Higher Rates Hurt Private Debt, Is Siri AI Obsolete? Trust Facebook With Your Data? GLP 1 Lawsuits Begin, Bank Charters Are Exploding, Why I Fear AI, Portfolio Too Conservative? & More

Will Rising Interest Rates Hurt Private Debt and Private Equity?

It is hard to tell for sure because private investments are, by definition, private, and we don't have the same level of transparency that we have with publicly traded investments. However, with the 10-year Treasury crossing the 5% mark, common sense would tell you that higher interest rates could put even more strain on an already strained private debt and private equity market.

Private equity funds frequently use leverage, meaning they borrow money to enhance potential returns. The typical holding period for a private equity investment is generally seven to 10 years, but an increase in interest rates raises the cost of borrowing for private equity firms, which can reduce profits and ultimately investor returns.

Many private equity funds are already facing potential losses in software companies because of concerns that artificial intelligence could disrupt or even put some of these businesses out of business. Private equity firms may want to sell these investments quickly, but as interest rates rise, other investors may become less willing to take on additional risk because the risk-free return available from Treasury securities has become more attractive.

The longer these private investments remain in a fund, the longer the fund may have to carry its debt and pay interest, which can further reduce investor returns. PitchBook estimated that the average private equity return in 2025 was around 7%, the lowest in 14 years, despite decent economic growth and relatively stable interest rates.

For investors who own publicly traded private equity firms, the results have also been difficult. Companies ranging from Apollo Global Management to Blue Owl have seen significant declines in their stock prices year to date. If interest rates remain elevated, there could continue to be pressure on the business models of these firms.

For private debt, the story is not necessarily better, even if your broker tells you that it is "stable." The same basic principle applies to private debt as it does to publicly traded bonds: when interest rates rise, the value of existing debt generally falls.

With private debt, you may not see that decline reflected in a daily market price because the investments are not publicly traded. That does not mean the underlying economic impact isn't occurring. If a private debt fund eventually needs to sell assets, refinance debt, or deal with defaults, those underlying losses can become much more visible. One problem can potentially lead to another as lenders and borrowers are forced to deal with higher financing costs and declining asset values.

At Wilsey Asset Management, we have been cautious about private equity and private debt for years. We understand why these investments are attractive and why brokers sell them, particularly because they can generate significant fees and commissions. However, we believe investors need to understand the risks, especially in an environment where interest rates remain elevated.

One of the biggest concerns with private investments is liquidity. Unlike publicly traded stocks and bonds, investors in many private funds cannot simply sell their investment whenever they want. Withdrawals may be limited to certain periods, sometimes only once a quarter, and funds can impose additional restrictions when too many investors try to withdraw money at the same time.

If interest rates remain high for an extended period, the combination of higher borrowing costs, lower valuations, weaker exit opportunities and limited liquidity could create a difficult environment for private equity and private debt investors. The fact that you don't see the losses on a daily statement doesn't necessarily mean the risk isn't there.

Is the New Siri AI Already Obsolete?

Is it possible that Apple’s latest update to its famous Siri has already turned it into a follower rather than a leader?

The new Siri AI assistant is supposed to be able to do things like book travel plans, fill out online forms, cancel appointments, and even file complaints with customer service. But in today’s fast-moving world of technology, there are already services out there, like Instinct, and Meta has built a new AI platform called Muse that runs in the AI cloud, meaning you don’t necessarily need to be inside a specific app to use it.

Many of these services can connect to your Gmail account and communicate with your iMessage or WhatsApp. Instinct and Muse can go beyond simply setting appointments. They can look at your existing appointments, identify conflicting travel arrangements, and then cancel the conflict and rebook the necessary reservations for you.

They can also look for reliable restaurant recommendations nearby and book a reservation for you without you having to do much of anything. With Instinct, it can even create an account on a website, navigate the site, find locations and times for events being promoted, and add those events to your calendar for you.

Currently, Siri AI can’t freely surf websites and is largely limited to working through apps on the iPhone. If services like Instinct and Muse are able to outperform Siri while Apple continues to keep its AI experience primarily within the iPhone ecosystem, users could eventually start asking themselves why they need to pay such a high price for Apple’s newest phones when cheaper Android phones may offer access to more capable AI assistants.

Apple has built its reputation on being a technology leader. The question is whether Siri will remain one.

Would you trust Facebook with your personal and financial information?

This is an important question because this is the direction AI appears to be heading. Meta, which owns Facebook, recently released its new AI agent, Muse, and to complete tasks and make life easier for you, it will need deep access to your personal information.

Within the first five days of its release, Muse was downloaded 600,000 times, which on the surface sounds like a lot. However, keep in mind that there are roughly 3.6 billion users across Meta’s platforms, which makes 600,000 downloads sound like a very small number.

The bigger question is: Do we trust Mark Zuckerberg and Meta with privileged information based on the company’s track record?

Yes, they use words that sound good when describing Muse, such as “safe,” “secure,” and “private.” They also say Muse will run on a digitally walled-off virtual machine that other agents cannot access. OK, that sounds good, but let’s look at the track record.

Six years ago, Meta agreed to pay a $5 billion fine to the FTC over user privacy violations related to what became known as the Cambridge Analytica scandal. About a year later, information belonging to 533 million users was leaked. Then, in 2023, the company was hit with a record $1.3 billion fine related to the transfer of European users’ data to U.S. servers. Still fresh in our minds is the recent $18 billion settlement involving allegations that Meta harmed teenagers.

The cost of using Muse could be as much as $100 per month, depending on how much you use it. If you only have light usage, it could be free. When you register for Muse, a warning pops up saying, “May make mistakes or take unexpected actions, so review all its work.” All I can say to that is: Wow!

If this is how companies are going to make money from AI, by gaining access to all of your personal information so they can set appointments, send emails, manage your finances, pay bills, and handle other things that make your life easier, I’ll just say no thank you. I’ll do it myself.

How about you? Would you trust an AI agent with that much access to your personal and financial information?

Lawsuits are starting to form against the makers of GLP-1 drugs

It’s no surprise to me that there are concerns about potential side effects from the popular weight-loss drugs known as GLP-1s. At this point, the potential connection between these drugs and certain vision problems is still being investigated, but there are some developments that investors and patients should be aware of.

The concern involves a condition known as NAION, or non-arteritic anterior ischemic optic neuropathy, which can cause sudden vision loss. In Denmark, where drug company Novo Nordisk is headquartered, 27 patients on the diet drugs were awarded as much as $1.5 million due to NAION and there are still 38 more pending cases in the country. There are also now warning labels on the drugs in the UK, Japan, and Australia. The FDA in the United States is currently reviewing the concerns but at this time are not placing a warning label on the drugs.

European regulators have concluded that NAION is a very rare side effect of semaglutide, affecting about 2 in 10,000 people. Unfortunately, it appears this side effect can occur even after taking the drug for just 6 to 12 months. They have recommended that patients experiencing sudden or rapidly worsening vision seek medical attention immediately, and that treatment be stopped if NAION is confirmed.

The risk appears to be very small, but when you are talking about potentially permanent vision loss, even a rare side effect deserves attention. For someone taking these medications for diabetes or significant obesity-related health risks, the potential benefits may be an important part of the risk-benefit discussion with their doctor. But for someone simply looking to lose 10 or 20 pounds, I think it is reasonable to ask whether the potential risks are worth it.

Ask yourself this question: If you lost your vision, what would you be willing to pay to get it back?

From an investment standpoint, this is also something I would be watching closely. If lawsuits continue to build and regulators impose additional warnings or restrictions, it could create additional risk for the companies producing these drugs. Eli Lilly, one of the major producers of GLP-1 medications, is up only around 7% to 8% year to date as of this writing.

For investors, I would be paying close attention to how these safety concerns develop. If litigation gains momentum, the stocks could face significant pressure.

In the U.S., bank charters are exploding but that may not be a good thing

From 2011 through roughly 2024, the Office of the Comptroller of the Currency, or OCC, received only 48 applications for new bank charters, that’s roughly four per year. But over the past 18 months, that number has skyrocketed to around 40.

The bigger concern is the type of institutions applying. A significant portion are not traditional brick-and-mortar banks. Nearly half are digital-only fintech or cryptocurrency companies looking to enter the banking system.

The last time we saw this much activity was in 1998, when 138 applications were filed and 116 were approved. It is worth remembering the Financial Crisis happened just ten years later. From 2008 to 2012, bank failures surged, averaging 93 per year. Of the 569 bank failures recorded between 2000 and 2024, 465—or 82%—occurred during those five years. Bank failures peaked in 2010, when 157 banks failed in a single year.

Just this month, European fintech Revolut received conditional approval for a U.S. bank charter. Shortly afterward, The Wall Street Journal reported that Revolut had inadvertently provided sensitive personal and financial information belonging to hundreds of customers to someone impersonating a government agency.

The OCC has also conditionally approved charters for several digital-asset companies, including Ripple and Fidelity Digital Assets. And in August, the OCC granted preliminary conditional approval to World Liberty Trust, a trust company affiliated with World Liberty Financial, the crypto business associated with President Donald Trump and members of his family.

I think we need to pay close attention to how quickly these new institutions are being added to the financial system. Innovation can be positive, but banking is built on trust, strong risk management and the protection of customer information. I believe issuing bank charters at such a rapid pace is once again weakening our banking system.

My concern is that we could be creating risks that won't become apparent until much further down the road. I do believe if we continue down this path another major financial crisis could unfold in the years to come.

Why I’m scared of AI and you should be too!

Anthropic is putting the final touches on its IPO prospectus, and usually, before a company goes public, there is a lot of positive talk designed to build excitement around the initial public offering.

That doesn’t seem to be the case with Anthropic. Instead, CEO Dario Amodei has been bringing attention to some very concerning possibilities surrounding artificial intelligence.

I know there are people who stand to benefit tremendously from AI, such as chipmakers and hyperscalers, who are looking for a big payoff on all the money they have invested and believe everything will be fine. But what you may not realize is that Anthropic and other AI companies are developing models that, in certain testing scenarios, have demonstrated concerning behaviors such as resisting instructions, attempting to circumvent safeguards, and operating in ways their creators did not intend.

In one concerning example, roughly 700 OpenAI AI agents participating in internal training exercises worked together in an attempt to breach both OpenAI’s systems and the developer platform Hugging Face. The details would almost be amusing if they weren’t so unsettling. The AI agents were not supposed to communicate with one another or access the internet, yet they managed to create a secret “message board” where they encouraged each other to hack Hugging Face. Some even offered to sacrifice themselves for the group and they even came up with a name for themselves as they called the group a “swarm”.

Anthropic CEO Dario Amodei has also taken the unusual step of calling for government regulation of AI. It is certainly unusual for a company CEO to publicly ask the government to regulate the very industry his company operates in.

When Anthropic was founded in 2021, its stated mission was to pursue the responsible development and maintenance of advanced AI for the benefit of humanity. The question is whether the industry is still moving in that direction.

In just a few years, Anthropic’s AI assistant, Claude, has progressed from relatively limited capabilities to being able to write software, complete complicated tasks, and solve increasingly difficult mathematical problems that had never been solved before.

The bigger question is: What happens three years from now?

What happens if AI becomes better than humans at a growing number of intellectual tasks?

Those concerns are not simply my words. Dario Amodei himself wrote about the potential risks of increasingly capable AI in an essay published in January where he said, “At this pace, it cannot possibly be more than a few years before AI is better than humans at essentially everything.”

To me, that is concerning. He has every reason to promote the success of his company and the industry, yet he is also warning about what could happen if AI capabilities advance faster than our ability to control them.

So what do you think? Should the government be regulating AI and AI companies?

Financial Planning: When Is a Portfolio Too Conservative?

A portfolio can become too conservative when the desire to reduce short-term volatility comes at the expense of long-term growth. Bonds and other credit investments are traditionally viewed as conservative, but they can still lose money or generate very low returns. A bond’s total return comes from both the interest income it pays and the change in the market value of the bond itself. When interest rates rise, the market value of existing bonds fall, and that decline can be greater than the interest income received, resulting in a negative total return. More importantly, even when bonds produce a positive return, that return may not be sufficient to keep pace with inflation or meet a long-term investment objective. For example, Vanguard’s Total Bond Market fund has annualized returns of approximately -1.32% over the past year, -0.65% over the past 5 years, 1.17% over the past 10 years, and 1.75% over the past 15 years. While a conservative portfolio may feel safer because it experiences less volatility, consistently earning very low returns can create other risks including inflation risk, interest-rate risk, and longevity risk. In other words, an investment portfolio can be designed to avoid losing money quickly while still creating the risk of losing purchasing power slowly over time.

What effect will high oil prices have on heating homes this winter?

With oil trading around $100 a barrel, there will be a big effect on households that use heating oil to heat their homes. Unfortunately, I don’t see much that will change those energy prices for the better in the near term.

The Farmers’ Almanac, which is known for its long-term weather predictions, is fortunately predicting mild temperatures for the Northeast. Even with that, it is estimated that the average household heating bill in the Northeast will be around $2,520. That’s roughly a 45% increase from last winter, when the average cost was around $1,749.

Looking for some good news, only about 4.8 million homes in the U.S. use oil for heating, with roughly 82% of those homes located in the Northeast. Those 4.8 million homes represent only about 3% of all homes in the United States.

Obviously, if you live in the Northeast and heat your home with oil, this is not good news. However, it should not have a major impact on the overall economy. The roughly 5 million homes that use heating oil could spend approximately $12.1 billion on heating this winter, which would be about $4 billion more than last winter.

Are pensions making a comeback?

For years, it looked like the traditional pension was becoming a thing of the past. Companies increasingly moved away from defined-benefit pensions and toward 401(k) plans, shifting much of the responsibility and investment risk to employees.

But according to a recent Wall Street Journal article, pensions may be making a small comeback. In 2024, less than 10% of private-sector workers participated in pensions. This was down from about 30% in 1988. But now, a growing number of companies are bringing back pension benefits as a way to attract and retain employees, particularly in industries where finding qualified workers is becoming more competitive. Some companies are also using pensions as part of labor negotiations.

I find this interesting because the pendulum may have swung too far toward putting the entire responsibility for retirement on the employee. With a traditional pension, an employee generally knows they will receive a certain amount of income in retirement, while with a 401(k), the amount available at retirement depends heavily on contributions, investment returns and how long the money lasts.

There is also an interesting financial backdrop to this. The funded status of many large corporate pension plans has improved significantly. According to the pension consulting firm Milliman, the 100 largest U.S. corporate defined-benefit plans now have enough assets to cover 112% of their liabilities, up from 77% in 2012.

This doesn't mean pensions are suddenly going to replace 401(k)s. In fact, this appears to be a relatively small but growing trend. And some of the newer retirement plans may look different from the pensions many people remember.

But I think it raises an important question: Could the next generation of workers see a combination of pensions and 401(k)s rather than one replacing the other?

For employees, having multiple sources of retirement income could still provide flexibility and potentially more stability. For employers, however, the cost and long-term obligations of providing guaranteed retirement income will remain an important consideration.

The retirement landscape continues to evolve, and it looks like the pension may not be as extinct as many people once thought.

Over the past year, the value of shopping malls has increased 13%

I remember just a few short years ago when people were saying that shopping malls would be a thing of the past. I argued that we are social human beings, and people still enjoy shopping in person. I didn’t believe shopping malls were going away, but I did say they would have to make changes to draw people in.

That’s exactly what they have done, which may help explain why the value of shopping malls has increased by 13% over the past year.

Shopping malls are no longer just places to shop. Many now offer popular restaurants, entertainment, and high-end luxury retailers that attract higher-income shoppers. They have become more of an experience rather than simply a place to buy things.

Younger generations, including Gen Z, which has an age bracket of 14 to 29 years old, are also treating malls as social gathering places. For many of them, going to the mall is about spending time with friends, eating, being entertained and experiencing the environment, not just shopping.

That doesn’t mean every mall has survived. Since 2008, hundreds of malls have closed because they failed to offer the quality, excitement or variety needed to attract shoppers. The malls that have survived are often the ones that have reinvented themselves.

Just last week, we saw retail sales increase 4.9% excluding gasoline sales. Some of that spending is making its way to shopping malls that have successfully changed their approach and created more reasons for consumers to visit. Maybe shopping malls aren't disappearing after all. Maybe they’re simply evolving.