Home Sales, Home Sellers, Overpriced AI, Berkshire Hathaway, Full Retirement Age, Alcohol Sales, China’s Real Estate Market, Adults Kids Meals, Hooters & Inflation

Home sales are starting to look weak

Last week we saw the release of existing home sales in the month of January and the decline was far bigger than expected. The number of units sold on an annual basis was 4.08 million, which was a decline 4.9% compared to the prior month. Analysts were expecting a smaller decline of 2.6%. While inventory remains tight at a 3.5-month supply, it is improving. Month over month inventory increased 3.5% and when compared to last January, we saw an increase of 17%. For now, it appears that housing prices are stable with the median price of a home sold in January at $396,900, an increase of 4.8% over last January.

The number of cash buyers slipped from 32% one year ago to now only 29%. What is more disturbing is the numbers on first time homebuyers. Over history, first time homebuyers have generally made up around 40% of home sales, but January data shows that has slipped to only 28%. I don’t see a crash in the housing market coming, but I do believe people buying a house thinking they will make 10 to 20% on their investment over the next year or so is a mistake as I’m pretty confident those days are gone. If you’re going to buy a home, buy it as a place to live and raise your family, do not try to make a quick investment return in the short term.

Some home sellers are giving up

As a whole, the US home selling market has had some cracks, which we have talked about in the past. The rising interest rates have kept buyers on the sidelines and people selling their homes still think they’re worth more than what they can get in today’s market. Also, sellers have been spoiled over the past few years thinking you put your house on the market and you should be able to sell it in less than a month. Over a longer period of time, which looks out further than just the last few years, it used to maybe take 3 to 6 months to sell a home.

Home sellers really became discouraged in December as delistings soared 64% in the month compared to last year after not finding an interested buyer to purchase the home. At 73,000 delistings, this was the highest level since 2015. We could see that change if interest rates come back down, but at this point in time there’s no indications that that will happen in a major way. I’m still looking for a low growth environment for the price of real estate in the coming years.

Another comparison showing AI is overpriced

Many people have used the comparison of the tech boom and bust when looking at the high prices for a lot of these AI stocks, which I believe has a lot of relevance. But if you go back 100 years, there’s another comparison with Radio Corp. of America, which was a booming technology back then. If your company put radio in the name somewhere, you got to ride along on the upward trend. Sound familiar? RCA stock rose 200 times its value during the 1920s, but then by 1932 it fell 98%.

What is even more amazing is in 1986 General Electric acquired RCA for about 72% higher than the price peak back in 1929. It has never been a wise investment strategy to overpay for any investment, which seems to mostly happens in technology. Over the years this hype cycle has happened with cannabis, electric vehicles, and 3-D printers just to name a few. No one knows where the top will be for AI, but one thing I know for certain is many people will lose far more than they could even imagine, which unfortunately will destroy their retirement portfolios.

Berkshire Hathaway historically high cash balance

It is no secret that Warren Buffett’s company, Berkshire Hathaway, is sitting on over $300 billion in cash, which is invested mostly in T-bills. As a percent of assets, it is now just over 25%, which has never been seen before. The excess cash is caused by two things, first reducing ownership of Apple and some other stocks. Last year alone Berkshire sold 605 million shares or about 70% of its holdings in the stock. It now has a market value of only $75 billion.

The second reason for all the cash is likely because of his philosophy to invest when others are fearful and sell when they are greedy. We are definitely in the greedy stage, which we have been talking about at our firm for probably over a year now. No one knows when this will change, but it will. With the expensive nature of many companies and the markets, Warren Buffett likely cannot find anything on sale that he believes is worth buying.

I don’t see a major crash coming in the near future, but I also don’t see any big gains coming either. I do continue to believe we will likely see a correction that leads to a short-term pullback of 10 to 20%. I hope you’re prepared for a few months of volatility, as I believe it is coming. 

What’s so Special about your “Full Retirement Age”?

The Social Security Administration references your “full retirement age” quite often, so it is important to understand why that matters, and why it doesn’t. The main reasons this age is important is because at that point you are no longer subject to the earnings limit, and your benefit amount at that age is used to calculate spousal benefits. If you begin collecting Social Security before your full retirement age, you are subject to an earnings limit of $23,400. For every $2 of wage or self-employment income you have above that limit, $1 of your Social Security benefit will be withheld from you.

Other income sources do not count and this rule no longer applies after reaching you full retirement age, meaning you can work and earn as much as you want. If you do have Social Security withheld due to the earnings limit, you will receive a credit for that when you reach your full retirement age. As a spouse if you had a limited earnings history, you may collect a spousal benefit from the record of your higher-earning spouse. The spousal benefit is ½ of the higher-earning spouse’s full retirement age benefit amount. The age that the higher-earning spouse actually collects does not change the spousal benefit. In order to receive the full spousal benefit, the lower-earning spouse needs to collect at their own full retirement age. Waiting beyond that does not increase the spousal benefit, but collecting before full retirement age will reduce the spousal benefit.

For those reasons, full retirement age matters, but there are plenty of situations where it doesn’t. If you stop working before your full retirement age, then the earnings limit is irrelevant, and if you and your spouse both have an earnings history, then spousal benefits are irrelevant. Many retirees have the belief that something special happens to their benefit amount at their full retirement age, but the truth is, your Social Security window is from age 62 to 70. Every month you wait to start, your benefit amount increases slightly. There is no additional increase upon reaching a specific calendar year, birthday, or even your full retirement age. For some it may be best to collect at their full retirement age, but for the majority of retirees it is more beneficial to collect at an age other than their full retirement age based on their individual income, asset, and tax situation.

Alcohol sales are declining

In 2024 alcohol sales did decline by 0.8% to $112billion. Some areas of alcohol did better than others, but the trend appears to be declining. Part of the reason is younger drinkers in college have become more health-conscious than in the past and have alternatives like cannabis to get that “good” feeling. This has had an impact on the market with larger companies like Brown-Forman and Diageo seeing large declines in their stocks of around 30 to 50% over the last year. This is not just because of the decline of about one percent in alcohol sales, but mostly as usual in investing the stocks were trading at very lofty levels and then reality came in to the picture.

It should be noted that per capita US alcohol sales started to decline back in the 1980s and if you’re old enough to remember, there used to be a thing called a three-martini lunch. I personally don’t know anybody that drinks at lunch anymore. For investors, we must remember alcohol has been around for about 5000 years so I don’t believe alcohol will dry up and be gone anytime soon. It’s also important to remember tobacco companies have seen large declines in tobacco sales, but Altria stock has performed well. The stock price may only be up about 170% over the last 30 years, but the dividends have averaged between 7 to 8%, which really compounds the return for investors. I would be careful investing in the pure alcohol companies, but I think beer companies fit in the middle and with the slight decline in volume that easily could be made up with a slight price increase.

China has a weak real estate market

China has come out with some tough talk against the tariffs that they will be fighting against, but there are some big weak spots in their economy. The Chinese real estate market has been in shambles now for the past few years and there seems to be no end in sight. China’s distressed real estate debt now stands at $160 billion. By any measure, that is a large number and it is the world‘s largest as it continues to grow.

Information such as this is important to know when you’re in negotiations. I believe it’s important to know how strong or weak your opponent is. Based on the large amount of distressed real estate debt that China has, I don’t think they would be able to hold out very long before things got even worse than they are now in their economy. It will be a waiting game, but I think it is one that the United States can win with patience.

Adults like kid meals too

Did you ever feel like you didn’t want to get the Big Mac, fries and a milkshake, but you still have that craving and thought about getting a kids meal just for the satisfaction? Well, if you do or you have done that, you’re not alone as 2024 saw an increase of 28% of adults ordering kid meals when compared to five years ago. It also should be noted that over that same timeframe traffic did decline at fast food restaurants. The reason for the increase is twofold.

Once again, I will blame the diet drugs where people just can’t eat as much food, so the smaller kids menu items make more sense. Also, if you’re on a budget the cost of a kids meal is far less than the cost of the regular meal. It is rare for restaurants to challenge you when getting a kids meal and I doubt they will card you, most will let it slide. The reason why restaurants came out with the kids menu was to make it easier for parents to go dinner. The parents would still order the regular meals and rather than waste money on big entrées for kids or stay home, the kid meals made sense and got the parents to come to the restaurant.

The downside of adults ordering off the kids’ menu, besides maybe being embarrassed about being denied, is the menu generally only has two or three different items like chicken strips, burgers, and maybe plain macaroni. I myself may try it the next time and see what kind of reaction I get. I don’t eat fast food that often, but maybe the kids meal will make sense. How about you? Are you going to order off the kids’ menu next time?

Hooters may be closing

If you’re old enough to remember, Hooters came out in the early 80s and was very trendy at the time because of the outfits the waitresses wore. They would also have fun with their customers besides just serving food. Over the years, they never changed their outfits and it became I guess kind of nostalgic although some may consider them just outdated. They’re currently owned by a private investment firm called Nord Bay Capital who has been advised by TriArtisan Capital Advisors for the past six years. There are currently over 400 locations around the globe, which could be part of the problem. It’s very expensive to serve restaurants in remote locations.

Back in the 80s it was cool to be a Hooters girl, but today I think that coolness is gone and the restaurants have to pay a good wage for waitresses to work in the restaurants. They’ve also been hit by rising food costs, especially recently with their main specialty being chicken wings and the price of chicken rising substantially. If the company files bankruptcy, they may be gone or they may be able to do a bankruptcy where they restructure and find a way to pay their debt and still continue operating. We should know within the next few months what direction they went and if they do restructure maybe, it’s time to update the outfits for the waitresses. What are your thoughts?

Important inflation measure shows no surprises

The personal consumption expenditures price index, also known as the PCE, showed inflation rose 2.5% compared to last year and was in line with expectations. For better longer-term trends, the Fed generally looks closer at the core PCE which excludes food and energy. For the month of January, it showed an annual increase of 2.6%, which was also in line with expectations and compared favorably to the previous reading of 2.9%.

While the progress on inflation has definitely stalled as we try and inch closer the Fed’s 2% target, I still believe readings of 2.5/2.6% are not really problematic. There are continued questions on how tariffs will impact these inflation rates, but I remain optimistic we will see continued progress on the inflation front throughout this year. I believe it will be bumpy, but foresee us in a better spot as we exit 2025. This should open the door to maybe a couple of interest rate cuts from the Federal Reserve.