SMART INVESTING NEWSLETTER
Gold Investment, University Endowments, Trade Wars & Home Prices, Converting Pretax, Apple Margins & Stock Drops, Global Recession Fears, US Trade Deal Growth, 2025 US Tourism, Bitcoin & Mag 7
Brent Wilsey • April 25, 2025
Should you invest in gold for the long term?
Gold has been a great asset to hold over the last year, but I remain a skeptic of investing in gold long term. I personally don’t own any gold nor would I recommend buying gold at this point in time. While the recent gains in the price of gold look attractive, given the fact it is up over 20% so far this year in a difficult market, the long-term results aren’t enticing. There are periods of time where gold has been a strong performer, but trying to guess those periods is extremely difficult. If we look at January 1980 gold reached $850 per ounce, but the important number here is that the inflation adjusted price was $3,486 per ounce. This means it was not until recently when gold hit $3,500 per ounce, we see an all-time high on an inflation adjusted basis and essentially you made no real gain for over 45 years. At the end of the day gold is just a piece of metal worth only what the next person will pay for it. It has no earnings, no interest, no rents. This makes it extremely difficult to value and given the added expenses for trading and holding gold, it just does not make sense to me. I will continue to invest in good strong businesses at fair prices as I believe that is the best strategy for long term wealth creation.
Why is the government supporting universities with large endowments?
I’ve never really thought about this before. I have known that some big universities have multibillion dollar endowment funds, but I did not realize that 658 institutions have approximately $874 billion, which is nearly $1trillion in endowment funds. When I dug a little bit deeper, I discovered that in addition to these universities receiving money from the federal government via grants, some pay little or no income tax and also get a waiver on property taxes. If you’re starting to get a little bit irritated at this point because your hard-working dollars are going to universities like Harvard that has a $53 billion endowment or Yale with a $41 billion endowment, you might be like me and think it’s time that things change. The cost of tuition at Harvard is $57,000 per year and the President makes about $1.3 million a year. The president of San Diego State University has a salary of $531,000 and the cost for one year of tuition is about $8700. I’m sure the students at Harvard do receive a more prestigious education than at San Diego State University, but is it 6 1/2 times better? Do the students that graduate from Harvard make a salary that’s 600% more than a graduate from San Diego State University? I don’t think so. I wondered where money from these endowments goes and basically 48.1% of endowment distributions go to fund student financial aid, 17.7% goes to academic programs and research, 10.8% is used for endowment faculty positions and nearly 17% of the endowment funds are used for other purposes. Wouldn’t it be nice to know what those purposes are? I think we need to take a hard look at what universities have in their endowment funds, their tax benefits and grants, and let’s have more students here in the United States benefit from those billions of dollars to get a good education as opposed to the fat cats in the Ivy League towers of the universities. One other point I found interesting was the investing philosophy for these endowment funds. The goal is to earn around 8% per year and pay out 4.5% to 5% to fund those various expenses. This should then allow the endowment fund to continue growing. A big problem is many have not been able to achieve that goal with only 25% of 152 schools that were surveyed being able to meet the 8% return over the last 10 years. The other concern is if they can’t cut expenses if there is a lack of grants, many endowments are not liquid. Harvard for example had 39% in private equity, 32% in hedge funds, 5% in real estate, 3% in real assets, and just 3% in cash. With all this said I really believe this system should be reviewed to better the entire country, rather than just the Ivy League system.
Could the trade wars hurt home prices?
We are starting to see some cracks in the housing market, such as the delinquency rate on FHA mortgages, which cater to the high-risk borrowers who can’t qualify for a conventional mortgage because they either have a small down payment or weak credit. The delinquency rate for FHA currently stands at 11% according to the Mortgage Bankers Association, it has not been at this level for 12 years. Unfortunately, and we warned against it, but many people have stretched themselves too far financially to get into a home over the last few years. Because it’s only been two or three years since they bought their home, after fees and commissions they may not have much if any equity built up in that home. Another area of weakness that is being seen is with the homebuilders who have really increased their incentives because they have more completed but unsold homes. The builders are getting a little bit worried because they have not seen this many homes sitting on their lots with no buyers since 2009. The average incentives for homebuilders is usually around 5% of the total value of the home, but we are starting to see some incentives around 13% from big builders like Lennar. The volatility of the 10-year treasury, which mortgages generally trade off of, has not been helpful because it has had a wide trading range lately. This then makes it difficult for homebuyers to lock in a good rate. At this point in time, I think I would be waiting to buy a home until maybe late summer. I think there should be some good deals at that point in time as the tariff war should continue to progress and we should have a clearer picture of the economy by that time.
Financial Planning: Why converting 100% of pretax is bad
Roth conversions can be a powerful tax planning tool, but like any tool, using it the wrong way can do more harm than good. One of the most common mistakes we see is the idea that you should convert all of your pre-tax retirement savings, like a traditional IRA or 401(k), to a Roth account. Everyone loves the idea of a tax-free retirement. When you convert money from a traditional IRA to a Roth IRA, you're moving it from a pre-tax account to a tax-free account, but there’s a price, the converted amount is considered income and you must pay ordinary income tax in the year of the conversion. Once converted funds grow tax-free. The best way to think about money in a pre-tax account is that it is deferred income. It will be taxed, it’s just a matter of when. When you make contributions to a pre-tax account, you are not receiving a tax deduction, you are deferring income to a future year. When performing a Roth conversion, you are voluntarily deciding to pay tax on that income, even though you don’t have to yet. This only makes sense if you are able to convert at a lower tax rate than you would otherwise be subject to if you did not convert. This most commonly happens between the beginning of retirement, typically in your 60’s, and the beginning of your required distributions at age 75. During that period taxable income is generally lower which means conversions may be done at a lower tax rate than when required distributions begin at 75. Required distributions can be a problem because if you have too much in pre-tax accounts, your required taxable distributions may push you into a higher tax bracket and trigger IRMAA. Roth conversions help this by shifting funds from pre-tax to tax-free, therefore reducing the level of taxable distributions beginning at 75. However there is an efficient amount that should be converted for every person. Converting 100% of pre-tax funds means you will likely be in a lower tax bracket after the conversions, and will potentially not have any tax liability at all. This doesn’t sound bad, but it means you likely paid too much in tax to convert the funds in the first place. Again, money in a pre-tax account is deferred income that will be taxed. The goal is to have that income taxed at the lowest rate possible. If you convert too aggressively you may be settling for a higher tax rate on the money coming out and not receive enough tax-free income from the Roth to justify it. Instead, structuring withdrawals and conversions to keep your taxable income consistently low all through retirement will result in a higher level of after-tax income.
History shows Apple stock performs poorly when margins decline.
We all know that Apple is a great company and that the stock has done very well over the past few years; however, history has shown that when the margins get cut, the stock drops and so does the P/E ratio. In 2015 the stock dropped 16% that year as gross margins took a hit and Apple’s forward PE fell more than 30%, which makes sense because why would investors pay up for declining profitability. It was worse in 2013 when the stock dropped by 29% as the annual gross margin fell more than six points due to higher expenses with the new design of that years iPhone. No matter what Apple does this year, even with the talk of trying to move production to India, it is estimated that the cost to build iPhones will increase by 50%. So far, for some reason Wall Street has not put that declining gross margin into their calculations yet. Maybe they’ve been too busy selling alternative investments and have taken their eye off the price of Apple stock. In our opinion, at Wilsey Asset Management this could be far worse than 2013 or 2015 as far as a margin decline and a stock decline is concerned!
The world is fearful of a recession!
Many countries around the world are preparing for a slowdown in their economy and why is that? It’s because the biggest consumer in the world, the United States, is saying it wants equal and fair trade. The administration is essentially saying if you make our exports more expensive to your consumers, we’ll make your exports to us more expensive for our consumers. Central banks in countries like India, New Zealand and the Philippines have already cut their rates and I believe more countries will do the same going forward. South Korea announced a multibillion-dollar package of emergency support measures to help support the auto sector, which will likely see a big drop off in car sales as US consumers will not want to pay 25% more for their cars. The peoples bank of China, which controls the Chinese currency, has continued to let their currency decline against the U.S. dollar, which makes their products less expensive for US consumers and our products more expensive for Chinese consumers. The Bank of England recently delayed selling UK government bonds as they wanted to wait for a better time because of the volatility in the world bond market. With more than 70 countries around the world wanting to talk with the US about making a deal before they see more tariffs in July, countries like Vietnam are talking about buying more liquid natural gas and agricultural products from the US. Other countries seem to be preparing for a slowdown as well with Canada making it easier for their workers to apply for unemployment insurance and Spain recently rolled out a $16 billion aid package. I continue to remain confident trade deals will start to come through considering the fact that the US is the world’s largest consumer and many other countries don’t want these tariffs to persist as it would be devastating for their economies.
Trade deals with the US are starting to blossom
It’s only been a couple of weeks since the major tariff announcement but some countries are working with the US to come up with trade that is more balanced. We do believe this process will take months, but it is nice to see some progress. Vietnam said it will buy nearly $300 million in new Boeing jets. Thailand said it will purchase corn feed and Europe said they would boost soybean purchases. South Korea is talking about participating in a $44 billion liquefied natural gas project in Alaska. The EU, which currently gets about 45% of its LNG from the US talked about boosting the amount they import. They currently get 20% of their LNG from Russia. Wouldn’t it be nice if we took all that business from Russia and we exported to the EU 65% of their LNG. India said its target is to increase their current trade with the US fourfold to $500 billion. The Prime Minister of Israel has promised to get rid of the countries $7.4 billion trade surplus for goods with the US. It is more difficult for some lower income countries to purchase US goods and they have either promised to not fight back or pledged to remove their own tariffs on US imports. There is still a lot more work to be done and remember some of these trade deals are very complex and could be up to 50 pages long. While there hasn’t been the announcement of a major deal, it is nice to see some progress and we believe we will see things continue to develop over the next few months.
Will US tourism drop in 2025?
Recently Goldman Sachs estimated a possible decline in US tourism would hit GDP by 0.3%. It is not a huge amount of a decline in the GDP at about $90 billion, but it would be nice to see that increase not decrease. What I believe the Goldman Sachs estimate is missing is that the ICE US dollar index has declined close to 10% so far in 2025. One would have to go back 40 years to find such a decline this early in the year. This could actually be a positive for tourism because it makes foreigners currency much stronger, allowing them to buy more here in the United States. This would make travel to the United States more reasonable. This would also be a positive in the cost of our exports and could make them more attractive to other countries. While it may sound like a negative, the decline in the dollar does come with some benefits. The important part is the decline can’t turn into a freefall as that would be problematic considering our reserve currency status. I don’t believe you will see this happen though since the United States is still one of, if not the strongest economies in the world. I personally will continue to invest in the United States as we go through these difficult few months of uncertainty. I believe we will see much better times going forward that could come by early to late summer.
Bitcoin is back above $90,000
I always hate writing about Bitcoin and cryptocurrencies, but I do stay up to date on it and it still makes no sense to me. I would still rather have a US dollar backed by the taxing authority of the United States government than Bitcoin that is backed by speculation of hopefully a higher price in the future. For a currency I would like to have a relative stable value not the 3 to 4% daily moves up or down that can occur with Bitcoin. With that said, Bitcoin has risen over the last few days apparently because crypto is pushing deeper into the banking system. There are crypto firms such as Circle and BitGo that are looking at applying for a US bank charter. They’re looking at a national trust or an industrial bank charter so they could take deposits and make loans. I think this could be a situation to buy the rumor and sell the news because when a crypto firm obtains a bank charter, they would then be subject to far stricter rules and regulations. This could expose many concerns in the future. It was only just a few years ago when we saw the downfall of Silvergate Capital and Signature Bank. If you remember, that was a rather scary time and the federal government had to step in and cover bank deposits well above the insured limit of $250,000. It is hard to tell what direction cryptocurrency or Bitcoin is going, but I still put it in the highly speculative category where investors can make a lot of money, but also lose their shirt as well. We still recommend that investors stay away from cryptocurrency unless you view it as a gamble, but I still think Vegas is more fun if you are looking at gambling.
Is the curtain closing on the Magnificent Seven?
In case you’re not sure of what these seven stocks are, the list is: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. As a group year to date, they are down around 20%, nearly double the S&P 500’s decline. Like all great things, eventually the curtain comes down and the show comes to a close. I am not predicting the end of the seven companies, but rather the excessively high valuations on their stocks that should come down to more reasonable levels. Only at that time would I recommend to buy these companies. Each one of these companies have their own headwinds and some of them are facing multiple headwinds. Just to give you some idea, starting off with Alphabet, also known as Google, for a second time in eight months a US judge has labeled Google an illegal monopolist. Keep in mind that they also pay $20 billion a year to Apple to be on the Safari browser default engine. From all that I have read on this case, I do have to side with the judge here. Amazon has been somewhat flying under the radar, but within the next few months, you will hear more about Amazon maintaining a monopoly as they are accused of using strategies to maintain its dominance. This includes price inflation, overcharging sellers, and stifling competition. The Federal Trade Commission does have a lawsuit against them, which will start ramping up within the next few months as a trial is scheduled for October 2026. Apple, in addition to headwinds with China and tariffs, has a lawsuit from the United States Department of Justice alleging that it monopolized the smartphone market and used its dominance to stifle competition. Meta Platforms is fighting with the Federal Trade Commission in court currently after being accused of purchasing Instagram and WhatsApp to fend off competition in the social media arena. This case from the FTC looks a little bit weaker to me. I would say there is probably a 50-50 chance it goes away, but if Meta were to lose, it could cost them 50% of their advertising revenue from Instagram. Microsoft appears to be in the clear from any government lawsuits for now, but their forward price/earnings ratio is still around 24 to 25 times and the amount of capital expenditures they have spent on artificial intelligence will likely cut into their forward earnings. There are also concerns with the lack of innovation in AI and the potential growth prospects. Nvidia was the do-nothing wrong company of 2024, but now people who thought the growth on their earnings could grow 50% for years to come have been rather shocked by the 34% decline in the stock from a high $153 to around $100 a share. We have talked about this in the past, but it appears that many companies that have over ordered chips for artificial intelligence have now backed off on buying more going forward. Lastly, Tesla has seen its stock drop from a high of $488 to around $240 per share, which is over a 50% decline will be hit hard by not only the tariffs, but also declining sales in China. Some US consumers are not happy with what Elon Musk is doing for the government and they could also weigh on US sales. This large drop in the Magnificent Seven reminds me of 25 years ago during the tech boom and bust. If history repeats itself, do not expect to have a 20-30% gain at year end if you are buying these stocks at these levels. I do believe you’ll be disappointed, not only over the next 6 to 7 months, but perhaps for the next few years to come.
We could be seeing lower car insurance rates in 2026 If you remember going back to 2022, auto insurance companies had to raise their premiums dramatically because of inflation for vehicle parts along with vehicle repair and maintenance. This caused insurance companies to increase their premiums but when states such as California tried to prevent them from increasing the premiums, the insurance company would pull out of the state until the department of insurance would allow them to raise their rates to match the cost of repairs. As we said back then, let the market forces work which brought insurers back into the state and now they are competing for your business. As an example, Allstate Insurance, which tracks their shoppers, said they experienced over a 9% increase from last year of people shopping for insurance. Economists say that over the last 12 months, personal auto insurance was only up 2% as of September, which was a huge decline from the 10% increase the prior year. Auto insurance companies have sharpened their pencils to remain profitable but also kept their customers by either offering lower rates or bundling policies to give consumers a better deal on their home and auto insurance policies. Don’t expect to see your auto insurance drop by 50% but if you shop around, you may get a slightly better deal and you won’t have to be concerned in 2026 about an increase in your auto insurance. Should you hang on to Berkshire Hathaway stock after Warren Buffett leaves January 1? On January 1, Warren Buffett will no longer be the CEO of Berkshire Hathaway. The top job will be given to Greg Abel, who has been at Berkshire Hathaway for 25 years. Mr. Buffett, who has been running Berkshire Hathaway for 60 years, says he will still be going into the office every day and will be there to answer any questions if needed. Knowing and seeing how Warren Buffett has acted over many years, he is not one that will voice his opinion unless he is asked. Mr. Buffett owns roughly 14% of the outstanding Berkshire Hathaway shares and that accounts for nearly all of Mr. Buffett’s net worth. Mr. Abel is currently earning around $20 million a year, and I don’t believe Berkshire Hathaway will do as well with him at the helm. I say that for a few reasons. One is that Warren Buffett built street credibility for over 60 years and Greg Abel is virtually unknown on Wall Street. Greg Abel has very strong operational experience and a good financial management background and will likely be a good CEO, but he does not have the professional money management experience to run such a large portfolio. Mr. Buffet gave 10% of the portfolio to be run by Todd Combs and Ted Weschler, whose investment performance has not done that well. Combs has also now taken a job at JPMorgan Chase, so it will be interesting to see how the investment responsibilities shift. Perhaps Mr Abel could hire an outside money manager, but that would be unproven, and I believe it would be risky to bring someone in from the outside. There is talk that Mr. Abel could also pay a dividend and add bonds to the portfolio and make it more like the other insurance companies. If that is the case, the days of the good long-term returns for Berkshire Hathaway are probably in the rearview mirror. Having a four-year college degree today does not a guarantee a good job I was surprised to learn that 25% of unemployed Americans are over 25 years old and have a four-year college degree, which is a new record high. It is a competitive market for them and while they should not just give up, they need to work and look extra hard to find a job that pays well. I’d also recommend not to set your expectations too high when it comes to income. The problems they are facing are a slowing job market and employers are being very picky looking for employees that not only have the four-year degree but also have experience to really contribute to the company's bottom line. Artificial intelligence has also taken away some of the starting jobs for these four-year graduates. If you have a junior or senior in high school, you may want to consider a different path than sending them to school for four years and spending all that money because they could just end up working at a job that did not require a four-year degree. If your son or daughter wants to do something in the trade industry, I would highly encourage you not to try to get them to go to college, but to let them follow their passion in that trade. Instead, you could put the money that you would’ve spent on college into an investment for them that they agree not to touch and by the time they’re 40 years old they’ll probably be far ahead of many who obtained a four year degree that did not help them get a high paying job. How far ahead? If you were to spend $50,000 on college, which is probably on the low side but invested that money earning 9% for 20 years would grow to $300,000. If they would wait 40 years that $50,000 would grow to about $1.8 million and provide a nice supplement to their retirement. Q3 GDP shows the economy is doing more than fine! We were supposed to get the initial release for Q3 Gross Domestic Product, also known as GDP, October 30th and a second estimate November 26th, but the government shutdown delayed the release until this last week. While it is old data, it does show the economy has been growing at a nice pace this year. Overall, GDP grew at 4.3% in Q3, which was well above the estimate of 3.2%. Consumer spending, which drives about 70% of our economy, grew very nicely in the quarter at 3.5%. Good spending rose 3.1% in the quarter while services spending saw an impressive increase of 3.7%. This is important considering the fact that services make up about 2/3 of consumer spending. This nice increase in spending contributed 2.39% to the headline growth. Private investment in the quarter was subdued as it subtracted 0.02% from the headline number. The volatile change in private inventories category was the main reason for that as it subtracted 0.22% from the headline number. Following last month's reading where private inventories subtracted 3.44% from the headline number, I wouldn't be surprised to see this category benefit the GDP report in Q4. Trade was actually a benefit in the quarter as it appears companies are still working through excess inventory that was brought in earlier this year. Exports rose 8.8%, while imports fell 4.7% in the quarter. This contributed 1.59% to the headline GDP growth. I don't believe trade will be as beneficial to the headline GDP number in future quarters. Government only contributed 0.39% to the headline number. While this report shows the economy and consumer has remained resilient, the concern is does it have an impact on future Fed rate cuts? Given where we are, I just don't see the need for much accommodation from the Federal Reserve in 2026. Could we see AI data centers located in space? When I was a kid back in the 60s, it was a big deal when a rocket went into space. Today not so much as there are over 10,000 satellites in orbit and nearly 4,000 launched each year and climbing. This is why Jeff Bezos, Elon Musk, and others are working on how to get AI data centers into space. It sounds crazy at first, but it is not so far-fetched considering once that a satellite is in orbit it has plenty of power from the sun. Yes, there are other issues such as controlling temperatures for the AI chips and the quick transferring of data back to the planet without long lag times. I do believe this is something that will happen in the future and in 10 years or so there are going to probably be thousands of rockets and satellites going into space on a yearly basis. All this talk about space brings to mind the world's most valuable aerospace and defense firm known as SpaceX, which is valued somewhere around $400 billion. There is talk in 2026 that you could see a public offering raising up to $30 billion. For those investors who have a long time horizon of 10 years and a strong stomach to handle all the volatility, SpaceX might be a great investment for growth investors. Proof that private funds aren’t worth what management says they are People often invest in private funds in areas such as equity, real estate, and loans because they don’t like market fluctuation. It’s ironic because they would rather have the manager who is getting paid somewhere around 1.5% for managing the assets come up with a value for those assets. Talk about the fox guarding the henhouse. You see the manager of the fund wants the value high to keep their fees high. We always explain to people the difference between risk and volatility. Remember, volatility is just the up and down movement in the portfolio which means it is not just the downside, but it’s the upside as well. Volatility should not be a problem for the knowledgeable advisor or investor. When looking at volatility versus the lack of liquidity in the private market, to me it's a no brainer that whethering volatility is the better choice. People are now getting a little bit impatient with private investments, and they want to get their money back. They are tired of waiting once a quarter to simply receive a small amount of their investment back. A couple of funds like the Bluerock Private Real Estate fund decided to go public and were surprised to learn that the net asset value of $24.36 a share was well above the market price that was established of $14.70, nearly a 40% drop. Another private fund called FS Specialty Lending that invests in loans had a similar story where they thought their net value was correct at $18.67, but when it went public on the open market, it dropped about 25% to $14. Looking forward, there’s no doubt that other private funds will turn to the public markets to try to make their shareholders happy. This is happening mostly because as returns for private funds and investors take as much of the assets as they can, the fund managers are left with reduced fees because of the smaller amount of assets, and they'll likely decide to end the fight and just list on the public markets. As always, our warning is, if you’re not in private investments, stay away and do not be sold a bill of goods. Stay with public investments and understand that there will always be volatility when there is a public market for your investment.
How did China’s trade surplus hit $1.1 trillion this year? The United States purchased around $450 billion of manufactured goods from China in 2024, but trade has dropped between the two countries so how did China have a record surplus of $1.1 trillion through November 2025? The current tariff on goods imported from China is around 37% according to the Tax Policy Center and imported goods from China have dropped dramatically. China has been able to increase their exports to other countries to more than compensate for the loss of exports to the United States which are down roughly 19%. China has seen an increase of exports to Southeast Asia of 14%, the European Union has increased 8%, and Latin America saw a 7% increase in exports from China. A big increase of 25% in exports to Africa was also very helpful to China’s manufacturing surplus. Even though they’re turning out more cars, manufacturing products and chemicals than ever before, it has created a very heavy competition in China which is pushing down prices, profits, and income for the Chinese manufacturing companies. There will not be another round of talks between the US and Chins until next year. At the last set of trade talks the US did lower our tariffs and China promised to buy American soy beans and end a plan to tighten the export of rare earths, which are critical and found in many products from jet engines to cars and many other electronics as well. We will continue to follow the developments of these trade talks as there should be more news coming next year! Finally some data on the labor market! With the government shutdown, a lot of the data for the labor market was delayed. We finally got employment figures for October and November, and they were interesting to say the least! To start, the October numbers looked horrific considering payrolls declined by 105,000 in the month. While this sounds troubling, it's important to remember all of those government workers on severance were still counted as employed until the severance ended. This led to a decline in government payrolls of 162,000 in the month of October. Losses in government payrolls continued in November, but at a much slower rate as they tallied 6,000 in the month. Since reaching a peak in January, government employment has seen a decline of 271,000 jobs. Looking at November, payrolls increased by 64,000, but healthcare continued to carry most of the weight as the sector accounted for more than 70% of the total net increase and added 46,000 jobs. Construction was also strong in the month as the sector added 28,000 jobs, but many other areas saw little change and transportation and warehousing was weak as payrolls declined by 18,000. Another concern in the report was the unemployment rate ticked up to 4.6%, which was above the 4.4% level in September and marked the highest reading since September 2021. Overall, when I look at the labor market it is definitely slowing, but I wouldn't say I'm overly concerned at this point in time. While it is concerning to see declines in the payroll level in three of the last six months, for the most part the private market has done a good job picking up the large declines in the government sector, which I view as healthy. I don't want to say our labor market is booming at this point in time, but I would still classify as relatively healthy. Inflation report shows great progress, can it be trusted? Headline November CPI came in at 2.7% compared to last November, which was well below the estimate of 3.1% and core CPI, which excludes food and energy, showed an increase of just 2.6%. This was the lowest reading for core CPI since March 2021 when the increase was just 1.6% and it also came in well below the estimate of 3.0%. Some areas in the report remained challenging particularly in food, where we saw uncooked beef roast climb 21.2% and coffee increase by 18.8%. Beef prices have struggled as cattle supply touched its lowest point in 2025 since the early 1950s and coffee prices have been hit by extreme weather in major coffee-producing countries as well as the tariffs levied on Brazil. Shelter inflation was positive in the report as the annual increase was just 3% and it's believed there is more relief coming for the largest weight in the CPI, which generally occupies around 1/3 of the headline number. If the inflation for shelter slows further, it would be very beneficial for the inflation rate as we progress through 2026. The big problem with this report is there are questions about how accurate the data is. Due to the shutdown, there was no data collected for the month of October, and the BLS was only able to collect data for about half the month of November as the shutdown did not end until November 12th. For the time being we are pleased with the results from this CPI report, but I do believe there will now be even more emphasis on the December CPI as that will be the first full month of data following the record-breaking government shutdown. Farmers will be receiving $12 billion to help with their difficulties this year Make no mistake American farmers have been having trouble for several years with a huge production of crops, but depressed prices with low demand compared to the supply. To help out the situation, Washington is sending $11 billion around the end of February as a one-time payment to the Farmer Bridge Assistance Program to help out US crop farmers. $1 billion will go towards other commodities that are not covered under the Farmer Bridge Assistance Program. Farmers need this money soon to help pay down debt that they have built up this year, and they can also use it for planting next year's crops. You may be wondering, what is the big deal and who really uses soybeans? Soybeans on an annual basis are about $124 billion, which is roughly 0.6% of the United States GDP and is the largest export of agricultural products by value. Almost 50% of the crop is exported with roughly half of that going to China to feed their livestock. If we can trust China this time, they have pledged to buy 12 million metric tons of American soybeans by early 2026 and then 25 million metric tons annually in 2026, 2027, and 2028. Unfortunately, at last count, China has only purchased about 2 1/2 million metric tons of soybeans, let’s hope they complete that purchase and stick to their commitment this time. Want to become a millionaire? Invest in your 401(k)! There are more and more people with $1 million or more in a 401(k) as companies like Fidelity and Vanguard are seeing record numbers of people with accounts of more than $1 million. Fidelity said they hit the highest level ever when it comes to 401k millionaires with about 3.2% of their 401k’s or 654,000 accounts now over $1 million. Vanguard also had similar numbers for 401k millionaires. Becoming a 401k millionaire is not a get rich quick scheme, but it's a proven way to build your wealth long-term with proper investment choices. It is estimated that roughly 86% of those with $1 million plus in their 401k are 50 or older. It is also estimated that around 1000 people per day become 401k millionaires in the US. The key to becoming a 401K millionaire is to invest wisely, which means not too aggressive, but also not too conservative. Also, when a portfolio drops, you cannot sell everything and wait for the market to get better, you or an investment professional must verify that you have good quality investments in your portfolio that can handle the financial storms and also it's important to continue adding to your portfolio during these difficult times. It is important not to pull money out from your 401(k) for any reason at all, no matter how bad you think the situation is, it will improve. It is much better to deal with problems when you’re young rather than when you're in your 60s because you did not let your 401(k) grow to over a million dollars. Financial Planning: Taking Advantage of Itemized Deductions Before December 31st With the repeal of the $10,000 SALT deduction limit, many taxpayers may once again benefit from itemizing deductions rather than taking the standard deduction, and there are practical steps that can be taken before year-end to further enhance that benefit. The SALT deduction includes both state income taxes and property taxes, and because individuals are cash-basis taxpayers, deductions are generally taken when expenses are paid rather than when they are due, meaning that paying certain obligations before December 31st can shift future deductions into the current tax year. In California and many other states, property taxes are paid in two installments, with the first due in December and the second due in April. If the April installment is paid by December 31st, it may be deductible in the current year instead of the following one. Similarly, the final state estimated tax payment is typically due on January 15th, but making that payment in December allows the deduction to be taken in the current year. Another significant itemized deduction is mortgage interest, and while mortgage payments are usually due on the first of the month, making the January 1st payment in December can allow the interest from that payment to be deducted in 2025 rather than 2026. In addition, charitable deduction rules are scheduled to change in 2026 and will be subject to an adjusted gross income (AGI) limitation, which means taxpayers who are charitably inclined may benefit from accelerating planned donations into the current year while the rules are more favorable. Taken together, these strategies tend to be most effective when income is higher in the current year, as accelerating deductions while in higher tax brackets results in greater overall tax savings. Check out the new high-tech company, Walmart If you’re like me, you remember Walmart being known as a retailer with good products at low prices. This was the original theme that the founder Sam Walton built the company on. The stock over the years generally did well but would never trade much above 20 times earnings. Today as the stock has risen about 25% this year, it has a market cap just under $1 trillion and trades roughly at 40 times forward earnings. If that sounds like a lot, it is and is higher than six of the Magnificent Seven stocks. On Tuesday, December 9th the stock began trading on the NASDAQ, which could give the company stock even more of a boost going forward as it is estimated passive investment vehicles like ETF’s and index trackers could add roughly $20 billion or maybe more to Walmart. One reason for the stocks’ impressive performance has been Walmart's strong net income growth, which has seen double digit percentage gains for the third year in a row. Walmart's earnings increase over the past few years has largely come from their US E-commerce sales, which have been growing by over 20% per quarter for 10 of the last 11 quarters. I was surprised to learn that Walmart can now deliver within three hours to 95% of US households, which is a huge increase from 76% just two years ago. Walmart now gets ad revenue from its E-commerce site, which has grown by about 30% in recent quarters. Walmart also has a paid membership like Amazon but currently only 18 million US households have a Walmart paid membership, far below Amazon's 107 million prime members. It looks like this is not Sam Walton‘s Walmart any longer. They have really taken lessons on how to enhance their revenue and earnings and I'm sure that has pleased the Walton family and other long-term shareholders. Even with the impressive results, I'd be careful buying any business at around 40x earnings. The big electric vehicle boom that never happened It was just about two years ago that people were saying in the next 5 to 10 years gas vehicles would be gone, and they’ll be nothing on the road but electric vehicles. Looking at how history has worked, I would comment and say yes electric vehicles are here to stay, but in the future consumers will have a choice of either a gas-powered vehicle, an electric vehicle or maybe a hybrid vehicle. Just like the story of Beyond Meat, where people thought eventually there would be no red meat left, we know how that story is unfolding with Beyond Meat struggling and plenty of red meat still being consumed. With electric car sales, they have fallen through the floor. In November, even the pure electric vehicle company Tesla saw sales declined by 23%. Ford has also been impacted by the lack of demand in EVs as it made a big investment in electric vehicles and also said in the future, it would only be making electric vehicles. Well, that whole plan has gone down the toilet, and Ford recently announced that they will take a $19.5 billion charge and go back to producing more traditional gas vehicles and focus more on hybrid vehicles. For investors history has proven that big changes don’t happen just in a few years and some changes never happen at all. The number of billionaires around the world continues to grow There are now about 2900 billionaires around the world, which is an increase of about 200 from around the 2700 billionaires we saw last year. The billionaires control a large amount of wealth considering last year the 2700 billionaires controlled about $14 trillion. With the growth in the number of billionaires and climbing asset prices, that has increased by $1.8 trillion this year to $15.8 trillion. You may be wondering how these people became billionaires; the primary ways were entrepreneurship or inheritance. Roughly 45% of the new billionaires made the class by inheriting money that was passed down from family. Because the numbers are so big, it is easy to see why people have been talking about this massive pending wealth transfer for the last couple of years. While others may not become millionaires or billionaires from an inheritance, many people will be receiving hundreds of thousands of dollars that will increase their net worth. You may be an heir to someone that is rather wealthy but understands things can change such as overpriced investments that could become losses, and sometimes medical expenses can wipe out some decent size estates. I still believe the best way to build wealth is to work smart and work hard, invest properly or run a business and come up with a product or service that fills a void. Risk on Wall Street is rising as prediction markets become more available Prediction markets, which are nothing more than gambling on sports, election results and economic data are now popping up everywhere. The obvious reason is that brokerage firms can make a lot of money off of people's weakness when it comes to gambling. The most recent addition to this craziness is Coinbase Global, which is adding prediction markets gambling to its crypto business. They’re calling it the everything exchange. I think that means you can pretty much gamble on anything you want. If you notice, I do not call this investing because it is not! It is speculation and gambling at the highest level. I presume the most likely people to lose money are the ones who can least afford it, and being allowed to do this on an investment platform is ridiculous. There are also other platforms like Flutter Entertainment's FanDuel, DraftKings, and Truth Social through a partnership with Crypto.com that will be entering the prediction markets space. There’s no doubt in my mind that this will end badly one day for many people, and they will probably look for help from the government or someone else that was more conservative with their retirement. Other critics point out that this market is lightly regulated and is more susceptible to insider trading and market manipulation. Have people not learned anything from the story of the three little pigs?
Another lawsuit against generative AI company Perplexity for copyright infringement The New York Times has had enough, and they have filed a lawsuit in a New York Federal court. In October 2024, the Times sent a notice to stop accessing and using their content and then followed up with another notice this past July. Perplexity continues to ignore the warnings and a spokesperson for the company, Jesse Dwyer, said publishers have been suing new tech companies for a hundred years starting with radio, TV, the Internet and social media, but that has never worked out for them. I think this is a little bit different since AI pretty much takes the content directly from the publisher and publishes it for people to read. The Times is also including infringements for use of its videos, podcasts and images. The Times said in the lawsuit they are seeking damages, which at this point is unknown and injunctive relief which includes removing all of the Times content from Perplexity’s products. This would be a major problem for Perplexity if they were to lose this case because the whole AI system pulls information from all across the web, and this would leave a big hole in the end result of Perplexity’s information. The Times is not the only publisher suing Perplexity, other lawsuits have been filed by Dow Jones and the New York Post. If one company were to win in court that would be a major problem for AI companies like Perplexity. First it would set a precedent and other publishers would likely sue, it could also lead to less accurate information as there would be less sources to pull data from. Just when Apple corrected their major problems, it looks like there’s a management drain Apple did a great job handling the proposed tariffs on its products, which would have devastated the company. Also, in court they managed to keep the $20 billion a year they receive from Google. But now, they seem to be fighting a management exit by some of their top executives. Over the last couple of weeks, it was announced that both their General Council and Head of Policy will be retiring next year. Another major concern was also announced in that timeframe that their Head of Artificial Intelligence and Strategy is also going to retire. Making matters worse, their Chief Operating Officer said he’ll be retiring in July of next year. Don’t worry about CEO Tim Cook being age 65, he said he is not considering retirement, and people at the company said he is not slowing down at all. It was also recently announced that Meta has taken from Apple a top designer named Alan Dye. Also Jony Ive, who is a Steve Jobs protégé and helped build the iPhone along with the Apple Watch, is heading over to OpenAI to help Sam Altman. It’s not just the top people leaving though as apparently dozens of Apple engineers along with designers who are knowledgeable in audio, watch design, robotics, and much more are also finding a new home at OpenAI. Running a major technology company like Apple and striving for new innovation makes it difficult when a company is losing top management and star engineers and designers. I don’t think this will cause a major drop in the stock short term, but it could be difficult longer term for the company when it comes to innovation and new products, which could concern investors in the years to come! It’s time to put some commercial property into your portfolio You may be questioning why would I put real estate like commercial property in my portfolio that over the last five years or so has had a return of maybe 7% versus stocks that have done much better? The simple answer is the basic investing principle of buying low and selling high. Looking forward, I believe commercial real estate over the next five years should get better returns than artificial intelligence considering the fact that it is very pricey. Data from MSCI revealed that year to date large investors have purchased $4.6 billion more US commercial property than they sold. That is the first time that has happened in three years, and deal activity is still low compared to history. US commercial real estate values are off from the peak in 2022 and are now down on average around 17%. Looking just at commercial offices, there is a better discount considering there are down around 36% from their peak. History shows this could be a very good opportunity. There’s only been two times over the last roughly 50 years or so when commercial property prices were down more than 10%. You have to go back to the early 1990s, which was about 35 years ago, and who could forget the 2008 great recession. How should you invest in office buildings and commercial property? The best and the easiest way is to use public real estate investment trusts, which are known as REITs. Please do not let your broker sell you private real estate of any sort so they can get paid a big commission. REITs that trade on the market are commission free and completely liquid unlike private real estate deals. With public REITs you can many times receive good investment yields between 4% and 6%. However, make sure to understand the fundamentals to insurethat dividend yield is safe. A history lesson shows that commercial property under performed from 1997 to 2000 when the tech boom was happening, but when the tech boom ended and went bust, commercial real estate did very well. Could the same thing happen now as there are signs that the AI rally could end? If you do invest in a good quality public real estate investment trust, you should have at least a 4 to 5 year time horizon to hold that investment. Financial Planning: The Benefits of Capital Gain Harvesting While many investors focus on tax-loss harvesting, harvesting capital gains can be just as valuable especially when you fall into the 0% long-term capital gains bracket. For example, in 2025 a married couple filing jointly can have taxable income up to $96,700 and still pay 0% on long-term gains. Because the standard deduction ranges from $31,500 to $46,700, and itemized deductions can be even larger, a household’s total gross income can potentially exceed $150,000 while still remaining in the 0% capital gains bracket. If an investor wants to keep the same investment, they can immediately repurchase it, since wash-sale rules do not apply to gains. However, even though the gain itself is taxed at 0%, the added income may increase the taxation of Social Security benefits, pulling more of those benefits into taxable income. For those who don’t face that issue, gain harvesting resets their cost basis and reduces the taxes they will owe later if they sell in a higher-income year when their capital gains rate jumps to 15% or even 20%. This strategy can also make sense for those currently in the 15% capital gains bracket who expect to be pushed into the 20% bracket later. Overall, capital-gain harvesting can be a powerful tool in years of temporarily low income. Should Meta Platforms change its name again? It’s been about four years since Meta changed its name from Facebook as they thought the metaverse was the place to be. Since 2020, Meta has seen operating losses of over $77 billion in what is known as its Reality Labs division; this includes the metaverse work. One can’t knock Mark Zuckerberg too much; he has built a tremendous social media network and has made billions of dollars. His current net worth depending on the movement of his stock is around $230 billion.... a little bit more than my net worth. But I have to point out he seems to be lacking in technology advancements; he is no Steve Jobs. He is now switching to AI wearables and believes this will be the next major computing platform, and he wants his company to be a big part of it. He has had some success with the Ray-Ban AI glasses, which have had about 2 million pairs sold this year, and he predicts next year they will sell 10 million pairs. The company seems all over the board because internally they are cutting roughly six hundred AI jobs. However, the AI division is offering $100 million pay packages to AI specialists to join his Superintelligence Labs. He has hired 50 people for these positions. If you do the math, that is $5 billion per year just in salaries. Maybe this will work out for him, maybe it won’t. But my question is should they change the name of the company to something with AI in it? Or should he drop his technology pursuit and stick with social media marketing and go back to the old name, Facebook! Competition is coming for Nvidia chips! Nvidia has been on top of the mountain for quite a while, but there are signs that other companies are beginning to gain momentum against the number one chip designer. If you think that can’t happen, realize no one company can stay on top forever. Just look at the history of Intel as an example. At one point no one could touch them. Amazon has come out with an AI Chip called Trainium3 that is produced by their AWS Annapurna Labs custom design business. They claim it can reduce the cost of training and operating AI models by up to 50% compared with systems that use the equivalent Graphics Processing Units or GPUs. The main function of the chips is to provide a stronger backbone of computing power for software developers. This has to be somewhat of concern for Nvidia, which virtually controls the GPU market. Google also recently announced that Meta was talking to them about buying billions of dollars of advanced AI chips known as Tensor Processing Units or TPUs. Open AI has made some deals now with AMD and also rather new to the AI market is Broadcom for custom chip design. Nvidia had a post on X that stated that their company chips offer greater performance, versatility and fungibility compared to the more narrowly tailored custom chips made by Google and AWS. We will see how this plays out going forward, and I would not be worried about Nvidia collapsing or going broke, but a stock decline? Maybe? Competition is part of business, but the problem for Nvidia is it could slow down the growth in their business. The risk in AI bonds is increasing as the AI build out continues People may be getting concerned with the heavy concentration of AI stocks in the S&P 500 now accounting for roughly 40% of the index. So maybe they feel it would make sense to reduce some of their stock exposure and put it into a bond index for safety. Well, surprise! You probably forgot that many of the companies building out the AI infrastructure are borrowing billions of dollars to construct the data centers and other needs as well. Investment-grade corporate bond indexes have seen the concentration of AI bonds increase by around 26% from just five years ago as the concentration in the index has climbed from 11.5% to 14.5%. It is estimated that at the current trend AI bonds could make up roughly 20% of the investment-grade bond indexes over the next five years. An investor may feel safe because many expect interest rates to fall going forward, which would increase the value of bonds. However, if AI companies who borrowed money to build out their infrastructure begin to struggle, don’t forget that a bond also has credit risk and that can lead to downgrades. Even though interest rates could be falling, a downgrade of a bond would have a greater magnitude than falling interest rates on the price of the bond. So if you’re looking at diversifying from the higher risk AI stock investments, and you’re thinking bonds would be a safe haven, you may want to look at buying funds or ETFs where the manager can control the amount and the type of bonds in the portfolio rather than just an index. Should you do a year end review for your investment portfolio? It seems like the obvious answer is yes, but I know time does go by very quickly and before you know it, the holidays are over and you never looked at your portfolio. Unfortunately, many investors just add or delete a piece throughout the year in the portfolio never taking a look at the full portfolio for balance and over concentrated positions and many times they miss the most advantageous way to manage the portfolio for taxes. I do want to point out an investor should never make taxes the primary focus as your goal should always be to increase the value of your portfolio and then see if there are ways you can reduce taxes. Investors should look at their portfolio at least at the end of the year to see if they have too much of any one type of investment. This could include too much in financials, real estate or with the recent run up in technology, obviously you want to look at that to see if you should pair it back to reduce the risk going forward. Since you are reviewing your investment portfolio, it’s a good idea to look to see if you just have too many accounts scattered around and figure out if it's making your life difficult keeping track of all of them. If you’re married the most you should have would be seven accounts which would include a retirement account at work for you and your wife. You may also have an IRA rollover you each set up along with some Roth IRAs and as a couple you may have another investment account that would be set up as either joint tenants or in your trust if you have one. There are always special circumstances, but try to keep your life easy by having as few accounts as you can for your situation. Lastly, when looking at your tax situation you only have a couple more weeks to do tax loss harvesting. If you understand what you are doing in investing, this can be a great opportunity, but don’t get focused on saving $1000 in taxes when next year that same investment may have grown by two or three times your tax savings. More concerns around private credit The private asset-backed finance market has doubled since 2006 to now over $6 trillion and it is expected to top $9 trillion by 2029. This market is now larger than the syndicated loan market, high-yield bond and direct lending markets combined. Asset-backed finance is when lending is done against an income stream, loan, or specific asset like aircraft, warehouses or even music royalties, rather than lending to a company based on its cash flow. While this should in theory help reduce the risk, with the massive increase the concern is the assets that are being collateralized come with lower standards and are increasingly exotic. As an example, after the recent bankruptcy of First Brands it is believed the same receivables were pledged to multiple lenders. My concern with all this being done in the private market is if there's a slowdown there could be problems beneath the surface no one knows about until it's too late. My advice is to again avoid the private market as the risk of the unknown is just too large! Why investing in hype names or stocks with no fundamentals is dangerous It can be so tempting when you see something with what you think is a can’t miss opportunity based on the name of the investment. Unfortunately, that is your emotions taking over and not your brain warning you about an investment that has no earnings and probably has no chance to ever be profitable. An example of this is investing or speculating on anything with the name Trump on it. This is not a political statement against the President, but an example of how even well-known names can have investments that falter. Reality has now set in on stocks like Trump Media & Technology Group Corp which trades under the ticker DJT and has fallen around 70% since the Presidential Inauguration. The large decline now has people questioning their investment. You may have also tried to latch on to the Trump family's crypto venture through a token called World Liberty Financial but since September that has lost around 40% of its value. Other types of gambles like Trump's meme coin is down around 90% from its high, and Melania Trump's meme coin has lost almost all of its value as it's down 99% from its high. The Trump coin, depending on the source had a high of over $100 and the Melania coin at one point had a market cap of $2 billion. I must ask what were people thinking? If you lost money in these investments, just come to the reality that you were gambling and not investing and your risk of losing money was very high. Maybe you like the thrill and the excitement, but if you want to grow a good portfolio, don’t invest in any investment or stock that is losing money and has very little chance of making money in the future!
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.