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.
Retail sales are still surprisingly strong Although the labor market has been softening and consumers say they are worried about inflation, people are still spending money. August retail sales were up 5% compared to last year and if the annual decline of 0.7% in gasoline stations was excluded, sales would have increased 5.5% compared to last August. Strength was broad based in the report and outside of gasoline stations the only other major categories that saw declines were department stores where sales were down 1% and building material & garden equipment & supplies dealers, which fell 2.3%. Non-store retailers continued to be a dominant category as sales climbed 10.1% and food services and drinking places still saw impressive growth of 6.5%. It's because of reports like this that I worry the Fed may make a mistake if they cut rates too quickly. If they overstep, they run the risk of overheating the economy and putting added pressure on inflation. Are quarterly reports necessary for public companies? President Trump floated the idea of switching company reports from quarterly to semiannual. It appears Trump believes this will help companies focus more on the long-term business performance rather than fixating on short-term quarterly numbers. There's also hope this will save time and money for public corporations. The SEC acknowledged they are actively looking into the plan as a spokesperson for the agency stated, "At President Trump’s request, Chairman [Paul] Atkins and the SEC is prioritizing this proposal to further eliminate unnecessary regulatory burdens on companies." Being a long-term investor, I can see the benefits of changing this requirement as one quarter should not dictate your decision on whether you should buy, sell, or hold a business. Ultimately, a change like this wouldn't have a real impact on my investment philosophy and if this enabled companies to focus more on the long term and helps with costs, I would be in favor of giving companies the option to make this switch. In terms of the long-term focus, both Jamie Dimon and Warren Buffett have spoken out against not necessarily the quarterly reports, but the quarterly guidance. In a 2018 op-ed piece for the Wall Street Journal, the pair said, “In our experience, quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability.” As for the regulatory burden, I'm sure there is hope this would help entice companies to come public. There has been a huge shift in companies staying private longer and I do believe the compliance piece deters some from coming public. I'm sure there are other reasons for staying private, including control and other liquidity avenues that weren't as prominent years ago. Nonetheless, it is concerning that the number of publicly listed companies in the U.S. has fallen from more than 7,000 in 1996 to around 4,000 today. Is your financial advisor "quiet retiring"? You may not completely understand what “quiet retiring” means, but a few years ago, my son Chase and I were on the Dr. Phil Show because they were doing an episode on what they called “quit quitting”. Chase and I were on the pro side for business and working hard, while the other side essentially felt they should still get paid the same amount and not work hard. So, I have coined the phrase, “quiet retiring”. I have been seeing this happen in the financial service industry, especially considering the fact that the average US financial advisor is 56 years old. I have noticed more of them feel they deserve to play more golf or travel more than the average person since they seem to be in retirement mode. They are not telling their clients this and they have their admin staff handle most of the routine details so you, the client, really don’t know that they are not working that much behind the scenes. Hence the term "quiet retiring". Something you definitely should find out is how much your financial advisor is working? Especially if they're in their mid to late 50s because you may not have the person with the most experience watching your investments. This is very important when it comes to preparing for and weathering through difficult times. If your financial advisor is talking about retiring in the near future, be sure to understand fully what the succession plan is and who you will be dealing with. It has now been known in the industry for a few years that the average age of financial advisors is getting older and less younger advisors are coming into the industry. Be sure you understand who your financial advisor really is, who is watching your portfolio and is your investment advisor one of those that is quiet retiring? Understand the risk of low rated bonds Some investors rightly so have started selling some stocks and they are not excited about buying more stocks at this time. As we’ve been saying for quite a while now, we think this is a wise move to sell some stocks that are overpriced, but unfortunately, it seems investors got used to the high returns and they have turned to low rated high-yield bonds. According to JPMorgan Chase, issuance of junk rated bonds and loans hit a monthly record of $240 billion in July. In 2025, $930 billion has been raised through junk bonds and loans. Add that to the over $1 trillion in junk bonds from 2024 and you can see that the risk for investors is starting to increase. Most investors will not buy these individual junk bonds, but they have been plowing money into the high yield mutual funds and exchange traded funds, also known as ETFs. If you dig a little bit deeper, you find some companies are raising money foolishly like a company called TransDigm Group. The company issued nearly a $5 billion high yield bond in August to pay a dividend to their shareholders. We like companies that pay dividends, but it should be from cash flow not from borrowing money that has to be paid back. Business development companies are also back in the news, and these businesses make private loans to small and midsize companies. Over the 12-month period ending in June, private loan activity increased by 33%. I have similar concerns with business development companies and private credit, which I believe will have a crash sometime in the future and cost investors more money than they anticipated. The current default rate on higher yield bonds is 4.7%, which is not bad, but it is not good either. If interest rates on the long end were to increase, which I think is a good possibility the need for debt increases. This could slow the economy and cause some of these smaller companies that have these high-yield loans to default and file bankruptcy, which means investors would lose money. It is nice to get a 10 to 20% return on your portfolio, but sometimes when things are expensive, you have to be conservative and while that may cost you some of the upside, the downside can be a lot nastier than you realize! Financial Planning: Dealing with underwater cars About a quarter of vehicles traded in today carry negative equity, with the average shortfall around $6,500. This happens because cars depreciate quickly, and the trade-in value offered by a dealership is the lowest number you’ll see—less than what you might get in a private sale, and well below the dealer’s eventual resale price. Because of this depreciation, about 40% of financed vehicles on the road carry negative equity. While it’s possible to roll negative equity into a new auto loan, that often creates a deeper hole: you’re financing more than the car is worth, and the new vehicle immediately begins its own depreciation cycle. Lenders may approve the loan, but the higher loan-to-value ratio can lead to higher interest rates or tighter terms. GAP insurance can be used to cover the difference between a car’s actual value and what’s owed in the event of a total loss, but it doesn’t prevent the financial strain of trading in too early, and it comes with an extra cost. With so many vehicles underwater, the safer move for most people is to keep driving the current car until the balance catches up with its value rather than trading in and compounding the problem or bring more cash to the deal, so you don’t have to finance as much. Who will benefit the most from the Federal Reserve rate cut this past week? You may think it is people looking to buy a home, but that is incorrect because mortgage rates generally follow the longer-term 10-year treasury yields rather than overnight rates. Real Estate developers, who borrow on the short term to develop different projects will benefit from the short-term lower rates. Who benefits the most will be the United States government with their massive $37 trillion in debt. This is because they should be able to get a better rate on short term debt issuance. The other concern with the federal debt is roughly 61% will mature in a little over two years. This puts the government in a precarious situation as they will need to determine how to best finance these debt maturities. On the current path, by 2029 the interest the government pays on their debt would be close to 4% of GDP. It is also estimated that on the short term, a one percentage point cut in rates would lower interest costs by 0.51% as a percent of the current GDP. Other than the psychological advantage, the consumer will not benefit much. The reason for that is chief global strategist at JPMorgan Asset Management, David Kelly, noted in a research note that the reduction in interest rates reduces household income more than what they save on interest expense. His calculation is that a one percentage point drop in short term rates would be a decline in interest income for household of roughly $140 billion annually in money markets alone. This number does not include all the short-term CDs and T-bills that will come due in the near term at lower rates as well. In 2025 who is performing better gold or Bitcoin? One would think with a higher risk, Bitcoin would be outperforming the more conservative inflation hedge of gold. But that is not the case, year to date gold is up a surprising 39%, which is almost double Bitcoin's gain for the year of 22%. There is still crazy talk of companies like Eightco Holdings that announced a private stock sale and said it plans to use the money to buy Worldcoin, which is a cryptocurrency that is backed by OpenAI founder Sam Altman. I guess that’s more competition in the crypto world for Bitcoin? Bitcoin currently has a market capitalization of around $2.2 trillion, and I was surprised but also disappointed to see that corporate treasuries now hold roughly 6% of the total Bitcoin supply. If you do the math that is roughly $132 billion of Bitcoin. It’s important to note that the aggressive company called Strategy, which used to be MicroStrategy, run by Michael Slayer holds over half of that amount with an estimated value of about $72 billion. I couldn’t resist but take a look at the market capitalization of this company and discovered it’s at $95 billion, not much more than the cryptocurrency it holds. It looks at this point that if you want to hold cryptocurrency, you’re far better off to hold it yourself rather than buy this stock, which had a high this year of $543 and is now down 39% from that peak. On a side note, the company has been denied membership in the S&P 500. I was glad to see that this crazy company got rejected from what should be a more conservative index. If you like going to concerts, you may have interest in investing in StubHub You may enjoy going to concerts and events and feel like you’re spending a lot of money on the tickets through a well-known company called StubHub. In 2024, in the United States total concert and event sales were nearly $430 billion. I’m sure you have thought about how great it would be to get a piece of the action. One possible way is by buying StubHub, ticker symbol STUB, since it is now a public company, but based on some recent information I saw about the business, I would recommend you just spend your money on the tickets, not on the stock. If you ever wondered how much StubHub gets from the fees, it’s around 20% of the total price of the ticket which averaged around $200 last year. That may sound enticing, but competition in the secondary ticket market is coming on strong from companies like Ticketmaster and Live Nation. The Federal Trade Commission is now requiring total fees for tickets to be displayed at purchase to avoid what is known as bait and switch tactics. Even the musical acts themselves are tired of the premiums charged for tickets and some tours have invalidated any tickets that were sold at a premium on the secondary market. The primary ticket market, which is much larger and is around $150 billion annually, is currently dominated by Ticketmaster with a market share of over 50%. StubHub just recently entered this market last year and is hoping to gain share, but once again there’s heavy competition, which is not a good thing for an investor in a business. We don’t like competition because there’s no moat to prevent people or other companies from reducing prices to take some of your market share and reduce or eliminate your profits. It looks like the market may have seen some of these concerns as it was not overly excited by the IPO considering the price action was quite lackluster. The IPO price was $23.50, and the opening trade came in at $25.35. While it did climb as high as $27.89, it actually ended the day below the IPO price at $22. Can the Trump administration fix the housing emergency? Treasury Secretary Scott Bessent recently said the administration may declare a national housing emergency. This may sound very appealing to the roughly 75% of American households that can’t afford a median priced new home, this data is according to a builder's trade group. I would believe those numbers considering we have a housing shortage that started back in the aftermath of the 2008 global financial crisis. Since then, 20 million households have been formed, but yet only 18 million new homes have been built. There was a lot of concern from builders that they could get hit hard like they did in the 2008 Great Recession, and they became more hesitant about building too many homes. They didn't want to get stuck with them or have to sell them below their cost. The question is, what could the US government do to help bring down prices? A large portion of the housing prices come from local laws and zoning along with a difficult permit process to build homes. These roadblocks come from local governments and are quite the revenue generator for them. I doubt that they would be willing to give that up to let the federal government control the process. Another problem in many high demand areas such as the Northeast is would they be willing to give up local regulation over control of safety and environmental concerns. I do believe a push in this direction would lead to unfortunately more court challenges that cost more money and tie up our legal system and while an emergency may be announced nothing will likely get done. Will we get more bank mergers? This has been talked about for the past year or so and the number of bank mergers has increased with 118 bank mergers so far this year worth almost $24 billion. In 2024 for the entire year, 126 deals were completed for $16.3 billion. In 2023, only 96 deals were made with a total value of $4.1 billion.1998 was the peak of deal making for banks when 500 deals were completed. There is talk that we could see as much as $100 billion in bank consolidation within the next few years. The table appears to be set for that to happen with the Trump administration reducing many of the stringent merger guidelines and providing a more favorable attitude towards such activity. We also have the prospect of lower short-term rates, which helps in deal making because funding costs are less expensive and at this time we have favorable valuations with potentially higher multiples. Many banks have stronger balance sheets than they did just a few years ago, which allows them to make more deals. With over 4400 banks of different sizes in the US, we have the most banks of any major country around the world, but even that number is down 75% from 1986 when we had over 18,000 banks in the United States. Generally, when a bank acquires another bank, the bank being acquired increases in value. Some potential names that look like they could be absorbed would be Zions Bank Corp. in Salt Lake City, Eagle bank Corp. in Maryland, First Foundation located in Irvine, Texas, and BOK Financial in Tulsa, Oklahoma. Before taking advantage of any of these potential bank takeovers, be sure they have strong fundamentals. You want to make sure that in case a takeover doesn't happen, your investment will give you good dividends and growth in the years to come.
Should members of Congress be allowed to trade stocks? I recently saw there was a bipartisan bill presented in the House that would ban lawmakers from trading individual stocks. I feel like we have been hearing about this for years, and according to NPR, “For more than a decade, a series of bills have been proposed to address such trades, but differences about the details and a lack of support from top congressional leaders stalled past reform efforts.” The question is, will this time be different? The bill made me curious though about how active congress was when it came to trading and let’s just say I couldn’t believe the numbers! In 2022 154 members of Congress made 14,752 trades, in 2023 118 members made 11,491 trades, in 2024 113 members made 9,261 trades, and through July of 2025 108 members made 7,810 trades. That is a crazy amount of activity and I’m not sure how they even have time for that. Their returns were also quite impressive with Democrats producing an average return of 31.1% in 2024 and Republicans producing an average return of 26.1%. For reference, the S&P 500 was up 23.3%. The numbers were quite staggering when you look at the individual performance of some of these politicians. In 2024, Rep. David Rouzer (R-NC) was up 149.0%, Rep. Debbie Wasserman Schultz (D-FL) was up 142.3%, Sen. Ron Wyden (D-OR) was up 123.8%, Rep. Roger Williams (R-TX) was up 111.2% and Rep. Nancy Pelosi (D-CA) rounded out the top ten with 70.9% return. These are hedge funds that are beating returns in several cases! Personally, I think it is ridiculous that politicians can trade individual stocks, and I hope there is finally action in Congress that ends it! There are risks to Nvidia stock that you may not realize! There is no denying what Nvidia has done has been extremely impressive, but one major problem with the company is the revenue is extremely concentrated. Their top customers made up 23% of total revenue in the recent quarter, which was up from 14% in the same quarter last year. Their second largest customer made up 16% of total revenue, which was up from 11% in the same quarter last year. Sales to four other customers contributed 14%, 11%,11%, and 10% of revenue respectively. This means that six customers accounted for 85% of Nvidia’s total sales. My concern is what if one of them drops out of the AI arms race or if a few of them pull back spending, that could really slow Nvidia’s business. I also believe that China is a risk to Nvidia. While sales have been hindered in the country due to political constraints, I believe many investors are looking to China as an area of potential growth for the company. All I can say to that, is do you really think the Chinese government wants Chinese companies using Nvidia chips? It was reported that Alibaba has recently developed an advanced chip, and I’d assume Huawei and other Chinese companies are racing to compete against Nvidia. While Nvidia stock essentially just keeps climbing, it’s important to realize there are several risks that could take the stock down! Understanding more about AI and why it's becoming more expensive We are no expert on artificial intelligence, but we have learned that while AI has gotten smarter it has also gotten more expensive. It is now broken down into a unit of AI which is known as a token and while the price of tokens continues to drop, the number of tokens needed to accomplish a task is increasing dramatically. There are two basic attributes to AI, one is called training, and the other is AI inference. The increase in cost is coming from the training side that has to use large models and demands even more costly processing. AI applications are using so-called reasoning and new forms of AI double check queries on their answers, which may include scanning the entire Web. Sometimes they write their own programs to calculate things all before releasing an answer that may only be a short sentence. Delivering meaningful and better responses takes a lot more tokens to complete that process. Looking at examples, basic chatbot Q&A requires 50 to 500 tokens. Short document summaries can be used anywhere from 200 tokens to 6000 tokens. Lawyers and paralegals who use legal document analysis require 5,000 to 250,000 tokens. If one is trying to do multi-step agent workflows, well now you’re looking at 100,000 to over 1 million tokens. Please understand when we talk tokens we’re not talking about anything that has to do with cryptocurrencies, and this is a different token pertaining to AI. Some big companies are spending $100 billion a year or more to create cutting-edge AI models and building out their infrastructure. However, for all that investment there needs to be a return on investment, and businesses and individuals will eventually have to pay more for artificial intelligence. The CFO of Open AI said last October that 75% of the company’s revenue comes from your average person paying $20 a month. Currently the cheapest AI models, which includes Open AI‘s new ChatGPT – 5 nano is costing around $.10 per million tokens but go to the top-of-the-line GPT -5 and that costs about $3.44 per million tokens. What they are trying to figure out is what the consumer will pay for AI. There is also concern about how long the big giants can keep up this spending when they’re competing with their own Financial Planning: 529 Withdrawal Pitfalls A 529 plan is a tax-advantaged savings account designed to help families pay for education costs, with contributions growing tax-deferred and withdrawals tax-free when used for “qualified education expenses” such as college tuition, fees, books, and room and board. A qualified withdrawal avoids taxes and penalties, while a non-qualified withdrawal means the earnings portion (not contributions) is subject to federal and state income tax plus a 10% federal penalty. The IRS also allows up to $10,000 per year, or $20,000 in 2026, per student for K–12 tuition, and under the One Big Beautiful Bill signed on July 4, 2025, Congress expanded 529 qualified expenses to include not just K–12 tuition, but also fees, books, and required supplies for primary and secondary education. However, California does not conform to this expansion and continues to treat K–12 withdrawals of any kind as non-qualified, taxing the earnings and applying a 2.5% state penalty. This mismatch means California families using 529 funds for K–12 costs may face unexpected taxes and penalties despite the new federal flexibility. Keep this in mind if you are considering funding a 529 plan. Should you buy the new iPhone or work with what you have? On Tuesday, September 9th, Apple launched their new iPhone and while there was a lot of excitement around the event, I just don't see what's exciting about the limited changes. If you are excited about the new features though and if you’re a techie, you probably want to get the new iPhone just to brag about it. But if you want to be financially smart, you need to think about maybe you really don’t need a new phone. The new iPhone 17 is supposed to be the best ever, which is of course what they are going to say. The cost of the new iPhone 17 is expected to be between $800-$1200. If your phone is seven years or older, you may start running into problems with updates, which could include security fixes and updated software. Apple may not support your phone so maybe it would be wise to buy a new one. Your phone may be feeling slow or short on battery life, but there are repairs that can correct that situation for you and are far cheaper than buying a new phone. Repairs could be anywhere between $100-$350 and be sure to check out a good independent shop but be aware they may use third party aftermarket parts. You may be thinking, "what’s the big deal? It’s only $800" but it’s important to remember that a few hundred dollars here and a few hundred dollars there adds up and before you know it, you're way over your monthly budget. Also, think about what you’re saving on repairing your phone versus getting a new one. That is money that you can put away into your emergency fund or hopefully invest it for long-term growth to increase your net worth. Think about how it will grow over time and when invested properly, you’ll be very happy that you didn’t waste that few hundred dollars extra on a new iPhone. It will be interesting to see how "different" the new model really is! Here’s another indicator showing how overpriced the S&P 500 is! There are four main valuations used when valuing a public company or a stock. The most common one is what investors are paying for the earnings, that is known as a price to earnings ratio. Another one that is fairly well known is price to book value, which looks at how much you are paying for the assets, minus the liabilities of a company. The price of cash flow is not as well known, but we believe that cash flow is very important for businesses and like the other ratios, we don’t want to overpay for it. The last one that has been around for many years is the price to sales. This can be one of the best indicators because unlike price to earnings, there’s no way for a company to pad or manipulate the sales, they are what they are. As of now the S&P 500 is trading at 3.23 times sales, which is an all-time record high. When it comes to the price to earnings, the ratio is also high at 22.5 times projected earnings. While this is not a record, it is well above the average of 16.8 over the last 25 years. Some people are ignoring the valuations saying that the companies are worth these higher values, but as I said they are well above historical averages. The other problem is many of these popular names pushing the indexes higher are crowded trades and it seems like everyone is in those stocks. The problem is, if almost everyone is in those stocks and there is a pullback for any reason, there are not many people that have extra capital to step in and buy more. We have also talked about margin hitting a record high of $1 trillion and the problem here is if people have margin on their accounts, they could be hit with margin calls perhaps taking away what little cash they had left or they could be forced to sell out of the stock, which would create more downward pressure. No one knows what will cause the bad news for a fall, but it will likely come out of left field. That could then lower future expectations and that is when valuations will matter. The decline could be larger than people realize. It’s always important to understand what you are paying when you are buying stocks. Remember they’re not gambling chips; they are small pieces of large companies that trade based on valuations. Does the BLS need to change the way they calculate the job numbers? While we know the labor market has been softening, I was quite surprised to see annual revisions to nonfarm payrolls data for the year prior to March 2025 showed a drop of 911,000 from the initial estimate. This is a huge change considering the average pace of seasonally adjusted employment gains went from 147,000 jobs a month over the period to a bit over 70,000! This means instead of adding about 1.8 million positions as originally reported, the U.S. economy created just 847,000 jobs. It also marked the largest preliminary revision on record going back to 2000 and when looking at it as a percentage of total jobs lost the revision represents the largest since 2009. To be clear, while this is troubling, this is not the final revision, and it is just the preliminary part of an annual process in which the BLS updates the job figures from its monthly employer survey using more comprehensive data from state unemployment tax records. The official revision will come in February, and large changes can still occur. As an example, last year's August revision of negative 818,000 was revised to a final reading of negative 598,000 in February of this year. With how much technology has changed, I would expect these monthly reports would get more accurate over time, not less. Maybe instead of relying on a survey of about 121,000 employers there is a better way to get this data? The BLS pointed out that the revisions were so large because businesses within its survey reported higher employment in its survey than they did in their quarterly tax reports and that businesses that responded to its survey had stronger employment than those that had been selected for the survey but didn’t respond. While this all may seem extremely troubling, I have continued to question how payroll gains could be so large without a good pool of people to fill those jobs. I still believe that though the labor market has softened more than we initially thought, I still believe the economy is in an alright spot considering the unemployment rate remains historically low. Does the de minimis rule affect you? You may have never heard of this rule before and if you’ve been buying packages online that were less than $800, you probably didn’t realize that they could enter the US tariff free. Well, that has now changed, and you may have to pay tariffs on that small package depending on the country of origin and the type of product it is. It also is important to know how the product was delivered, did it come through a post office or a commercial carrier like UPS or Federal Express. If you buy small items overseas such things as fishing poles, pens, or small statues, and even some types of shoes, you may have to pay additional tariffs when your package arrives. It’s a little bit unclear about who and when the tariff will have to be paid. It is possible that you could receive a package from UPS and when they come to your door, you may be asked to pay the tariff right then and there. Whether you knew about it or not. You will have the right to refuse the package. When you are shopping online, you should look on the seller's website closely to see who is responsible for paying the tariff and when. The tariff can be very high if you’re buying yoga pants from Vietnam at $98 a pair, your tariff would be 56% or about $55. Expecting a child and you found a great stroller online coming from China for $399. Be prepared to pay over $540 because of the 36% tariff. If you’re trying to stay healthy and found some great deals on nutritional supplements from Canada that were only $37, by the time you pay the tariff of 63% you’ll be paying $60 for those nutritional supplements. Inflation reports likely cements Fed rate cut next week The Consumer Price Index, also known as CPI, showed August headline prices rose by 2.9% compared to last year and core prices, which exclude food and energy, saw an increase of 3.1%. Both readings were essentially in line with market expectations. Annual core price inflation was essentially in line with last month's reading, but the headline did climb from an annual rate of 2.7% in July and the August number marked the highest reading since January. This was largely due to the fact that food prices rose 3.2% compared to last year and energy is no longer providing the same benefit it did earlier in the year. Energy has largely seen deflation this year, but in August there was an annual increase of 0.2%. Gasoline was down 6.6% compared to last year, but electricity prices increased 6.6% and utility gas service rose 13.8%. What I would consider is that tariff impacted products are still surprisingly seeing little change. Apparel was up 0.2% compared to last year and new vehicles only saw an increase of 0.7%. I was surprised to see prices for used cars and trucks increase 6% though. As I've said for many months now, shelter continues to provide a large headwind in the inflation report as prices climbed 3.6%, but the positive here is it has been steadily declining, and it is well off the recent peak around 8% at the beginning of 2023. We also got the Producer Price Index, also known as PPI, earlier in the week and that came in largely better than expected. Headline prices showed an increase of 2.6% compared to last year and core prices climbed by 2.8%. Looking at all the inflation data from this past week, I wouldn't say it was overly impressive, but I believe it does enough for the Fed to justify starting rate cuts considering the concerns that are being discussed around the labor market. Is Elon Musk worth $1 trillion? Tesla is asking shareholders to approve another huge pay package for Elon Musk. Based on the maximum payout assuming the share count remains, the total package would be worth $975 billion. Looking at the details, it is quite ambitious so I'd say if he ends up hitting these targets maybe he would be worth that amount. Operational milestones for the award include: 20 million Tesla vehicles delivered, 10 million active FSD Subscriptions, 1 million robots delivered, 1 million Robotaxis in commercial operation and a series of adjusted EBITDA benchmarks. The more challenging milestones revolve around the market cap of the company. These milestones are separated into 12 tranches with the first benefit coming at a market cap of $2 trillion and the final benchmark coming at a market cap of $8.5 trillion. I believe to achieve these lofty goals Telsa will have to execute on both Robotaxis and their Optimus robot. In the past Elon has said he believes Optimus can make Tesla a $25 trillion company and he recently said roughly 80% of Tesla’s value could eventually come from Optimus. These goals would be needed as I believe the car business will not be enough to get him to even a $2 trillion market cap, especially considering the problems they are having with slumping sales and declining market share. It was just reported the Telsa accounted for just 38% of total US EV sales in the month of August. This was the first time its market share has fallen below 40% since October 2017 and it is well off the records it had over 80% just a few years ago. From an investment perspective, Elon has proven me wrong before, but this stock is definitely one of the highest risks/speculative bets that investors can make. For me it's more like gambling and while it's entertaining to watch what Elon says and does, I wouldn't touch the stock.
You don’t always need to pick the hot technology stocks to get great returns Investing is very emotional and it’s always nice to be part of the crowd and buy the hot stocks like Apple, Alphabet and Amazon, but they are not always the top performers. Sometimes your boring, undervalued companies can do very well. As an example, Apple over the years has performed nicely, but over the last five years the gain was 114%. Not a bad return, but if you held a boring company like Tractor Supply over the same five years, you would have a gain of 119%. Even an old insurance company like Allstate over the last five years was up 115%. Five years ago, if you saw the value in a company called Tapestry, which owns Coach and Kate Spade, your return was over 545%. Apple's not the only big tech company that was surpassed by these boring companies. If you look at Amazon over the last five years, you’ll see a return of only 49%. One other area that is often discounted is that many of your boring companies are also paying dividends and generating cash flow that can be used to purchase other equities on sale. You may be thinking Apple does pay at dividend but it's important to note the yield is only 0.45%. Sometimes being boring is good and not being so concentrated in the hot stocks can pay off in the long run. I especially think this will be the case as we look out over the next 5-10 years! Another weak job report likely solidifies a Fed rate cut August non-farm payrolls increased by just 22,000, which was well below the estimate of 75,000. This weak report also comes with another month of negative revisions as employment in June and July combined is 21,000 lower than previously reported. Healthcare and social assistance continued to lift the headline number as the sectors added 31k and 16k jobs respectively. Many other areas in the report actually saw declines with payrolls in construction falling 7,000, manufacturing declining 12,000, and professional and business services dropping 17,000. Government also saw a decline of 16,000 jobs and I worry this is a ticking time bomb since employees on paid leave or receiving ongoing severance pay are counted as employed in the establishment survey and those that opted to take the government’s offer at the beginning of the year will start coming off severance pay as the deal lasted through September. The most recent data I saw was that 75,000 federal employees took the offer, but not all were accepted into the program. I guess we will see the actual data and its impact over the next couple of months. With the weakness, I was surprised to see leisure and hospitality produce a gain of 28,000 jobs in the month. While much of this sounds concerning, the unemployment rate held relatively steady at 4.3% and that doesn’t incorporate the fact that 1.9 million or 25.7% of all unemployed people were jobless for 27 weeks or more. My belief is that many of those that have been unemployed that long are skewing the data as I can’t imagine they have been looking for a job that hard. With the unemployment rate low and deportations potentially weighing on the supply of workers, I just don’t see how it would be possible to maintain strong job growth given the limited supply. Because of this I still don’t remain overly concerned by the weak showing. Even with my lack of concern, this will likely lead to a Fed rate cut this month with markets now essentially putting odds for a 25-basis point cut at 100% and even a 50-basis point cut is now on the table with markets putting those odds at 12% after the job print. That’s up from a zero percent chance on Thursday. Should you panic over the job opening data? The Job Openings and Labor Turnover Survey showed job openings fell to 7.18 million in the month of July. This was below the estimate of 7.4 million and also marked the lowest reading since September 2024. It was only the second time since the end of 2020 that job openings came in below 7.2 million. While this may sound troubling, I believe it just illustrates how crazy the labor market got after Covid. If we look at job openings before 2020, nearly 7.2 million openings would have been a great number. In 2016, job openings averaged 5.86 million; in 2017, job openings averaged 6.12 million; in 2018, job openings averaged 7.11 million; and in 2019, job openings averaged 7.15 million. So, while the headline may sound troubling, I still believe we could have job openings fall into the low 6 million range and it wouldn't be problematic, especially given the fact that unemployment remains extremely low. Even with that, I do believe the Fed will use this as further evidence of a softening labor market and that will give them the excuse to cut rates at the meeting this month. I'm still not convinced that is the right move, but we did hear from Fed Governor Christopher Waller, who is supposedly on the short list to replace Powell as Fed chair, that he believes there should be multiple cuts over the next few months, saying interest rates today are perhaps 1.0 to 1.5 percentage points above their “neutral” level. American luxury brands are destroying Europe’s luxury brands It appears that European luxury brands like Gucci, Hermes and LVMH have increased their prices beyond what the average consumer is willing to pay. Currently, American consumers are spending the lowest share of discretionary income on luxury goods since 2019. The European luxury brands seem to have their heads in the clouds thinking American consumers would pay any price for a luxury purse from Europe. I think they have now discovered that the American consumer has reached their limit. Two luxury American brands have benefited from the ignorance of the European luxury brands. Both Ralph Lauren and Tapestry, which owns Coach and Kate Spade, have seen their sales increase. A chart of these luxury brands stocks shows European brands dropping while American brands have been increasing. One may be thinking now is the time to step in and buy Tapestry or Ralph Lauren, but with the recent stock increase they are no longer a great value as Ralph Lauren trades at over 20 times forward earnings and Tapestry is now over 19 times forward earnings. I would take a different side of the coin as I believe investors should understand that the European luxury brands will likely not just sit on their hands and do nothing and they will likely try and win back market share. With the increase in prices over the years I’m sure the profit margins are very fat, and they may have a good amount of space to do some heavy discounts to get their market share back. Both Tapestry and Ralph Lauren are dealing with the current tariff situation and that could hurt their profit margins going forward as well. On a side note, in years past we have warned people paying the high prices for European purses that they would not appreciate as much if at all. I have not researched it, but I feel pretty confident that if sales are down as much as they are, the resale on those expensive purses has probably dropped as well. Financial Planning: Mortgage rates reach 2025 low Mortgage rates have fallen to their lowest level of the year, reaching levels not seen since last October. Throughout 2025, 30-year mortgage rates have fluctuated between 6.5% and 7%, and as of Friday, September 5, they dipped as low as 6.29%. While this presents an opportunity for buyers and homeowners considering a refinance, caution is warranted. Rates are still likely to experience volatility even as the broader declining trend continues over the next several years. In 2024, mortgage rates actually rose at year-end despite the Federal Reserve implementing three rate cuts. In 2025, it is widely expected that the Fed will cut again in September, with additional cuts likely by year-end. This current window of lower rates may be worth taking advantage of, but paying upfront points may not be wise just yet, as there will likely be future opportunities to capture even lower rates. Warren Buffett’s Kraft Heinz deal is coming apart after 10 years! Not everything Warren Buffett does turns gold and he readily admits that he does have mistakes. In 2015 he and a Brazilian private equity firm called 3G Capital had the idea to merge Kraft and Heinz, which they expected to do very well. Over the last 10 years, the stock has struggled though as it is down over 60%. It currently has a nice dividend yield of 5.7%, which helps reduce the loss, but needless to say investors have not been happy with the results from the combined entity. Kraft has been putting more into its faster growing businesses such as hot sauces, dressings and condiments, which consumers have increased their spending on. However, the other part of the business, which includes processed foods like lunch, meats and cheeses, has been in decline over the years. The announced split will create two new companies that are not currently named, and the hope is that the two companies will be worth more than the current $30ish billion market value. One company will primarily include shelf-stable meals and will be home to brands such as Heinz, Philadelphia and Kraft mac and cheese. This part of the business accounted for $15.4 billion in 2024 net sales, and approximately 75% of those sales came from sauces, spreads and seasonings. The second company would according to Kraft, be a “scaled portfolio of North America staples” and would include items such as Oscar Mayer, Kraft singles and Lunchables. That company would have had approximately $10.4 billion in 2024 net sales. Executive chair of the board, Miguel Patricio said, “Kraft Heinz’s brands are iconic and beloved, but the complexity of our current structure makes it challenging to allocate capital effectively, prioritize initiatives and drive scale in our most promising areas. By separating into two companies, we can allocate the right level of attention and resources to unlock the potential of each brand to drive better performance and the creation of long-term shareholder value.” Although this deal isn't expected to close until the second half of 2026, Warren Buffett and Berkshire Hathway have said they are disappointed by the announcement. This is important considering the fact that Berkshire remains the largest shareholder with a 27.5% stake in the company. The question is, could his disappointment lead to the selling of shares? While Buffett may not like it, there have been other successful recent splits like Kellogg and General Electric. Keurig Dr Pepper is also unwinding their 2018 transaction, but it is still unknown if that will be another success story. One reason businesses will acquire another company is to try to diversify their business and enhance the earnings going forward. Unfortunately, sometimes the opposite happens, and it creates more complexity that leads to business struggles and a suffering stock price. Normally, when the split is announced, the stock will increase in value as investors see the opportunity for more value, but that was not the case with Kraft as it looks like Buffett's disapproval created a large overhang and resulted in a stock price that fell more than 7% after the announcement. Would you fly with an airline that filed bankruptcy twice in one year? The airline I’m talking about is Spirit Airlines, which filed for bankruptcy in November 2024 and came out of bankruptcy in March of this year. It exchanged almost $800 million of corporate debt into equity. The executive team from Spirit is now saying they should’ve renegotiated the expensive leases they had before, and they still have over $2 billion in debt on their balance sheet. The management team also blames the airline market. They estimated that the discount airspace would rebound for them, but it did not. Your bigger airlines like United, Delta and American do have less expensive basic economy tickets, but they also have more profitable sales from premium seats and destinations around the world. Spirit seems to think that maybe management from Frontier Airlines will maybe pick them up even though they had no interest before. They also feel that maybe another airline will be interested. We will see stranger things have happened, but I know as a consumer I would not want to buy any tickets from Spirit Airlines that go out more than a few weeks because you could be holding a ticket that is worthless from a bankrupt airline. Water shortages around the globe sound scary, could it reduce meat and dairy production? It is rather scary that based on a report from the Global Commission on the Economics of Water, in just five years the demand for freshwater is set to exceed supply by 40%. Meat and dairy farms use water to hydrate their animals, grow crops to feed them and when the heat gets high, they use water to cool them off. The American Farm Bureau Federation says that farmers need to work on reducing the water consumption by up to 40% by getting moisture directly to each plant using drip irrigation. The reason why watering plants is so important is if there’s not enough water to grow the crops, then the farms and businesses will have to buy more feed, which is more expensive and would add to the cost of meat and dairy production. The American Farm Bureau Federation is hopeful that advancements in humidity sensing technology will help farmers understand how much each plant needs down to the last drop. Once again, technology will probably save consumers a lot of money going forward by helping farmers become more efficient in raising crops and animals.
Yet another warning on private investments! I remember hearing about a company by the name of Yieldstreet a few years ago and how it was a new way for smaller investors to get access to private investments and diversify away from stocks. The company promoted their platform with the tagline, “Invest like the 1%.” Unfortunately, it is now coming out that several investors may have lost everything they invested in the platform. One gentleman shared with CNBC how he invested $400,000 in two real estate projects: A luxury apartment building in downtown Nashville overseen by former WeWork CEO Adam Neumann’s family office, and a three-building renovation in the Chelsea neighborhood of New York. Each project had targeted annual returns of around 20%. After three years, Yieldstreet declared the Nashville project a total loss, which wiped out $300k of his funds and the Chelsea deal needs to raise fresh capital or it will face a similar fate. Unfortunately, he is not alone and CNBC reviewed documents that show investors put more than $370 million into 30 real estate projects that have already recognized $78 million in defaults in the past year. Yieldstreet customers who spoke to CNBC say they anticipate deep or total losses on the remainder. Looking into this platform in more detail, it’s crazy what they were doing. Their portfolio doesn’t just consist of real estate as there is also private equity, private credit, art, crypto, and other less common investments. It appears Yieldstreet makes money by charging a management fee of around 2% on invested funds. The craziest part to me though was in several cases, Yieldstreet went to its userbase to raise rescue funds for troubled deals and told members the loans combined the protections of debt with the upside of equity. But in one case, a $3.1 million member loan to rescue a Nashville project was wiped out after just a few months! One of the big problems with these platforms is professional large investors are more disciplined when looking at investing in this space and the smaller players may be getting the bad deals that are passed over by the more established players. It’s unfortunate to see people lose money like this, but this is why I avoid the private investment space. There is just not enough clarity and in many cases these platforms seem to be in it for themselves rather than for their investors. I will continue to invest in good, quality equities as I worry, we will continue to hear stories like this from investors who put money into private investments thinking they were investing in a safer asset, just to find out years later there is nothing left. Will tariffs hurt this holiday season? Here we are already at the end of August and before you know it, you’ll be thinking about putting out the Christmas lights and decorating your home. For the past few years, we have seen growth in holiday sales, but this year could be different as it appears from recent conference calls from CEOs at Walmart, Home Depot and Target that they are seeing the tariff increases starting to come through. During his recent conference call, the CEO of Walmart, Doug McMillon, said that the impact of tariffs has been gradually increasing to protect the consumer, but he also said that the company is seeing cost increases each week as it rebuilds inventories with new products post tariff. He also mentioned that they may not be able to protect the consumer from rising prices much longer. What is also bad about this is that retail sales may rise, but consumers will receive less product to put under the Christmas tree considering sales are not adjusted for inflation. This could be the delayed inflation that Jerome Powell and the Federal Reserve has been waiting for and unfortunately, it may show up when people begin shopping for Christmas gifts. Maybe there should not be an interest rate cut in September after all? Should you work in retirement? When many people are in their working years, they can’t wait to retire so they can do what they want to do. For some people that retirement works out well, but science has shown that there’s health benefits to working in retirement along with financial benefits. The health benefits would include more physical activity as you’re not laying around the house or sitting in the rocking chair on the front porch. Instead, you’re moving around walking places and staying active. Working also helps you stay connected with other people, which has been proven to extend your life. The financial benefits from working in your later years would include taking out less from your retirement accounts to maintain a good lifestyle. Also, you can hold off on Social Security which means you’d get a larger Social Security check when you do decide to collect. The type of work you do depend on you and some people in retirement have started a second career that is a job that they always wanted to do. Some people just work part time to stay active and involved. If you’re in retirement, you can take a low stress job because you don’t really need all the income to cover your expenses as long as you have the financial accounts/investments to do so. Financial Planning: The challenge of creating retirement income For decades, American workers relied on pensions, but today retirement security largely depends on defined contribution plans like the 401(k), where the burden has shifted to the individual saver. The real challenge comes when it is time to turn a pile of assets into a reliable, inflation-adjusted income stream that can last 20–30 years. Some retirees look to CDs and Treasury bills, which are guaranteed and currently pay about 4% interest, but they offer no appreciation to offset inflation and yields will likely decline as short-term rates drop. Corporate bonds may provide a slightly higher return, but they come with interest rate, credit, duration, and reinvestment risks that often outweigh the modest extra yield. Others consider annuities, which can create a pension-like income stream, but these require handing over principal, and because they are designed by insurance companies, the terms typically favor the provider rather than the investor. High-dividend stocks can also be appealing, but they may be a trap, as struggling companies often have elevated yields due to falling stock prices, which can be compounded further if the dividend is cut. On the other end of the spectrum, broad market indexes like the S&P 500 and Nasdaq have been popular for growth, but their dividend yields remain low, around 1.2% and 0.8% respectively, forcing investors to sell shares for income, and poorly timed sales can shorten portfolio longevity. Even dividend aristocrats, known for steadily increasing payouts, currently only yield about 2% to 2.5% on average. There is no simple solution, but one truth stands out: accumulating assets is very different than generating income from them. Retirees need a clear income plan before leaving the workforce in order to maximize both security and enjoyment in retirement. Why Bitcoin could never be a world currency One of the reasons that Bitcoin and cryptocurrencies increase in value is because of the thought that they will become a world currency someday. Let me explain one of the many reasons why that will not happen. As an example, let’s take a look at the Euro and how difficult it was to get the European countries to adapt to just one currency and let’s not forget about Brexit, where Great Britain dropped out of the European Union and the Euro? Think about this, the European Union is just 27 countries but there’s 195 countries in the world. There are many different income gaps, difference cultures and let’s not even talk about the differences of opinion on politics. There is currently an attempt at a global currency of sort known as the International Monetary Fund, better known as the IMF, which introduced the SDR, which are special drawing rights. There is problems with this already where it requires the United States to re-dominate its treasury bills into SDRs for any foreign central bank that asks and make a legally binding international agreement to reduce the US deficit whenever it is deemed excessive or to increase it whenever it is deemed insufficient. That’s what will put an end to the SDR‘s before it gets very far. What large government would want to be controlled by the world let alone have no control over a currency like Bitcoin? Who benefits from private investments in your 401(k), not you! I keep seeing more and more of a push to allow private investments in credit, equity and real estate into your 401(k). Let me give you a list of who the big benefactors are if private investments are allowed in your 401(k) and yes, it is the big fat cats on Wall Street. There are six main players: Apollo Global, KKR, Carlyle Group, Blackstone, Ares and Blue Owl Capital. These companies rake in high fees with Morningstar estimating them around 2.5% on average. I was disappointed on August 7th when President Trump signed an executive order that instructed the Department of Labor and the Securities and Exchange Commission to make it easier for company plans to offer private assets. A spoke person from the White House, Taylor Rogers, said the intent of the order is to reduce the regulatory burdens and litigation risk that impede American workers from achieving a competitive return. Considering the return for equities of the last several decades, I believe nothing could be further from the truth when looking at that statement. On August 12th, the Department of Labor rescinded a Biden era statement that said most companies are not likely suitable to evaluate the use of private equity investments. It’s a shame that has been reversed because most the business owners that I know don’t have the time to analyze investments enough to make decisions to allow them in the 401(k). Ultimately, employers have a fiduciary responsibility to their employees to make sure their retirement is safe and I worry if employers get to loose in allowing these into 401k plans, they could open themselves up to lawsuits down the road. There is hope as there’s an advocacy group called Americans for Financial Reform that says without strong guardrails, ordinary savers will pay the price of diminished resources in retirement and will more than likely be left holding the bag with these expensive private investments. I do hope the Department of Labor is opposed to making a quick issue on guidance and hopefully they will take their time in drafting formal rules. This could take months and after that it could take employers years to do the due diligence on these investments. Hopefully by that time, people will come to their senses as we may see another liquidity crunch like the Blackstone BREIT had in 2022 and 2023 or even potentially a collapse in some of the popular private investment funds. Why is the union trying to get into JPMorgan Chase? I would not have believed it unless I read it myself but yes, there’s a union called JPMC Workers Alliance that is trying to unionize the 300,000 employees at the big bank. I see no benefit at all for the employees and instead see it as more of a fee generator for the unions to collect union dues. It is doubtful this will go anywhere since employees overall are very happy at the bank and view it as a great place to work with good work/life balance and opportunities for advancement. The union‘s big gripe is in January all employees were required to go back to the office five days a week. The United States finance industry has the least amount of unions of any private industry. According to the Bureau of Labor Statistics, unions in the financial industry for the US is less than one percent at 0.8%. There are currently about 200 people that formed a private group about unionizing, but they have a long way to go to get the union into JP Morgan Chase. Well known CEO, Jamie Dimon, is defending his five-day work week in the office saying that when you work from home it is hurtful to younger generations and that virtual meetings are really nothing more than a bunch of distracted colleagues. He has said before, that before the return to office change, on Fridays he couldn’t get a hold of people by phone. It seems people these days feel like they deserve the freedom to choose when and for how long they are in the office. I don’t know where some of these people in their group get their information, but I’m sure many of them have never run a business. I know myself; I can’t count the number of times I needed to go to one of my employees in the office to speak about something right then and there and many times needed to actually see what they had. Waymo’s autonomous taxi services will now be available in New York City Waymo, which is owned by Alphabet, received approval to test up to eight autonomous vehicles in Manhattan and Brooklyn through late September, but at this time they are required to have a trained AV specialist behind the wheel at all times. If you’ve been to Phoenix, San Francisco, or Los Angeles, you may have seen these weird looking vehicles scooting around the streets. Waymo has now completed over 10 million rides in five major US cities and they claim to have a very strong safety record. New York City is not the end or the last city for Waymo as the company did say earlier this year, they plan on being in 10 new cities, which includes Las Vegas and San Diego. It seems we’re getting closer and closer to having autonomous driving taxis as a more normalized option. If you have not done so already, you may soon be getting into a car and there will be no one in the front seat. That will be kind of weird don’t you agree? Ivy League schools don’t appear to be the best investors You may beat yourself up over some investment you did that lost money. That investment may have been sold to you because of no market fluctuation and it sounded like a great idea. It appears the Ivy League endowment funds are pretty much in the same boat. Because of the excitement around private investments, endowments are really short on liquidity if they need money. Endowment funds have been moving sometimes over 50% of an endowment into non-liquid investments like private equity, private real estate, and private credit. Maybe the managers are younger and forgot about the 2008 Great Recession and how important it was to have liquid investments in the portfolio. They have really gotten away from the standard portfolio of 60% stocks and 40% bonds, which has brought investors a decent return in the long term. In fiscal year 2024, the National Association of College and University Business Officers revealed that endowments with over $5 billion in assets only held 2% in cash or money markets, 6% in bonds, 8% in US stocks and 16% in international stocks. If you do the math, you’ll see that only 32% of the portfolio was liquid, which means the other 68% was in non-liquid assets. Because of the investments in non-liquid assets, the endowments have had to borrow money to pay obligations. Brown with a $7.2 billion endowment borrowed $300 million in April and $500 million in July. Northwestern borrowed $500 million and Harvard borrowed $750 million in April. Also, in the spring of 2025 Harvard had to sell $1 billion of private equity funds at a 7% discount to the stated value. If the economy does hit a slow period or a recession, it could really wreak havoc on these endowment funds. I would say, don’t invest like the Ivy League funds, instead find good quality equities that are trading at reasonable prices and that pay nice dividends. I believe you’ll be far better off than the Ivy League folks. Europe is far behind in their economy 500 years ago, European nations conquered and ran as much as 80% of the planet. They shaped the globe as their wars killed millions of people and surprisingly it was the birth place of modern capitalism and the industrial revolution. Over the last 15 years though, their economy has essentially been treading water. Their share of the global economic output was 33% 20 years ago and as of 2024 it was only 23%. It is estimated to be their lowest portion of the global economy since the Middle Ages. Household wealth growth has also been a problem for Europe as it has grown by a third as much as Americans since 2009. Per capita GDP in the US is about $86,000 a year versus $56,000 a year for Germany and only $53,000 for the UK. You may think Europe is a great place to live, but Americans have a far higher standard of living. Here in the United States, we have over 50% more living space on average per person and four out of five Americans have air conditioning and clothes dryers at home. This compares to Europeans, where the numbers range between one-fifth and one-third. The high tax revenue needed to finance their welfare-spending could be causing problems. I was blown away by the fact that Europe’s welfare states account for half of the planet’s welfare spending. Looking at tax revenue as a share of economic output shows problems. It is currently around 38% in Germany, 43% in Italy, and 44% in France. The US is only at 25%. Their politics subsidize vacations, back to school equipment for children and public transit is free for everyone. A big problem is their workforce is at risk of declining due to an aging population. The average European is nearly 45 years old, compared with 39 for the average American, and the continent’s working-age population is predicted to fall by nearly 50 million by 2050. The question is who will pay all the tax revenue if there are less people working and more people collecting? We have our problems here at home in the US, but I worry Europe is on a troubling economic path. I was just in Europe, a couple weeks ago and what I saw of Spain and Portugal, I was not that impressed. It seemed every single piece of blank space new and old was covered with graffiti and I also noticed at the airport in Munich it was really dark as they appeared to only use half the lights to save energy. One may like to visit places in Europe for the history, but I believe over the next 10 years they’re going to have a meeting with reality that you cannot keep giving your citizens free stuff as less and less people work.