problem with this is that women generally live longer than men, and it’s very possible that when he passes away the wife is clueless on what to do with the investments and she could be open to scams or just bad investment advice. This does not mean that one spouse is smarter when it comes to investing; it just many times is due to one spouse having no interest in understanding investing or wanting to spend the time to learn about it. If someone has no interest in learning investing, they will not do it. I know some people like to manage their assets and their investments themselves, but this can be very difficult for the surviving spouse who is left with a spreadsheet and account statements, and they have no idea what to do. The best thing to do is when both spouses are alive is to find a financial advisor they trust and found together so that the spouse with less interest in investing knows that the spouse that knew investing felt good trusting this advisor. It may be hard for the primary spouse to give up control of investing, so I don’t recommend to give the advisor 100% of the assets, but at least a third to a half of the assets to get a good feeling of what that advisor will do when that spouse passes away. Don’t wait a few months before you die to find the advisor, it should be done when you’re both doing well and also have an experience with that advisor for at least 3 to 5 years. Since no one knows when they’ll pass away, it is better to do it early rather than to wait until it’s too late! Do you know who the beneficiary is of your retirement accounts? I’m sure many people say yes of course I do, but unfortunately, things change in life and the beneficiaries you have may not be the ones that you want. You could have also deleted the beneficiaries with the intent to change to new ones at a future date but forgot to do so. If you have parents that are still living, it’s important to remind them as well to check to verify that the beneficiaries on the retirement accounts are the ones that they want to receive the retirement funds. Whether the funds are in a workplace retirement plan like 401(k) or an IRA, you could be giving a lot of money to people you did not intend to. Some important reminders when it comes to beneficiaries, be sure to list both primary beneficiaries and contingent beneficiaries. This can be very helpful if your primary beneficiary passes away, and you forgot to update your beneficiaries. If you list multiple beneficiaries, be sure to make it clear what percent each beneficiary receives of your retirement account. It is also generally a mistake to list your estate as a beneficiary because your heirs could lose the benefit of deferring taxes over a 10-year period and could instead have a large tax bill all at once. Another tip is to be sure if you or someone you know gets divorced that they update their beneficiaries. You probably would not want your ex-spouse to receive your retirement account. With the holidays coming up, it’s probably a good time to verify your beneficiaries to make sure the people you have listed are the ones who deserve your hard earned money when you pass. Check your coins, they could be worth a lot more than you think! With the price of silver now averaging around $50 per ounce, there are quarters and dimes that you may have that could be worth far more than the currency value. For example, if you have a quarter that was minted in 1964 or prior, the silver is worth about eight dollars. While a dime is only worth $.10 when you spend it, if it’s the same year or older as that quarter from 1964; it is worth roughly 35 times that amount or around $3.50. 1965 was an important year for coins because that’s the year when the coinage act ended the use of silver in dimes and quarters. Half dollars also saw the percent of silver in the coin drop from 90% down to 40%. If you do find some of these coins that could be valuable, don’t run to your local pawnshop or jeweler to cash in on the silver price. You’re far better off going to a coin dealer because there could be more value in the rarity of the coin than even the silver value. Due to the increased use of silver in electronics, medicine, solar cells, water purification, and other high-tech needs consumption is now double what silver production is on a yearly basis. What this means is the demand is real. It’s not like when the Hunt brothers back tried to corner the market on silver in the early 80s and it rose to $50 an ounce before regulators stepped in as demand now comes from real use cases. If you factor in inflation since the 80s, silver would have to exceed $200 an ounce today to be the equivalent of $50 an ounce back then. And people wonder why we prefer investing in businesses over commodities over the long-term. I believe public companies will far outperform the price of gold and silver in the long run. The chicken wars have become intense, and Colonel Sanders is losing Colonel Sanders, who I think everybody knows, is the star behind Kentucky Fried Chicken or better known as KFC. A little history lesson goes back to the 1930s when Harlan Sanders was serving his chicken in Corbin, Kentucky. The famous red and white buckets that hold 14 pieces of chicken came out in 1957. For many years this was an easy dinner for an American household. I’m sure many baby boomers don’t forget the joy of seeing that sturdy red bucket of chicken brought home by mom or dad when they were a kid. But now competition is tough in the chicken space with companies like Chick-fil-A, Dave’s Hot Chicken and newer to the scene Raising Cane’s. KFC, which is owned by Yum Brands, has experienced six straight quarters of same store sale declines and is now in fourth place in chicken restaurant sales and Wingstop could take fourth place next year. The reason for the change is that Americans now seem to not enjoy eating chicken off a bone and prefer nuggets and eating their chicken in a sandwich. A market research firm says people’s eating habits have changed tremendously and nowadays 26% of consumers eat their fast-food orders in their car. I also think they eat while they are driving, which I have seen unfortunately on the freeway. US fast food restaurants have seen menu listings for bone and fried chicken meals drop 72% in the past four years, but the Colonel is not taking this standing down as KFC has brought back its original honey barbecue sandwich which came out in the late 90s and is now at a discounted price of $3.99. KFC went head-to-head with Chick-fil-A saying our sandwich is bigger than yours and you can get ours on Sundays. For those who don’t know, Chick-fil-A is not open on Sundays. I don’t think we will see a big return of the 14-piece bucket of chicken, but I do think we’ll see a heated war for your dollars when buying chicken and the consumer should benefit. Has big government gone soft on big corporations? On Wednesday, I saw a headline that read “Meta wins FTC suit alleging it is a monopoly”. Andrew Ferguson, the FTC chairman, took on the case and took it trial. He said he was confident his agency would win, and the FTC stated, even though Meta doesn’t charge for the service or raise their prices, it could extract more money from its user's personal data by serving them with targeted ads. The judge ruled against the FTC and said it was easy to ignore those ads. The FTC was also going after Meta saying it had a campaign to buy upstart rivals rather than to compete with them. The judge ruled that Meta was shifting its emphasis because of competition. After Google won their recent case in court, which also benefited Apple, it seems to me that the courts are going easy on big business. November 14th was a big day, and no one noticed November 14th, 2025, was the day that Cisco reached $78 a share. Why is this a big day? 25 years ago, was the last time Cisco was at $78 a share during the tech boom. At that time in the newspapers and the media there were warnings like there are now about the exorbitant valuations of tech companies, but many investors chose not to listen. Looking back, the well-respected Barons magazine, which has been around for over 100 years with its first publication in 1921, was attacked for questioning the value of such a great company. At the time the cover story explained that the valuation stood at 130 times estimated earnings. Barons turned out to be right as by October 2002, the stock traded under $10 a share. So, congratulations to Cisco for reaching its all-time high of $78 a share, but investors should take note that there are many articles coming out these days about valuations of AI companies. Maybe some of them will not reach these highs again until the year 2050.
No surprise to me that there’s a glut of apartments on the market I saw the potential for this oversupply happening in San Diego a couple of years ago. It seemed anywhere you drove within a short distance you would see the construction of new apartment buildings. It is not just here in San Diego though as the glut of apartments is happening around the country. With the dynamics of supply and demand, if you’re looking for an apartment today, you’re in for a treat. In September rental rates had the steepest drop in more than 15 years. Landlords are now offering months of free rent, gift cards, free parking and some are even paying for your moving expenses just to get you to sign a lease. You may want to play hardball because in some areas they’ll even cut the rent on top of all those incentives. In September, 37% of rentals agreed to concessions like months of free rent. What caused the problem for landlords is during the early years of the pandemic, developers could not begin building apartments fast enough, especially in the Sunbelt area where there was a major population migration. It became the biggest apartment construction boom in 40 years, but because of the delay of construction permits and labor shortages, development took much longer than they had hoped. It seemed no one looked around to see all the apartments going up, and now they’re all competing with each other for renters. The landlords are hoping they can raise rents by the end of 2026 or at least sometime in 2027, but I don’t think they are factoring in how many apartments are online with more still to come. Based on the current apartment inventory and new apartments coming online, renters could be in for lower rent maybe perhaps until 2028. This will not be good for the housing market because rent for houses will be the next to fall and then people will have to factor in the affordability of renting vs buying a home. This would also likely hurt the demand for buying rental properties as an investment if you can't get as much rent as you thought. Are the large hyperscale companies like Meta, Microsoft, and Alphabet inflating earnings? Michael Burry, who was made famous by "The Big Short", made the claim that some of America's largest tech companies are using aggressive accounting to pad their profits. He believes they are understating depreciation expenses by estimating that chips will have a longer life cycle than is realistic. Investors are likely aware of the huge investment these companies are making in AI, but they likely don't understand how the accounting of the investments work. If a business makes an investment in these semiconductors/servers of let's say $100 B, that doesn't hit earnings when the money is spent as under generally accepted accounting principles, or GAAP, they are instead able to spread out the cost of that asset as a yearly expense that is based on the company’s estimate of how rapidly that asset depreciates in value. From what I've seen, these companies are generally depreciating their Nvidia chips for over 5 to 6 years. This seems to be a stretch considering Nvidia is on a 1-year chip production cycle, and the technology is changing quite rapidly. Burry estimated that from 2026 through 2028, the accounting maneuver would understate depreciation by about $176 billion and if Burry is correct, hyperscale's will have to write off AI capex as a bad investment, due to depreciation-useful life mismatch. This would then produce a major hit on earnings. While I remain a believer that AI is here to stay, I do believe there will be some big-time losers in this space given all the money that is being spent. Be careful chasing the hype as I do worry the fallout for some of these companies could be larger than many things possible. Burry has also warned this year that AI enthusiasm resembles the late-1990s tech bubble and recently disclosed options betting against Nvidia and Palantir. He also stated that "more detail" was coming November 25th, and that readers should "stay tuned." I know I'm definitely curious what other information he has! China is no longer just manufacturing; they are also beginning to innovate. For many years innovation was generally done here in the US, and we would have the products manufactured in China. China is no longer happy with this arrangement, and its research and development spending is up nearly 9% a year well above the 1.7% here in United States. In 2024, China filed 70,160 international patents which was about 16,000 more than the 54,087 patents the US filed. China also seems to be more advanced in robotics installing 300,000 industrial robots in 2024 compared with roughly 30,000 industrial robots in the US. It also has been noted that when it comes to worldwide sales of electric vehicles, 66% came from China. While these developments seem positive for China, the country is still experiencing problems with a slowing economy as they have seen fixed asset investment decline and a slowdown in retail sales. The population of China has also declined over the last three years, and the real estate market after four years has really taken away a lot of household wealth. China’s public and private debt continue to climb rapidly, which is becoming a problem for them as well. It is estimated that China is spending around $85-$95 billion on AI capital spending yet their economy is struggling as noted by the China Merchants Bank which talked about a 11% decline in consumption among customers and retail loans are now under pressure. China’s exports to the US are down 27% because of the tariffs, but worldwide their exports are up 8%. It was recently reported that Beijing banned foreign AI chips from Nvidia, Advanced Micro Devices and Intel from government funding data center buildouts. Currently, China cannot pass the US and its allies in producing the most advance semiconductors, but they’re making very good progress in developing mid-level chips and parts of the AI ecosystem. The US must continue to forge ahead because if we rest, China will be the world dominant power Financial Planning: 50-year Mortgage: Helpful or Hurtful? A 50-year mortgage is being discussed as a way to reduce monthly payments and help with affordability, offering borrowers slightly lower costs that could help them qualify for homes otherwise out of reach. Critics argue that these loans would saddle buyers with far more interest paid to banks and that many borrowers would never pay off such a long mortgage, but those arguments often miss the bigger picture. Paying a low rate of interest to a bank is not inherently bad if it allows someone to invest money elsewhere at higher returns, just as today’s homeowners with 30-year mortgages at 2% benefit greatly from not paying them off early. Also, most mortgages today are never fully paid off anyway because homes are sold, or loans are refinanced long before they reach maturity. A 50-year loan would be no different, especially since borrowers could always pay more than the minimum if they wanted to accelerate payoff. In practice, savvy investors would likely use the freed-up cash flow from 50-year mortgages to invest in higher-return opportunities, but most borrowers probably wouldn’t resulting in slower wealth accumulation for the masses without addressing the root cause of housing affordability. If used correctly, this loan could be a useful tool, but I fear the overall impact could be damaging. Does the US need Strategic Petroleum Reserve? In 2022, over 200 million barrels of oil was used to keep gasoline prices low in the US after Russia invaded Ukraine. Since then, very little oil has been replaced in the reserves. There are roughly 60 caverns at four sites between Texas and Louisiana. The caverns are roughly 1500 feet deep, which would fit the Chicago Willis Tower inside. To bring the reserve to full capacity of about 714 million barrels, the government would need to buy about 375 million barrels of crude oil. If the price was $60 a barrel, the cost would be $22.5 billion. But the big question is, do we really need to have that much oil in reserves? The Strategic Petroleum Reserve was established in 1975 shortly after the end of the Middle East oil embargo that ended in March 1974. Much has changed since then as back in the mid 70s; the United States was very dependent on foreign oil. Today, the United States is producing on average 13.5 million barrels per day. While our consumption is 20.3 million barrels per day, we are not at the mercy of anyone nation or region for oil like we once were. If we needed more oil, there would be the capacity to produce more than 13.5 million barrels of oil a day. So based on the numbers, I don’t think it would be worth $22.5 billion to fill up the reserve. Trying to fill up the reserve probably would also increase the price of oil as there would be added demand from the government. What are your thoughts? The new Paramount Skydance loses money maker Taylor Sheridan It’s only been a couple of months since David Ellison took over Paramount, which is now referred to as Paramount Skydance. Paramount was probably saved by what they call the billion-dollar man, Taylor Sheridan. He really climbed to fame after he created the hit series Yellowstone, and Mr. Sheridan seems to be a creative genius. When Paramount asked him to create new content for Paramount+, in a three-year timeframe he created seven new scripted series for Paramount, which really pushed the production teams to the limit. He created top of the line series from Tulsa King to the Lioness, and all have been big hits. Mr. Sheridan is waving goodbye to Paramount Skydance because apparently the new CEO, David Ellison, and he does not get along very well. You still have a few years left to watch the creativity of Taylor Sheridan on Paramount Skydance but beginning in 2029 after his contract expires, he’ll be working with entertainment company NBC Universal for a contract that is worth somewhere around $1 billion. It’ll be interesting to see what Mr. Sheridan does for content over the next few years at Paramount Skydance, as I wonder how engaged he’ll be. Ford’s electric truck known as the F-150 Lightning may be coming to an end Since 2023, Ford has accumulated $13 billion in losses on electric vehicles. Ford spent a lot of money on marketing and promotion of their electric truck known as the F-150 Lightning. Probably the nail in the coffin for this vehicle was the end of the Federal EV tax credit which caused sales in October to drop 24% in the US compared with a year ago. This was the first month without tax credit. It is not just Ford ‘s truck that has struggled, but sales of Tesla's Cybertruck have dropped dramatically this year and Rivian, who also makes electric trucks, has been cutting back on expenses including job cuts to maintain their cash. I remember concerns about electric trucks when they first came out as buyers worried that the electric pick-ups would run out of juice in the middle of a job or a long haul. The range for these EV trucks on a single charge is reduced dramatically when towing or carrying big loads or operating in cold weather. Ford's electric F series trucks have sold the most so far this year at 24,577 vehicles sold. That is about 7000 more than the Tesla Cybertruck. It appears this could be the end of EV trucks and big electric SUVs. For smaller electric cars, the demand is there from consumers, but it appears within the next 6 to 12 months you’ll probably witness more auto makers dropping their big electric vehicles. The president of Microsoft sells over 38,000 shares of his stock On Monday, November 3rd, Microsoft's Vice Chair and President, Brad Smith, sold a total of 38,500 shares of his Microsoft stock. It was done in two separate transactions. The first transaction was a sale of 30,411 shares with an average price of $518.49 and the second transaction that day was for 8,089 shares with a price of $519.21 for a total sale value of just under $20 million. He still owns 461,000 shares a value around $237 million, but could he have some concerns that are causing him to lighten up his position a little bit? After the most recent quarterly report, the stock sold off because of the high amount of money they’re spending on AI. In the most recent quarter, capital expenditure was $34.9 billion, which was above expectations. The stock closed last Friday at $496.82, which marked the first time since September 8th that it was below $500 a share. Like many tech companies, their stock trades at high valuations with a price/earnings ratio of around 35 times. We have been concerned with the high valuations of tech companies. Could this be a sign that even the top executives have some concerns about valuations? Protect yourself from AI scams with a code word Generative AI has become so good that it can mimic people’s voices like your son or daughter, and you can’t even tell the difference. To prevent you from being scammed by someone imitating your son or daughter that claims to be in need of money, you want to establish a family code word. The code word should be simple, but something not well known that you may put on social media like the name of a pet or the street you live on. You may want to come up with a code word that is something unique to your family and is easy to remember. You should keep the circle that has the codeword small and pretty much only in the immediate family. It may sound silly, but it would be a good idea to bring up the codeword with the family in private, so no one forgets it when it is needed. This isn't high tech where you have to change passwords frequently, it is lower tech and the only time you would have to change the password is if by chance someone in the family got divorced or someone accidentally told someone else that is not in the family about the code word. It kind of makes you feel like the old days of the spy world where before you can talk or send money you ask what the code word is. The job market still looks strong You may be wondering, how would one know since the major government data has not been released due to the shutdown? It is important to realize there are other sources that can be used to get some idea of where the job market stands. For instance, the Chicago Fed, which is separate from the federal government and still producing data, estimated that last month's unemployment rate was at 4.36%. This is remarkably close to the estimate in September of 4.35% and the BLS jobless rate in August of 4.3%. It does appear the job market is continuing to hold steady even with all the noise. Another source is ADP, and they said in the month of October private payrolls increased by 42,000. While September did drop by 29,000 jobs, that is still a net gain of 13,000 jobs over a two-month period. The Bank of America Institute also said there was no further slowdown in employment in October, based on the tracking of internal deposit flows. They found that payrolls were up 0.5% from a year earlier. Will the shutdown finally come to a close this past week? We should start seeing economic data from the federal government soon. Goldman Sachs estimates the Bureau of Labor Statistics will put out an updated schedule of releases in the early part of next week. We are now missing the September and October job reports and while we should see the September data soon, October's survey that is used to produce the jobless rate wasn't completed. This means we will not get a complete October jobs report, and other survey-based data like the October CPI will not be produced. Hopefully, the Fed can get more data before the December meeting on the 9th and 10th, as it is a coin flip as to whether they will cut rates or not. It has been quite a change since just a month ago when the market assigned a 95% probability that there would be a rate cut.
Apple CEO Tim Cook pulled three rabbits out of a hat Pulling a rabbit out of a hat is a pretty good trick, but pulling three out of a hat is nothing short of a miracle. In the spring of this year, Apple stock fell below $170 a share as it was faced with enormous tariffs on iPhones, the potential loss of a $20 billion per year payment from Google, and sales for iPhones seemed to be stuck in the mud. To handle the tariff situation, Tim Cook promised US investments of $600 billion over four years. This was not bringing iPhone production back to the US, but it was an investment of making AI servers in Texas and offering manufacturing training for US businesses in Detroit. Apple also announced a $2.5 billion commitment to make iPhone cover glass in Kentucky with Corning and a $500 million partnership to produce rare earth magnets in the United States. After this investment pledge, the President said Apple would be exempt from tariffs on imported electronics. To save the $20 billion yearly payment from Google, Mr. Cook sent Apple’s senior vice president in charge of services Eddie Cue to testify. He convinced the judge that technology shifts are so powerful that they can take down even the most massive companies. In other words, the judge didn’t need to impose harsh penalties, and the market would essentially take care of itself. And somehow consumers have been convinced that the new thinner smart phone called the iPhone Air is a must for any consumer. The marketing on this must be phenomenal because the iPhone Air has a weaker camera, a single speaker, a smaller battery with a shorter life and a higher price tag. Apple also convinced consumers that the rest of the iPhone 17 lineup was worth an upgrade. Apple is predicting up to12% revenue growth in the holiday quarter, twice what Wall Street estimated. So, in roughly 6 months the stock, after dropping to a low around $169 a share, it is up roughly $100 and somehow supports a price earnings ratio of 36. Congratulations to Tim Cook and shareholders of Apple stock. If anyone said they knew Apple would be fine either they have a crystal that really works, or they didn’t understand the problems Apple was facing. Going forward the road is still bumpy with operating expenses coming in slightly over $18 billion for the December quarter, a 19% increase year over a year and well above the 10 to 12% revenue increase that Apple's projecting. We don’t see any big drops in the stock coming up, but I still can’t justify the share price or see any reason why the stock will continue to climb going forward. In 2026 you could be buying stocks on the Texas Stock Exchange Businesses and CEOs are getting tired of the high taxes in New York City and the regulations that are costing them billions of dollars. Texas, which is known as a pro business state will be opening in Dallas the Texas Stock Exchange (TXSE). This has already been approved by the Security Exchange Commission (SEC). It is expected to see operations open for trading in the first quarter of 2026. The Texas stock exchange has the backing of JPMorgan Chase, who just invested $90 million into the new exchange. Large companies like BlackRock and Charles Schwab are also on board. It is backed by many businesspeople including billionaire Kelcy Warren, cofounder of Energy Transfer Partners, and billionaire Paul Foster, who founded the investment firm Franklin Mountain Investments. This could be a heavy blow to New York and New York City, who have been unfriendly to business because they felt like they have the only place in the country to trade. Now that New York City has elected Zohran Mamdani for mayor, it will be interesting to see how businesses respond since he says he will go after business and the wealthy to pay more taxes. The state of Texas has no income tax, but if you live in New York City you could pay a state tax of 10.9% plus a city tax of 3.9% and it doesn’t take long to get to those levels based on your income. Public companies that bought Bitcoin are getting worried The craziness of public companies riding the Bitcoin wave as it increased in value caused many of their stocks to jump even more than the increase in Bitcoin or other cryptocurrencies. But now that Bitcoin has pulled back from its all-time high slightly over $126,000 and has dropped about 20%, those public companies that bought Bitcoin are seeing their stocks drop far greater than the decline in Bitcoin. Roughly 25% of the public companies that bought Bitcoin as a treasury strategy now have a market cap valuation below the total value of their Bitcoin value. What companies were doing was they would invest in Bitcoin then sell their shares at a premium as their stock increased in value and then used those proceeds to turn around and buy more Bitcoin. Now that Bitcoin has declined, there’s no reason for crypto buyers or traders to buy those stocks and instead it looks like they have been selling them. As an example, CleanCore Solutions is now down over 80% since investing in Dogecoin and even a larger player like Japan’s Metaplanet, which is a top five publicly listed Bitcoin holder, has seen its stock decline around 60% over the last 3 months. If Bitcoin were to continue its decline, the company could be forced to sell assets, which could cause Bitcoin to fall even further. So far, this has not affected the company who started this craziness of buying Bitcoin in their treasury. I'm referring to MicroStrategy, which has changed its name just to Strategy and still trades under the symbol MSTR. Really all this company does is buy Bitcoin. Strategy owns roughly 640,000 Bitcoin and at today’s price it is worth roughly $70 billion. It is estimated that Strategy's average purchase price for Bitcoin is $74,000, so they seem to be safe for a while. However, stock investors in Strategy are probably crying the blues since in July the stock was around $450 and as of today it trades around $240, close to a 50% decline. As we have said for years, no one really knows what direction Bitcoin is going, it could be up or it could be down. But one thing is for certain, if those companies that bought Bitcoin and pushed the price higher, now need to sell it that will probably cause Bitcoin to fall further. Financial Planning: The Conflict of Interest around Universal Life Insurance Universal life insurance is often presented as a hybrid policy that combines features of term life and whole life, marketed for its perceived benefits of tax-deferred cash value growth and the potential for tax-free income through policy loans in addition to a permanent death benefit. However, realizing these benefits typically requires significant overfunding, meaning the policyholder must pay premiums well above the minimum needed to keep the policy in force. Universal life offers flexible premiums, but there are ongoing fees and costs of insurance, which increase with age, required to maintain coverage. Only premiums paid beyond those costs build cash value that can be invested. The problem is that agent commissions are usually based on the “target premium”—the minimum amount needed to keep the policy active, not the funding level required for it to perform as illustrated. This creates a conflict of interest, where many agents are incentivized to sell the policy but not to ensure it’s structured or funded properly. As a result, many universal life policies become underfunded, fail to accumulate meaningful cash value, and ultimately function as expensive term insurance. While some advisors structure these policies correctly, they are the exception rather than the rule. Because the life insurance industry is easy to enter and highly lucrative, it attracts many underqualified or self-interested salespeople. For most people, term life insurance combined with disciplined investing remains a more transparent and cost-effective approach that will outperform even the most efficiently structured life insurance, especially since the need for a death benefit typically declines by retirement. It’s important to regularly review existing life insurance policies to ensure they’re performing as intended and not quietly eroding in value over time. Sales of electric vehicles killed Porsche‘s profits Like other car makers, Porsche thought it was a good idea to come out with electric vehicles for their consumers to buy. Unfortunately, the Porsche buyer rejected electric vehicles, and this has destroyed the profits at Porsche, which had been known for financial stability and for over 10 years generally had double digit operating margins. The most recent quarter they reported a loss, which was the first quarterly loss in years. The numbers got worse from there. For the first nine months of the year, the profit was only €40 million. The company also reported €2.7 billion in one-time costs and write downs. Unfortunately, they believe by the end of the year that write-off could rise to €3.1 billion. The company is also dealing with a difficult Chinese market and tariffs from the United States. In my opinion, some cars should not be electric, which includes Porsche and the recent announcement by Ferrari to do an electric vehicle. I think that could have the same results as what Porsche experienced. New estimate show in 2033 retirees will lose $18,000 a year in benefits There are many misconceptions about what happens when Social Security becomes insolvent. Benefits will still be paid, but since there’s no money left in the plan, it will only be able to pay out what it brings in. In a recent survey by Allianz, 55% of Americans admit they don’t know much about Social Security or how it will fit into their retirement plans and 66% worry that Social Security will not be there when they retire. The $18,000 loss per year would be for the average couple, not per individual. Another issue that is not discussed as much is it is predicted that the Medicare hospital insurance fund will also be empty in 2033 and when that happens Medicare payments will fall by 11%. So, people getting less benefits are going to find it hard to find a doctor or medical facility to accept less. Social Security is a big part of household income for adults over 62 years of age accounting for roughly half of all their income. To fix the problem, either benefits have to be reduced, or taxes need to go up, or perhaps both. It’s important to realize that Social Security came out in 1935 when the average life expectancy in the United States was 61.7 years old. With the retirement age at 65, not many people were collecting Social Security. Today people in the US are living 16.7 years longer with a life expectancy of 78.4 years. This has not been taken into account over the last 90 years with Social Security and that’s why we’re in the mess that we are in today. As life expectancy improved over the years, the retirement age should’ve also increased at a proportionate amount. The best way to fix the problem is to extend the retirement age by five years or so, but only for the rich. The reason for this is American men born in 1960 that are in the top quartile by income are expected to live 12.7 years longer than those in the bottom of quintile. This is because they have more money and are generally in better health with better access to a healthier lifestyle. Also, since rich Americans live longer than poor Americans, they collect more from Social Security so they should have to work a little bit longer, which would reduce the length of time that they would collect from Social Security and also add an additional five years putting into the fund. Being in the top quintile myself, I would not have a problem with this and believe it is the fairest way to solve the problem. I’m sure some will disagree with me and unfortunately, I don’t think the problem will be resolved until whoever gets in office in 2032 is forced to come up with a solution. No President or Congress would want to make such an unpopular decision until they absolutely need to. Job losses are increasing in white-collar jobs What do Amazon, UPS, Target, Rivian, Molson Coors, Booze Allen and General Motors have in common? They all have recently been laying off white-collar jobs to improve efficiency. AI is partly to blame for these job losses, but also executives are putting more pressure on mid-level managers and employees to produce more per employee. On the opposite side, there are many opportunities in front-line, blue-collar jobs for those who have specialized work abilities. That would include jobs in various trades, healthcare, hospitality and construction. It has been difficult for the graduating class of 2025, who according to the National Association of Colleges and Employers have submitted more job applications than the class of 2024, but are receiving less job. The sad part is I don’t see this changing going forward even though the economy is doing OK. Businesses will continue to look for ways to increase profits by using artificial intelligence and forcing employees to work harder and perhaps more hours. The jobs that pay more and require a bachelor's degree could be the ones that are more likely to be replaced by AI than other positions. If you’re in a white-collar job, you may want to do everything you can to increase your production to prevent being a white-collar employee who is easily replaceable by AI. If I wasn’t a value investor, I would consider putting Tesla stock in our portfolio As a value investor, when we invest in a company, it must have earnings, and we refuse to pay more than 10 to 12 times the future earnings for any business. This automatically kicks out a company like Tesla because it trades for over 250 times this year's estimated earnings. I always say if you don’t stick to your discipline and find an excuse to break it, then you have no discipline. However, on November 6th Tesla shareholders voted on stock bonuses for Elon Musk, which would nearly double his share in the company from 13% to 25% if he hits very high goals. The market cap of Tesla, which is currently around $1.5 trillion, would have to hit $8.5 trillion in the next 10 years, more than likely an impossibility of very high goals. I do believe Tesla could see a stock decline in the near future because of the big buying spree in September before the expiration of tax credits for electrical vehicles. I've seen predictions by experts that Tesla will see a 40% or more decline in electric vehicle sales going forward. This could cause a nice drop in the stock, giving investors a buying opportunity. The reason why I would be looking at investing in Tesla is three-fold. First, Elon Musk always seems to pull a rabbit out of the hat. I also believe they will have robotaxis and autonomous driving vehicles in the future. Another futuristic thing that is probably closer than we think is humanoid helpers in homes and businesses that will be a growing industry. Both of these innovations will be under the Tesla name, unlike some other innovations that Elon Musk has come up with that are under different companies. Investors investing money in Tesla have to be prepared for a wild ride over the next 5 to 10 years, sometimes experiencing a drop of perhaps 50% or more. But there is no doubt in my mind that Tesla will make some good profits off Robotaxis and these human-like robots. The big question is at the current levels has the valuation priced in these lofty expectations? Have some retirees become too comfortable with gains in the stock market? Over the last 10 years, the S&P 500 is up around 237%. Unfortunately, there are some retirees who don’t understand the risk they’re taking and believe this will go on forever. If you follow us at Wilsey Asset Management on a regular basis, you may know we have done well investing but also at the same time are very cautious based on many factors which I will not get into today. We do tell people that you can still be investing in stocks when in retirement, but you have to look behind the scenes and see what you’re investing in and understand that all stocks are not equal. Some retirees are probably spending more money than they should based on their past performance and are taking extra trips, flying first class and getting locked into lavish retirement homes that require a large down payment of hundreds of thousand dollars plus high monthly fees. What people don’t understand is that yes, the S&P 500 is up about 237%, but there could be a 20% pullback at some time that actually lasts more than a few months. That does not mean that the 237% gain will fall to just a 217% gain, no it will drop your gain over 10 years to only 169%. Also, the emotional distress that will happen when the markets fall will probably cause some people to sell their investments because they don’t understand what they have and then invest the money in something very conservative. Never getting back what they lost for perhaps as long as 20 years or more. It is great that retirees are enjoying their retirement, but they have to understand the risk they are taking, and this is why a good financial advisor with many years of experience that understands how to value investments is the best path for success in retirement. There are some signs that the job market is breaking down, but it’s not all bad We have been watching the job market for quite a while, and it still looks stable. There has been bad news from some companies like Amazon, General Motors, Paramount Skydance, and UPS that collectively laid off 65,000 people. But it’s not all bad news as there is some good news to balance out the bad. Small businesses revealed in the latest National Federation of Independent Business survey that they are planning to hire new employees. Also, people are still traveling and staying in hotels along with eating out and this has helped the hospitality sector, which posted the strongest rebound in hiring for October when monthly payroll growth was up 13.8%. Normally, October shows a decline in the month. With the government shutdown occupying so much of the negative news, there are other companies doing well like Homebase that provides employee management software to 150,000 small businesses which employ roughly 2,000,000 people collectively. It’s important to remember that small businesses in the United States accounts for nearly 50% of all the US private sector jobs. While small businesses do remain cautious, many are still optimistic going forward. Also on the positive front, ADP reported last Tuesday that the four-week moving average of 14,250 jobs for the week ending October 11 is higher than the previous four weeks with only 10,750 jobs. The government shutdown does make accessing data about the economy a little more difficult, but with everyone in the business world trying to find information to run their business there’s some interesting companies providing worthwhile data.