Millennials and Home Buying, Inflation, TikTok, Capital Gains and IRMAA, Forklifts, American Farmers, Big Banks, Taiwan Semiconductor, Berkshire Hathaway & Tipping at Restaurants

Millennials are a little gun shy on buying a home, but they have good reason to be concerned

Looking back 30 to 40 years ago when families purchased a home, they did it as a place to raise a family and they weren’t so focused on how much money the house would be worth in the short term. Millennials who were born between 1981 to 1996 and are now between the ages of 29 and 44 years old are old enough to remember the 2008 Great Recession. In 2008 there were 2,330,483 foreclosures, roughly 3 times 2006 when it was 717,522.

If at the time the young millennials who were between the ages of 12 and 27 were not affected personally by a foreclosure, it was likely they knew somebody who was. Fast forward 12 to 13 years and millennials have experienced a rapid increase in housing prices that is essentially unprecedented. Experiencing such a wide swing in boom-and-bust cycles is etched in some of these millennial’s minds. By the time baby boomers hit age 30 52% were homeowners versus 30-year-olds today at only 43%.

Surveys show almost 50% of millennials have stated that owning a home is more trouble than it’s worth, which is nearly double the feelings of Gen X and baby boomers on homeownership. If millennial home ownership continues to decline, we could see an oversupply in future years, which would probably mean a fall in housing prices.

Better than expected inflation fuels the market higher

The Consumer Price Index, also known as CPI showed inflation was up 2.9% compared to last year. While this was in line with expectations, it was the core CPI annual rate of 3.2% that beat the expectation of 3.3% and likely excited the market. This report followed the Producer Price Index which was largely in line to slightly better than expectations.

The annual rate for both headline and core PPI rose 3.3%. Looking closer at the CPI, shelter continued to be a heavyweight considering it makes up about one-third of the CPI. While it registered the smallest one-year gain since January 2022, it was still at a high rate of 4.6%. It’s important to point out that if shelter was excluded from the core CPI, the annual inflation rate was 2.1%, which is right in line with the Fed’s 2% target. I believe there will be a lot of movement in various price groups this year, especially with new government policies in place.

With that said, I do believe it is much more likely we continue to move towards the 2% target rather than seeing a sustained reacceleration in inflation. This leads me to believe we will not see the Fed hike rates this year and I think it is still possible to see a couple rate cuts come December 31st, 2025. 

The Supreme Court ruled against TikTok, why you should agree with them!

TikTok is very popular in America with 170 million people in the United States using the app. Many people love TikTok, but they don’t understand what the Supreme Court is seeing and why it unanimously confirmed the blocking of the app. It's important to understand the communist party of China ultimately has control of TikTok and that could be very dangerous as it believes in what was driven by Marxist Leninist ideology. The party believes that the CCP should silence dissent and restrict the rights and freedoms of Chinese citizens. This includes population control, arbitrary detention, censorship, forced labor, and very important pervasive media and Internet censorship.

Do you really believe that China is our friend and they should be able to obtain data which they do on all the people using TikTok in the United States? Keep in mind that China does not allow Facebook or Instagram in their country. We would not let China own any of our major broadcasters because of the influence media can play and now social media also has that power. Think about this, China on a very low level begins to convince people in the US that it would be a good thing for China to take over Taiwan. Then, when they invade Taiwan, there’d be a backlash in the US of people who are siding with China against our government trying to keep Taiwan out of China’s hands. Taking over Taiwan would give China much more control and leverage over the United States.

Think also about younger people today who post stuff that is there forever and when they are older it could be used against them as leverage. This could include future military leaders, perhaps members of our government or anyone else that when they became a more mature adult, they would not want those old posts to be released. I for one hope that TikTok is banned here in the United States or that it is purchased in full by a US company. At this point, China does not want that to happen because they do want to control the data and have access to it. What are your thoughts and why would you disagree with banning TikTok?

Navigating Capital Gains and IRMAA

If you are on Medicare or will be within the next two years, you will want to keep a close eye on your income because not only do you have to pay federal and state taxes on it, but you could also be forced to pay higher Medicare premiums because of it. This is called IRMAA which stands for Income-Related Monthly Adjustment Amount, and your Modified Adjusted Gross Income, or total income, determines if you will be subject IRMAA and how much you have to pay. This is basically an extra tax, but there are circumstances where it makes sense to pay it.

Consider a situation where a married couple has income of $200,000 which means they are not yet triggering any extra Medicare premiums. If they happen to hold some stock that was purchased for $450,000 and has a current market value of $500,000, selling would realize a $50,000 capital gain, push them into the next IRMAA tier, and cause them to pay about $1,800 in extra Medicare premiums. Obviously, no one would want to pay an extra $1,800 if it is avoidable, but it may not be worth continuing to hold a $500,000 investment, especially if it’s an overconcentrated position or particularly risky. An extra cost of $1,800 is less than half a percent of $500,000, so any market volatility has the chance to wipe out much more than $1,800.

We see people who are so concerned with IRMAA or paying other taxes that they never want to sell anything which causes them to lose more in the long run. Sometimes the best overall decision is to take profits and move on.

Forklifts have been around for over 100 years, but they may be gone in the next 10 to 20 years

The first forklift came out in 1917 from Clark who is still around today making forklifts. I have never really thought about how dangerous working in a warehouse is, but federal data shows that each year around 7500 people are injured from forklift accidents either due to collisions or tipping over and nearly 100 people are killed each year from forklifts.

Sales peaked in 2022 with well over 300,000 orders for forklifts in North America, but even as warehouses over the last few years have sprouted up in many places across the country, forklift orders dropped 28% in 2023. That is not because of the lack of activity in warehouses, but it is partly due to new factories are being built with more overhead cranes and using hand push electric pallet jacks. Even though forklifts can carry loads that weigh thousands of pounds and put pallets 10 to 15 feet in the air easily, companies or warehouses are preferring to use what are known as robotic tuggers to deliver parts and materials around the warehouse.

There’s also talk that the use of robots and boxes will be used more and those wooden pallets that have been around forever and used for those bonfires at the beach will be used less frequently. I believe since we are in a very strong economy, many businesses are not trying to squeeze out every penny to make a profit and they may be willing at this point in time to use other alternatives to forklifts. But we will experience someday in the future a slowdown in the economy, and it would make more sense to have a forklift move a lot of material across the warehouse floor, rather than multiple trips with a tugger or a robot.

Times are not looking good for American farmers as they see declining profits

In my opinion, American farmers do not get enough credit for what they do. The number of farmers has declined, but the size of the farms has increased. Farming is so important because it creates our nation’s food supply. The agriculture department reported that net income for farming in 2024 dropped 4% to $141 billion. Unfortunately, that comes have a decline of 20% in net income in 2023.

Part of the reason for these struggles is prices for commodities like soy beans and wheat have declined due to big supplies. On the expense side, farmers are getting squeezed as there are increasing prices for items like fertilizer and other equipment. All this has affected big public agricultural companies like Bunge, symbol BG, and Archer Daniels Midland, trading under the symbol ADM. These companies are seeing lower sales and declining profits, which has led to stock prices that have been nearly cut in half since 2022.

Farming in America needs to turn around, we cannot let American farms wither away. Hopefully what we will see in 2025 is exports of our food commodities to other countries increase. We need to help our farmers become profitable once again because we never want to be a country dependent on others around the world to supply our food needs. 

Investing in big banks in 2024 paid off well, will it continue in 2025?

Investment returns for some of the big banks like Citigroup, JPMorgan and others provided an investment gain of over 30% in 2024. Does that mean that they are now overpriced and should be sold in 2025? Or do the earnings justify more gains in 2025? As the yield curve appears to be going back to a normal yield curve with short term rates lower than long-term rates, this will benefit the banks as they make a larger spread between the money they loan out and the interest they pay out for vehicles like savings accounts and CDs.

The banks will also benefit from the expected ease in regulations. This will not just be a direct benefit for the banks as it will also help with mergers and acquisitions that your big banks provide advisory services for. 2025 is looking to be a year where for the first time in a few years banks could be running on perhaps all cylinders. In addition to profitable business segments going forward, the valuations for the large banks did not increase dramatically from last year as the earnings increase was able to help offset the increasing stocks prices. This kept the valuations at what I would consider attractive levels with price to earnings ratios on the big banks still around 12 to 13 times.

I also believe in 2025 the big banks will increase their dividends and share repurchase programs. Some of them will be provide a nice boost to their dividend, giving investors a yield of 2% to maybe 2 1/2%. So don’t be afraid of investing in the banks, they do have higher stock prices than one year ago, but the prices are justified by good earnings over the last 12 months, a forecast for a good economy, and a more normalized yield curve. This all could point towards the banks being winners again come December 31, 2025.

Why do we worry about Taiwan Semiconductor?

On the surface, Taiwan Semiconductor (TSM) looks like a great business to invest in. It continues to grow and has an important role when it comes to the excitement over artificial intelligence, also known as AI. However, Taiwan Semiconductor is mainly located in Taiwan. Yes, they are trying to build factories in other areas, including here in the United States. But besides being worried about the lack of profits companies are making off of artificial intelligence at this point, Taiwan itself is in a very fragile area being so close to China.

It’s no secret that China would love to take over Taiwan and while they may not do it with military force, they could weaken Taiwan with cyberattacks. The average daily number of cyberattacks against the Taiwan government doubled in 2024 to 2.4 million. I read the data, which came from Barron’s multiple times to verify that it said average daily and not yearly. Even if the number is off, what scares me even more is the 100% increase year over year. If just one of those cyberattacks make it through and it cripples the Taiwan government, it could put them in a very difficult situation, which obviously would not be good for Taiwan or Taiwan Semiconductor’s stock.  

Who will be running Berkshire Hathaway when Warren Buffett passes away?

At 94 years old, we know Warren Buffett is slowing down, but he wants his legacy to live on. To run the company, he has confirmed that his son Howie Buffett will become chairman of the board. At first glance, you may think this is a terrible idea because Howie, who does not like to be called Howard by the way, does not have as much business experience as you would think. Howie is currently 70 years old and has been on boards such as Coca-Cola and ConAgra Foods. He has also been a member of the Berkshire Hathaway’s board as well.

The reason that Warren Buffett picked his son to be chairman as he admitted he is favoring his son, but also feels that Howie is the best pick to protect the culture that Warren has built over his lifetime. I believe he fits the role well where he is going to keep things simple, treat people fairly and have respect for the managers and the shareholders. He also will carry on the tradition of being upfront with bad news when it comes and in today’s world it is worth saying that honesty is a very important thing for both Warren and Howie. As chairman of the board, Howie will not be running the business, instead he is there to provide guard rails to keep the business on the same path that Warren Buffett was on for his entire life. As chairman of the board and a non-executive chairman if he discovers they have the wrong CEO to run the business, it is much easier for Howie to make a change.

It is still expected that the long time Berkshire Hathaway executive, Greg Abel, will be the CEO and he will run the business. At a market cap around $950 billion, it will be no easy task to continue to grow the company. But I personally believe in what Warren Buffett has done over the years and that his son Howie, who has the same moral fiber of Warren Buffett, will continue to keep the company on track. I do believe we will see some changes in the investments that are put into the portfolio, which I feel we have seen already.

Are you feeling the pressure to tip at restaurants and everywhere else? Don’t worry you’re not alone.

The pressure to tip and tip higher is being felt not just at restaurants, but at places that you would never tip before for little or no service. Have you noticed tip jars at airports, concession stands, gas stations and other places where a person takes an item from the shelf behind them, hands it to you and then expects a tip, which is evident by the visible Tip jar. Tip stands for “to insure promptness”. Even though we feel “tip” pressure sometimes, we have to remember tipping is not an obligation, but rather a way to say thank you for a job well done.

I remember when I was younger, many years ago the normal tip was 15%. Somewhere along the way it grew to 20% but now that seems to be slipping. In 2024, 38% of consumers were tipping more than 20%. During the Covid year of 2021, consumers really appreciated service during a difficult time and 56% of consumers gave a tip over 20%. According to Toast, a restaurant payment system company, they say the average tip is now 19.3% with data ending September 30th, 2024.

2025 may be a difficult year for restaurants and servers as well as Americans are going to restaurants less than they did in 2023. This is causing restaurant chains and operators to have the highest bankruptcies in decades, not including 2020 during Covid. If you remember the big nationwide chains of Red Lobster and TGI Friday’s, both fell to be victims of bankruptcy. Restaurant owners are getting squeezed with higher costs for food, rent, utilities, and labor costs also continue to increase while profits fall. It seems owners are trying to adapt as entire restaurant staffs, including waiters, cooks, bartenders and hosts averaged fewer working hours per week in 2024 compared with 2023 based on federal data. Hopefully things improve so we don’t see more bankruptcies and closures of well-liked restaurants!