Smart Investing is the radio show where Brent and Chase try to make investing easier to understand. They demonstrate long-term investment strategies to help you find good value investments.
Episodes
4 days ago
4 days ago
Are tariffs impacting inflation yet?
The Consumer Price Index, also known as the CPI, in the month of June showed an annual increase of 2.7%, which was in line with expectations. Core CPI, which excludes food and energy, came in at 2.9% and was also in like with expectations. It was slightly above May’s reading of 2.8%, but given all the news around tariffs I think most would be surprised to see the limited change in prices given all the concerns. Some economists that tried to find evidence of the tariffs pointed to areas like apparel that had an increase of 0.4% compared to the month May. My concern with pointing out limited areas like that is prices can be quite volatile when looking at single areas, plus if you look at prices for apparel compared to last June, they actually decline 0.5%. Shelter is becoming less of problem for the report, but it is still the largest reason why inflation remains stubborn considering the annual increase was above the headline and core numbers at 3.8%. I’m still looking for these tariffs to have an impact on inflation, but as a whole they didn’t seem to have a large impact in the month of June. I also want to point out I don’t think they will be as problematic for consumers as some economists have illustrated.
Is the market in a bubble?
I have been hesitant to use the word bubble when describing the current state of the market, but as valuations get more and more stretched, I must say I believe we are now in bubble territory. Apollo’s chief economist, Torsten Slok, released a graph showing the 12-month forward P/E today versus where we were in 2000 and other 5-year increments. The forward P/E for the market as a whole is higher than it was back in 2000, but Torsten raised further concerns that valuations for the top 10 companies in the index are now more stretched than during the height of the tech boom. This is problematic considering these ten companies now make up nearly 40% of the entire index. Even looking at just the top 3 companies: Nvidia, Microsoft, and Apple, those now account for nearly 20% if the index. I recently heard a gentleman say on CNBC that valuations don’t cause bubbles to pop and while that may be true, when a catalyst comes the larger the bubble, I worry the larger the pop. All I can say at this time is be careful if you are investing in the index as a “safe”, diversified investment as I believe it is far riskier than many people believe.
Retail sales show another strong economic data point
Even though people remain concerned about a slowdown in the economy, their fears haven’t showed up yet in their spending habits. In the month of June, retail sales climbed 3.9% compared to the previous year. Due to the lower price for gasoline, gas stations were a large negative weight in the month and actually declined 4.4% compared to last June. If gas stations were excluded from the headline number, retail sales grew at a very impressive annual rate of 4.6%. Strength was broad based, but I was surprised to see areas like health & personal care stores up 8.3% and food services & drinking places up 6.6%. These are two areas that show me people are still getting out and spending money, which generally wouldn’t happen in a weak economy. There are some areas where consumers may be trying to get ahead of tariffs like motor vehicle & parts dealers, which saw an annual increase of 6.5% and furniture & home furnishing stores, which saw an increase of 4.5%, but it has now been a few months of strong sales in these categories. It will be interesting to see if there is a slowdown in those specific categories in the coming months as there could have been some pull forward in demand with consumers trying to beat those tariffs. Even if that is the case, spending still looks strong in areas not impacted by the tariffs, so I anticipate the consumer will remain healthy. Given the current state of the consumer, I still believe the economy is in a good spot overall. While I’m not looking for blockbuster growth, I’d be surprised to see anything close to a recession given all the recent data.
Financial Planning: What’s the Deal with These “Trump Accounts” for Kids?
Under the new One Big Beautiful Bill, children under 18 are eligible to open special long-term savings accounts, nicknamed “Trump Accounts”, with a unique blend of benefits and caveats. Kids born between 2025 and 2028 will receive a $1,000 seed deposit from the U.S. Treasury, regardless of family income. Parents, relatives, and friends may also contribute up to $5,000 per year in after-tax dollars. The account grows tax-deferred, and extra contributions (but not the Treasury seed or earnings) can be withdrawn tax-free. However, like a non-deductible IRA or non-qualified annuity, withdrawals of earnings or seed money are taxable at ordinary income rates, and early withdrawals (before age 59½) face a 10% penalty unless used for qualified purposes like a first-time home purchase or education. While the free $1,000 should be taken advantage of, families may find that 529 plans, Roth IRAs for teens with earned income, custodial accounts, or even accounts in a parent’s name offer better long-term flexibility and tax treatment for ongoing contributions.
Companies Discussed: Circle Internet group (CRCL), Archer-Daniels-Midland Company (ADM), Kenvue Inc. (KVUE) & Shake Shack Inc. (SHAK)
Friday Jul 11, 2025
Friday Jul 11, 2025
Crypto losses increase 66% in 2024
At first you may be saying I thought Bitcoin has been increasing in value? While that is true, you have to remember that is only one of the many thousands of cryptocurrencies that are available. According to the FBI in 2024, there was 149,686 complaints for total losses of $9.3 billion. It was somewhat surprising to learn that people over 60 years old, who I thought knew better than to gamble with cryptocurrencies, was the most with losses totaling nearly $3 billion. If you live in California, Texas or Florida that’s where the most complaints came from with a cumulative loss of $3 billion. Mississippi was also largely impacted as the number of crypto scams per thousand was the highest at 42.1. Even though there are a far higher number of investors and larger dollars in stocks, the SEC reported nationwide just 583 enforcement actions for stock scams or stock complaints in 2024. These complaints included charges against advisors for untrue or unsubstantiated statements. Interesting to note there’s now something called AI washing, which charges firms for making false or misleading statements about their use of artificial intelligence. It is hard to make a comparison of stock scams and fraud versus cryptocurrencies, but with the far higher number of people investing in stocks vs cryptocurrencies I think it is safe to say that your risk of being scammed in stock investments is far lower than being scammed when dealing with cryptocurrencies. So not only are you taking a higher market risk by investing in cryptocurrencies, but you are also taking on the risk of being ripped off as well.
Have ETFs become too complicated?
The first ETF, which stands for exchange traded fund, was launched about 30 years ago. They were simple in design and you generally bought them because they held a set group of stocks or bonds using an index and charged a low fee. Today, there are now over 4000 ETFs that are listed on the New York Stock Exchange. This is more than the 2400 individual stocks listed on the exchange. In 2024 alone, 700 new ETFs were launched and 33 of those tracked cryptocurrencies. The assets have ballooned to $11 trillion and now account for 1/3 of money invested in long-term funds. Some of that growth has come from open end mutual funds, which have lost $1.2 trillion in the past two years. There are now 1300 active ETFs, which actually manage the portfolio for you like a mutual fund. A big difference is those funds can now be sold during market hours. With open ended mutual funds, you have to wait until the close of the market and then sell at the closing net asset value for the day. Nearly half of the 1300 active ETF were launched last year. It gets difficult for investors with over 4000 choices to decide which is best. Back in 2020, Cathie Wood grew to fame with her actively managed ARK Innovation ETF. The fund shot up 150% that year and assets hit $28 billion. Today, the NASDAQ composite has a five-year cumulative return of 108% and the ARRK fund has seen a decline of 2% and the assets are now under $7 billion. If you’re investing in an ETF to benefit from commodities, understand generally they use future contracts to track the underlying commodity. Commodity futures are not a perfect vehicle and they generally work better for speculators that do short-term trading. One exception to this is the SPDR gold shares which is a trust that holds the actual gold. In my opinion, it is far easier to analyze one company to invest in and then build a portfolio rather than trying to understand some of these ETFs that can use leverage or future contracts or whatever. I worry investors could be blindsided when they least expect it.
What is a dark pool exchange?
A dark pool exchange is an off the exchange platform where institutions can trade without broadcasting their buying or selling intentions publicly. People wonder why when we invest at Wilsey Asset Management we buy a company with the intent of holding it 3 to 5 years. For those who think they can do better by trading you are taking a toothpick to a gun fight. Exchanges and market makers make up nearly 87% of the daily trading volume, but these dark pools are trying to step in and do more of the trading, which I believe will leave the small investor in the dark and they might not know what certain stocks are trading at. I’m getting rather disgusted with how Wall Street is acting like the Wild West. FINRA another regulatory body seems to be OK with this and will be collecting fees from the dark pools. Fortunately, for the past two years, the SEC has not approved this form of trading, but with the new administration and the new SEC chairman, who seems to love the Wild West of trading, I’m sure we’ll see more of this craziness going forward. This does not mean that investors on Wall Street cannot do well. To be frank, I don’t care if we miss a penny or two on a trade since we are looking down the road 3 to 5 years, but if you’re doing multiple trades per day that penny of two adds up. This also seems to be adding a lot more volatility to the markets. This volatility will scare investors out of good quality investments because of what they are seeing on a daily basis and not understanding what is going on behind the scenes. Remember if you are investor, you are investing in a small piece of a large company and there are millions if not billions of shares that are trading so don’t worry about the short-term movements. Instead, make sure the investment you made was of good quality with sound earnings and a strong balance sheet that can weather any storm, even these dark pools.
Financial Planning: Is Social Security Now Tax-Free?
One of the major topics surrounding the One Big Beautiful Bill (OBBB) was the taxation of Social Security. Now that the bill has been signed into law, we know that the method used to tax Social Security remains unchanged—but many seniors will still see their overall tax liability go down. Most states, including California, do not tax Social Security. Federally, between 0% and 85% of benefits are reportable as income, meaning at least 15% is always tax-free. The taxable portion is based on a retiree’s combined income, which includes adjusted gross income, tax-exempt interest, and half of their Social Security benefits. This formula was not changed by the OBBB. However, the standard deduction is increasing substantially, which reduces taxable income and, in turn, lowers overall tax liability. Prior to the bill’s passage, a married couple aged 65 or older would have had a standard deduction of $33,200 in 2025 ($30,000 plus $3,200 for age). Starting in tax year 2025, that deduction can be as high as $46,700—a $13,500 increase. This results from a $1,500 increase to the base deduction for all filers, plus an additional $6,000 per person for those over age 65. Importantly, this extra $6,000 per senior (up to $12,000 per couple) is not technically part of the standard deduction—it is an above-the-line deduction that can be claimed even by those who itemize. This add-on begins to phase out when Modified Adjusted Gross Income exceeds $150,000 and is fully phased out above $250,000. As a result, taxpayers in the 10%, 12%, and 22% brackets are most likely to benefit. So, while Social Security is still taxable, more of that income may now be shielded from taxes due to the expanded deductions. Additionally, the bill prevents the federal tax brackets from reverting to higher 2017 levels in 2026. The brackets will now remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%, instead of increasing to 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. For retirees with taxable Social Security or other ordinary income, this means lower effective tax rates moving forward. In short, Social Security is still taxable—but seniors will likely pay less, or even nothing, thanks to these changes.
Companies Discussed: Tripadvisor, Inc. (TRIP), Johnson & Johnson (JNJ), AMC Entertainment Holdings, Inc. (AMC) & KeyCorp (KEY)
Thursday Jul 03, 2025
Thursday Jul 03, 2025
The June jobs number looks stronger than it really is
I want to be clear; I wouldn’t say this was a bad report, but the headline number that showed an addition of 147,000 jobs in the month of June doesn’t show the full picture. The number did come in well above the estimate for 110,000 jobs and it follows upward revisions in the months of April and May that have totaled 16,000 jobs, but the concerning part I saw was government accounted for 73,000 new jobs in the month of June. This did not come from the federal government as that actually saw a decline of 7,000 jobs, but rather it was state and local governments which added a combined 80,000 jobs in the month, most of which came from education. The speculation is that this had something to do with seasonal adjustments and that obviously gains of that magnitude will not continue moving forward. Other areas that were strong included healthcare and social assistance, which was up 58,600, leisure and hospitality, which was up 20,000, and construction, which was up 15,000. Many of the other areas in the report were quite muted and manufacturing and professional and business services actually saw a decline of 7,000 jobs each in the month. There was good news on the unemployment rate as it ticked down to 4.1%, which was the lowest level since February and came in below the expectation for 4.3%. Unfortunately, this largely came due to the decline in the labor force participation rate, which dropped to 62.3%. This was the lowest level since late 2022. The problem here is the working age population continues to shrink, while the retirement population continues to grow. In fact the prime working age participation rate was recently near a record high of 83%. A potential problem to future job growth is the fact that we are running low on workers in their prime. This report largely erased any chance of a Fed rate cut in July, but I would say there was more positive news on the inflation front as average hourly earnings saw a manageable year over year increase of 3.7%. As I said, this wasn’t a bad report and in fact I would say it continues to show that the labor market is in a good spot for the most part, but it definitely wasn’t an overly strong report in my opinion.
Job openings remain strong
The Job Openings and Labor Turnover Survey, also known as the JOLTs report, showed job openings rose 374,000 in the month of May to 7.769 million. This easily topped the estimate of 7.3 million and it also comes during a month where layoffs declined 188,000 to 1.601 million. While this is positive for the economy and shows the labor market remains resilient, it does hurt the chances of a July cut from the Federal Reserve. Fed chair Powell during a panel said, ““In effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs.” With the labor market staying strong and many Fed members likely waiting for more data on how tariffs are impacting inflation, I would be surprised to see a cut in July. Although there have been a couple members saying a cut in July is possible, I still believe it would come as a surprise as many other members have expressed their desire to remain patient. I can see the case for a July cut, but I believe it is more likely we will see one in a couple months at the next meeting in September, if inflation remains in check.
Why did Apple produce the new movie F1?
Apple is obviously known for the iPhone, the iPad and the Mac, but a top producer of mega hit movies, not so much. Since 2019 they have tried to produce big hit movies like Killers of the Flower Moon in 2023 that starred Leonardo DiCaprio and Robert DeNiro, but the world box office receipts were only $159 million. Another hit movie they tried for that ended up as their top movie in 2023 was Napoleon with $221 million in box office receipts. So why did Apple agree to spend almost $250 million more to produce F1, which stars Brad Pitt? No one seems to understand. Brad Pitt will be paid $20 million for this movie and will get a cut of the films revenue if it’s a hit. It does have some chance for success since it was directed by Joe Kosinski and produced by Jerry Buckheimer, who were successful with Top Gun Maverick as that movie grossed $1.5billion in 2022. This past weekend F1 was the top box office hit with $55.6 million, but it appears to be struggling with the mass audience as most viewers were older men like myself who love cars and racing. I have not seen the movie yet but would like to soon. Apple seems to struggle in this space as it is spending billions of dollars annually but continues to lose on the development of hit movies. Apple TV+ only has roughly 27,000,000 subscribers and is known for subscribers canceling their subscription after watching a particular show or movie. Netflix has a 2% cancellation rate while Apple’s is 6% in any given month. It’s also interesting to note that the big movie production house Warner Brothers is responsible for distributing F1 and will receive a percentage of box office revenue that increases as ticket sales rise. There is some concern that in less than two weeks, Warner Brothers will be releasing their hit movie Superman and that could override the promotion of F1. If you want to see the movie F1 and you have Apple Pay you can get a discount on the tickets, which is something Apple has never done before. I won’t make any judgments on the movie till I see it myself, but I don’t see this boosting the lagging stock price of Apple and I do not understand why they’re in the movie business.
Don’t be fooled by ultra-high-income ETF’s
I wouldn’t think I would have to warn people that if you’re being offered a yield of 100% or more on a fund, the risk has to be extremely high and there is probably a good chance for loss. However, with that said this year alone $6.4 billion of new money has been placed into these high-risk funds that I assume are unsuspecting buyers who don’t really understand how these funds work. Regulatory filings show that at least 95% of these ETFs are held by individual investors or small financial advisors. The way they generate this high income is by trading options contracts on a single stock. It is misleading how they come up with those ultra-high yields of 100% plus as they take the ETF’s payout from option trading in the most recent month then multiply it by 12 and divide it by the fund’s net asset value. As an example, we can go back to November 2022 when a fund called the YieldMax TSLA Option Income Strategy ETF (TSLY) sold options on Tesla stock and promoted the yield was 62.8%. The fund has now dropped down to under $9 a share, roughly a 80% drop in the fund. This is somewhat surprising to most since during that timeframe Tesla stock is up around 70%. Sometimes people think just because there’s income or a nice yield that the fund is safer, but investors should remember that in most cases, the higher the yield the higher the risk.
Financial Planning: Pension lump sum vs monthly income?
When deciding between taking a pension benefit as a lump sum or monthly payments, it's helpful to compare the guaranteed income stream to the return you'd need on the lump sum to generate the same income yourself. Monthly payments offer steady, reliable income for life, essentially acting like a personal pension annuity, but most pensions do not include inflation adjustments, meaning the purchasing power of those payments may decline over time. Additionally, choosing a joint life annuity to continue payments to a surviving spouse will offer a lower monthly amount compared to a single life annuity. Since Social Security income drops when the first spouse passes, a joint annuity is usually more appropriate than a single life annuity to help maintain household income for the surviving spouse. In contrast, rolling over the lump sum into a retirement account gives you full control and the potential for growth. It also provides flexibility to structure income in a tax-efficient way allowing you to manage taxable distributions around other income sources, perform Roth conversions, or plan for inheritances and legacy goals. To make an apples-to-apples comparison, it is helpful to calculate the internal rate of return (IRR) you'd need to earn on the lump sum to replicate the monthly pension payments over your expected lifetime. For example, if your lump sum is $500,000 and your pension offers $3,000/month for life, you'd need to earn a little over 5% on the lump sum to match that income. Keep in mind, the lump sum is also an income source and this return calculation can help clarify whether the guaranteed income or potential flexibility and growth better align with your overall financial plan.
Companies Discussed: The Goldman Sachs Group, Inc. (GS), Robinhood Markets, Inc. (HOOD), Centene Corporation (CNC) & Columbia Sportswear Company (COLM)
Friday Jun 27, 2025
Friday Jun 27, 2025
Watch Out For This Chinese Stock Scam!
Yes, there’s another scam out there trying to part you from your hard-earned money. This has happened many times in recent years and it’s occurred in very small Chinese stocks that are vulnerable to manipulation. For some reason some US investors see these and think they’ve hit it big. US regulators try their best, but typically cannot get access to information in China to go after these people. They’re so good they trick people who should know better like businesspeople and even a university professor lost $80,000 in the scam. Their advertisements show up on social media or in messages on WhatsApp and they contain investment advice that looks very convincing with the alure of big, quick returns. They trick investors into thinking that this company is on the verge of something very big and they show that there are already short-term gains, which are engineered by the scammers through manipulative trading. The hucksters come from Malaysia, Taiwan and other places around the world. Some have been so bold that for some investors who lost money, they come back with a second better offer to make up losses on the first investment. Obviously, these people have no shame and the only thing I can recommend is to stay away from small Chinese stocks, especially if you see them advertised on social media. Remember the old saying if it sounds too good to be true, it probably is.
Is The Current 401K System Out of Date?
The current 401(k) system was first established 42 years ago in 1978 when the use of normal pension plans was in place and when people still worked for a single employer for most of their career. This change in 1978 was beneficial to both the employees and employers, because it gave employees control over their retirement plan and reduced the long-term financial risk for many companies with underfunded pension plans that caused multiple problems form companies during the 2008 financial crisis. Today, times have changed and employees might experience over their 40 years plus work career different jobs that may include side gigs, the launch of a business or two and potentially a change in their job that could take place as much as 12 times over their career. The benefit for employees of the 401(k) is it gives people the ability to control their retirement. If they do leave an employer, they can take their retirement with them and invest it as they see best. The problem of today with changing jobs so many times is unfortunately these employees decide to take and use the money, even though the penalties and taxes due are sometimes as high as 50%. In my opinion, there is not one good reason why you should be taking your retirement money early as you’ll pay for it many times over if you reach retirement with little or no retirement funds. Believe me, it is hard being older, but it is devastating to be older with no retirement funds. It has been estimated that frequent job changes over a career can cost as much as $300,000 in retirement savings. I like the new system that has made auto enrollment the default for employees starting a new job, but there is talk that they also want to require when a worker leaves an employer that their 401(k) automatically follows them to the new job and it should contain the same contribution rates as well. I think this is a terrible idea as it could get employees that are changing jobs locked into a terrible new 401(k). It could perhaps be additional administrative work for the new employer who already has enough to take care of when you include all the regulations, they have along with health insurance and current retirement plan administration. Being an employer myself one would not believe how much employers have to do already.
The Unknown Risk of the S&P 500
Many people love investing in the S&P 500 because the recent performance has been very strong. We have talked in the past about the over concentration of technology in the index, but I was shocked to learn that 71% or roughly 351 companies in the index report either non-GAAP income or non-GAAP earnings-per-share. This is dangerous for investors because you’re not comparing apples to apples and 89% of those 351 companies that made adjustments had results that appeared better. Wall Street has forced companies to continue to report higher and higher earnings each year and sometimes each quarter or else the stock gets pulverized. Non GAAP numbers were supposed to be allowed to explain extenuating or extraordinary circumstances like a factory fire or a sale of a division, but companies have abused the rule and exclude items like stock based compensation, amortization of intangible assets and currency fluctuations. The one that bugs me the most is restructuring charges that occur every year. For example, Oracle has had a restructuring charge for the past five years. Unfortunately, the SEC is absent on enforcing the rules and non-GAAP earnings have just about become the standard. The problem for investors is with no standard, you cannot compare true earnings of a company. If you have been investing as long as I have, you’ll remember the last time the abuse of non-GAAP earnings was during the tech boom and bust. Some people say we are too conservative with our investing and we are missing out on some big gains, but I do believe fundamental investing and understanding the true numbers of a company is far safer and it should produce better returns in the long run.
Financial Planning: What is the Net Investment Income Tax?
The Net Investment Income Tax (NIIT) is a 3.8% federal surtax that began in 2013 under the Affordable Care Act, targeting high-income individuals. It applies to any net investment income that exceeds a single taxpayer’s modified adjusted gross income (MAGI) of $200,000 or $250,000 for married couples filing jointly. Crucially, these thresholds are not indexed for inflation, so while they may have seemed high in 2013, today they would equal roughly $270,000 and $337,500 in 2025 had they been indexed for inflation, meaning more taxpayers are caught by the tax over time. Net investment income includes interest, dividends, capital gains, rental income, passive business income, and the earnings portion of non-qualified annuity distributions. While non-investment income sources such as wages, IRA withdrawals or conversions, and active business profits aren't directly subject to NIIT, realizing large amounts of those sources can push your MAGI above the threshold, thereby exposing your investment income to this additional tax. Also keep in mind, most investment income is still taxed as ordinary income as well. Only long-term capital gains and qualified dividends receive the lower capital gain tax treatment, but all investment income may trigger the NIIT if income exceeds the thresholds.
Companies Discussed: Fiserv, Inc. (FI), Pinterest, Inc. (PINS), Duke Energy Corporation (DUK) & General Mills, Inc. (GIS)
Friday Jun 20, 2025
Friday Jun 20, 2025
May retail sales look stronger than headlines show
After seeing headlines from several media outlets, I was worried May retail sales were slowing to a problem point, but I would say they actually looked quite strong. Compared to April, sales did fall 0.9%, which was larger than expectations for a 0.6% decline. It’s important to point out though that consumer rushed to auto dealers in April to try and beat the tariffs. This led to a 3.5% decline in motor vehicle & part dealers when comparing sales in the month of May to April. Gas stations have also seen declining sales largely due to lower gas prices and actually fell 2% when compared to the previous month. Excluding these two categories, sales would have fallen just 0.1% when compared to April. While the month over month numbers point to a slowing consumer, when we look at the annual comparisons the numbers are impressive. Headline retail sales climbed 3.3% compared to last May, but if we exclude motor vehicle & parts dealers & gas stations, sales climbed 4.6%. It was largely impacted by the 6.9% annual decline at gas stations. Areas of strength in the report included nonstore retailers, which were up 8.3%, food services & drinking places, which were up 5.3%, and furniture and home furnishing stores, which were up 8.8%. Overall, I’d say this report still shows a healthy consumer. I am still looking for the consumer to slow, but I believe people still have the ability and desire to spend in this economy, which should allow for continued growth, albeit at a slower rate.
Why are big retailers looking at issuing stable coins of their own?
Stable coins seem to be the new buzzword for 2025. It seems at least once a week when I pick up the Wall Street Journal, I see something about stable coins. I recently read that Walmart and Amazon may be looking into using stable coins to get away from using traditional payment systems, which is costing billions of dollars in fees each year. This includes interchange fees that occur when customers make purchases using their credit cards. If you’re not sure what a stable coin is, briefly, it is a coin that is supposed to be backed by a one-to-one exchange ratio with dollars or other government currencies. In other words, reserves of cash and dollars would have to equal the value of the stable coins that were in the market. Who would be hurt most by this? Visa and MasterCard, who collect billions of dollars in fees from the merchants, would likely be most at risk. I believe if the stable coins were to become a reliable source of transactions, you will see huge declines in the stock prices of Visa and MasterCard. Merchants have tried in the past to somehow get around the card-based systems from Visa and MasterCard, but each time they have failed. I personally still don’t have a clear comfortable feeling or understanding of stable coins, which is true of many regulators and others as well, but it does appear new technology is coming and if Visa and MasterCard are replaced, I wonder who will get the benefit of those billions of dollars in transaction fees? Will it be the retailer or the consumers?
ChatGPT and Perplexity are hurting the Internet
You may not think about it, but Alphabet’s Google search engine is seeing huge declines. This is not just hurting Google, but it also hurts many companies who get their business from people searching on Google. This could have a major impact on companies like TripAdvisor as it gets 58% of its global visits from search. If people get the answer, they need right away from ChatGPT, there’s no need to continue searching and you’ll not see any other ads directing you to other sites that may want to do business with you. Many companies from Netflix to US travel and tourism companies are seeing declines in traffic to their websites by 10 to 20% from one year ago. For example, search referrals to top U.S. travel and tourism were down 20% year over year last month and news and media sites saw a decline of 17%. ChatGPT had 500 million weekly active users in March and that was up almost 70% from the 300 million they saw in December. The reason this is hurting Internet search is since you get your answer from one platform, you close the book and move on. You don’t need to do any more searches on other sites. Google‘s lawsuit for being a monopoly with the federal government will still not disappear even though things have changed as they are being penalized for what they have done in the past. I have noticed when I’m using Google now the AI search function now pops up. The big question is will this help Google retain their search business? This is extremely important considering more than half of Alphabet’s business still comes from Google search ads. For investors, you may want to be aware of how much business the company you’re investing in gets from search off the Internet because there could be a decline in the business if it is a large amount. One company that could benefit from the decline in search is Meta. This would come from the Facebook and Instagram platforms because that’s still a way for businesses to be online and in front of potential new customers and clients. There’s still some concern on copyright infringement from many companies and this could be something that really hurts the advancement of AI. Are you finding yourself using AI more and doing less Google searches?
Financial Planning: The “Widow’s Penalty”
When a spouse passes away in retirement, the surviving spouse typically transitions from filing taxes jointly to filing as a single taxpayer in the following year, a shift that often triggers what’s known as the “widow’s penalty.” This penalty arises because single filers face higher tax rates at lower income thresholds and receive a smaller standard deduction, which can significantly increase their tax liability even if their income stays the same. To make matters worse, household income often drops after a spouse’s death. For example, if both spouses are collecting Social Security, only the higher of the two benefits continues. This combination—less income and higher tax rates—can lead to a surprising and painful spike in effective tax burden and reduction in cashflow. To mitigate this risk, couples can take proactive steps such as performing Roth IRA conversions while both spouses are alive to lower future taxable income, carefully coordinating Social Security claiming strategies to maximize long-term benefits, and planning pre and post death retirement withdrawals to keep cashflow consistent. Thoughtful retirement planning can help soften the financial blow and preserve more wealth for the surviving spouse.
Companies Discussed: Adobe Inc. (ADBE), T-Mobile US, Inc (TMUS), Jack in the Box Inc. (JACK) & Celsius Holdings, Inc. (CELH)
Friday Jun 13, 2025
Friday Jun 13, 2025
Alternative Assets Appear to Be a House of Cards
I remember using that same terminology back before the tech bust about 25 years ago. I was maybe a little bit early back then, but the house of cards collapsed. The more I read about alternative assets the more I scratch my head and ask how is Wall Street getting away with this? In the end, I believe the small investor will end up paying dearly for investing in these alternative assets. I learned something new over the weekend, a company called Hamilton Lane Private assets can buy private stakes from other holders at a discounted price, but then they can magically increase the value to the net asset value. This also reminds me of the mortgage crisis in 2008 with collateralized mortgage obligations better known as CMO‘s that also had major difficulties. Hamilton Lane Private assets can disregard the discounted price they paid no matter how they paid for it, even if it was in a competitive auction and again mark it up to net asset value. In 2024 there were $162 billion in secondary deals with an average discount of 11%. My question is how can they magically create $18 billion of value on those secondary deals. The incentive fees that private equity firms like Hamilton Lane earn range from 10 to 12 1/2%. If it sounds complicated, it is and if you don’t understand something, you should not be investing in it no matter how simple your broker tries to make it sound. The greed on Wall Street appears to be running rampant, I would highly caution investors to avoid any type of private equity in their portfolio.
Tariffs Are Still Not Impacting Inflation
The May Consumer Price Index, also known as CPI, showed little impact from tariffs. Headline CPI came in at 2.4%, which was right in line with expectations and core CPI, which excludes food and energy, came in at 2.8%, which was actually below the expectation of 2.9%. The headline CPI continues to remain softer than core CPI due to falling energy prices. Compared to last year, energy prices were down 3.5% and gasoline in particular fell 12.0%. The core prices do remain a little bit stuck at the 2.8% level considering it was at that level in both the March and April reports as well, but considering the concern around tariffs I would say this was a really strong report. It will be interesting to see the coming months as economists are pointing to the fact that companies brought in excess inventory before the tariffs were implemented so they are still working through pre tariff inventory and have not needed to raise prices yet. I do wonder if inflation does not substantially increase at what point will economists say that the tariffs maybe aren’t as impactful as they once thought? My belief remains that we will see a small uptick in inflation in the coming months, but there are other forces reducing inflation in some areas so I think it will be more muted than many believe.
Health and Human Services Is Receiving a Major Makeover
Back in the 60s, the world looked to America’s health regulators for guidance because they had a reputation for integrity, scientific impartiality and a strong defense of patient welfare. Today and for probably the last couple of decades, HHS has lost trust among many people. This week, a major shakeup of the advisory committee for immunization practices known as ACIP is retiring all 17 of the current members on the committee. In the past, the committee had many persistent conflicts of interest and approved every vaccine that came through. The committee met behind closed doors and without transparency the public had no faith in their decisions. Some of the members had financial stakes or received substantial funding from the pharmaceutical companies. I’m happy to report with all 17 of the committee members being forced into retirement we should see big changes on the approval of vaccines and hopefully in a few years, the HHS and the committee can regain public trust. This could have an impact on some pharmaceutical stocks if vaccines go through a more rigorous approval process.
Financial Planning: What If There’s a Recession While in Retirement?
With 8 in 10 Americans already changing their spending habits and 58% expecting a recession, it’s clear that economic uncertainty is weighing heavily on people’s minds. But the reality is if you're retiring soon, or already retired, you should assume you'll face multiple recessions, market corrections, and bear markets during your retirement. It’s not a matter of it, but when. Historically, recessions occur about every 6 to 10 years and typically last 10 to 18 months. Market corrections, defined as a drop of 10% or more, happen about once every 1 to 2 years, and bear markets, declines of 20% or more, occur roughly every 5 to 6 years, lasting on average about 10 months, though the recovery to previous highs can take up to 2 years or more depending on the severity. The point isn’t to try and time retirement around these events, it’s to build an income strategy that expects them. A well-structured retirement income plan includes diversified investment portfolio that will provide long-term growth, cash reserves to avoid selling investments at a loss, a sustainable withdraw rate, and flexibility to adjust withdrawals from various sources when needed. By accepting volatility as a normal part of retirement, you can build a plan that weathers it and sleep better when the markets are volatile.
Companies Discussed: Lululemon Athletica Inc. (LULU), Petco Health and Wellness Company, Inc. (WOOF), Brown-Forman Corporation (BF.B) & DocuSign, Inc. (DOCU)
Monday Jun 09, 2025
Monday Jun 09, 2025
Jobs market remains in a good spot
Headline nonfarm payrolls increased 139k in the month of May, which was above the estimate of 125k, but below April’s reading of 147k. A big negative in the report was the fact that March and April saw negative revisions that caused payrolls in those months to decline by a combined 95k versus what was previously reported. Even with that, if you zoom out and look at the big picture the economy is still adding jobs at a healthy rate given the fact that the unemployment rate has remained at 4.2%. I would also say it was a big positive that the private sector saw good growth since federal government payrolls declined by 22k in the month of May and are now down by 59k since January. I still expect losses to accelerate in the coming months for government payrolls since employees on paid leave or receiving ongoing severance pay are still counted as employed. Areas that saw major growth in the month included health care, which added 62k jobs and leisure and hospitality, which added 48k jobs in the month. Many of the other major industries saw little change. Wages were also positive in the month for workers as average hourly earnings grew 3.9% compared to last year. This was above the forecast of 3.7% and last month’s reading of 3.8%. I believe this is a good level for wage growth as it is healthy for workers, but not overly concerning on the inflation front. I would say this jobs report did little to change the narrative on the economy as it showed it remains healthy, but it definitely appears to be slowing.
Office space may be harder to find in the coming years
For the first time in at least 25 years, office conversions and demolitions will exceed new construction, which means there will be less space available. CBRE Group found that across the largest 58 U.S. markets, 23.3 million square feet of space will be demolished or converted to other uses by the end of this year while just 12.7 million square feet of space is expected to be completed by developers in those markets. We do have an office REIT in our portfolio and they recently talked about how leasing has continued to exceed expectations. I continue to believe the office has a valuable place in business and we have continued to see more and more companies implement return to office mandates. With less supply out there and demand remaining strong, we should see owners of office space benefit from stabilizing rents and increasing prices in the coming years. On the other side of coin, I have continued to express concern about the long-term dynamics for multifamily housing due to the construction boom in the space and potential oversupply. It’s not just the new construction though as developers have another 85 million square feet of office space being readied for conversion in the next few years. This comes after office conversations to multifamily residences that have generated roughly 33,000 apartments and condominiums since 2016. It is estimated by CBRE that each conversion on average produces around 170 units. As a contrarian investor I many times like to go against the grain. With that being said I am definitely much more interested in the office space over the residential space at this point in time.
Facebook scams are out of control
There’s no way of tracking the exact number of scams or the dollar amount lost from scams on Facebook and Instagram, but JP Morgan Chase said between the summers of 2023 and 2024 they accounted for nearly half of all reported scams on Zelle. An internal analysis from 2022 found that 70% of newly active advertisers on the platform are some forms of scam or low-quality products. Meta, the owner of Facebook and Instagram, does over $160 billion in advertising and is hesitant to put any restrictions that could prevent growth in their ad business. In 2024, the Wall Street Journal discovered documents that advertisers can be hit with anywhere between eight and 32 automated strikes for financial fraud before their accounts are banned. On top of that, Facebook Marketplace, which is its online secondhand market, has now passed Craigslist as the most heavily used platform for free classified ads and it has become a great place for scams. The scam that most people fall for is the sale of pets. This comes even though Meta bans the peer-to-peer sale of live animals. Meta has as argued in court it is not their legal responsibility to deal with the issue. Section 230 in the US telecommunications law relieves platforms like Facebook and Instagram from liability of users who create their own content. This is currently being tested by an Australian mining billionaire because Facebook failed to remove fraudulent investment advertisements that used his image and AI cloned voice. Hopefully he wins the case. In the meantime, I would have to recommend that people stay away from using Facebook or Instagram for buying from advertisers on their platforms because you could be dealing with someone from China, Vietnam, or the Philippines, who have stolen pictures of a familiar company that you think you know, even including its address. And once you give them your credit card information or any other financial information, they have you and your problems will begin.
Financial Planning: Retirement Savings Rate Hits Record High; How Do You Compare?
The average 401(k) savings rate, including employee contributions and employer matches, has reached a record high of 14.3%, nearing the widely recommended target of 15% for a secure retirement. This milestone reflects growing awareness of the importance of long-term financial planning, especially as traditional pensions continue to disappear. However, the ideal savings rate isn’t one-size-fits-all. Individuals who begin saving in their early 20s may be able to retire comfortably with a lower contribution rate, while those who delay investing until their 30s or 40s often need to save well above 15% to catch up. Starting early allows compound interest to do more of the heavy lifting, highlighting the value of consistent, proactive saving from a young age. For example, someone who starts at the beginning of their career might be okay saving as little as 7% of their income and still retire on time. This means if they save the minimum necessary to receive the full company match (5% contribution + 4% match = 9%) they likely will be fine. However, waiting until their 40’s may require a savings rate of 25% or more to produce the same retirement income.
Companies Discussed: Salesforce, Inc. (CRM), The Gap, Inc. (GAP), Wells Fargo & Company (WFC) & Steel Dynamics, Inc. (STLD)
Friday May 30, 2025
Friday May 30, 2025
First Time Homebuyers Hit a Record Low
With the high cost of housing and higher interest rates, people trying to get their first home dropped to a record low around 23% in 2024. The average age of the first-time homebuyer has increased 10 years over the historical average to 38 years old. The median income is now $97,000 and the first-time home buyers are coming up with an average down payment of 9% of the value of the home. Many of these young buyers are using FHA loans, which require a very small down payment and according to research roughly 30% of all FHA mortgages have a debt service ratio of over 50%. This means more than half of these buyers’ incomes is going toward servicing debt. This could be a hard pill to swallow for young buyers with not much money left over for luxuries like vacations and new cars. However, if when they buy the home, they understand that if they really tighten their belts for the next three to four years, they will probably be fine. New home builders are doing what they can to try and get rid of the largest inventory of unsold homes on their lots since 2009. The median price of a new home is currently less than one percent higher than the median price of existing properties, which historically has seen a 17% premium. The home builders are using profits from their homes to buy down mortgages. Even though the 30-year mortgage was recently around 6.8%, home builders can buy these mortgages down which led buyers of new homes to a rate around 5%. Buying down these rates has cost home builders about 8% of the purchase price of the home. This reduces their profits but better than the alternative of sitting on unsold homes with a carrying cost for the builder. I don’t see this situation getting better anytime soon because I’m not looking for a large decrease in mortgage rates and incomes over the next year will probably increase somewhere around 3 to 4%. We continue to believe the rapid increase in the price of homes over the last few years will not last and it will now take some time to get back to normal market. Maybe we will see a better real estate market in 2027 or 2028.
Is Bitcoin coming to your 401k?
I have been concerned with bitcoin and crypto as a whole for several years for many reasons including fraud, illicit activity, and the fact that there is really no way to derive an intrinsic value for it since there is no earnings, cash flow, or anything really backing the asset class. I was disappointed to see the current Labor Department removed language that cautioned employers to exercise “extreme care” before making crypto and related investments available to their workers. They cited “serious concerns” about the prudence of exposing investors’ retirement savings to crypto given “significant risks of fraud, theft, and loss.” While this isn’t necessarily a full-on endorsement for placing crypto in 401k plans, it definitely seems like the administration is continuing on its path to try and normalize crypto as an established asset class. Even with this change in language I would be surprised to see a huge surge in cryptocurrencies within 401k plans. Ultimately, ERISA bestows a fiduciary duty on employers and company officials overseeing 401k investments and that means legally employers must put the best interests of 401(k) investors first and act prudently when choosing which investments to offer (or not offer). Given the extreme volatility within crypto I believe it would be a huge risk for these companies to offer it as it could open them up to lawsuits if there are major declines. We’ll have to see what other changes are made as time progresses, but I don’t believe crypto has any place within a 401k plan at this time.
Inflation report shows continued progress
The personal consumption expenditures price index, which is also known as PCE and is the Federal Reserve’s key inflation measure, showed an annual increase of just 2.1%. Core PCE, which excludes food and energy, showed a gain of 2.5%. Both results were 0.1% below their respective estimates. Overall, inflation has continued to cool and is now quite close to the Fed’s 2% target. The question that remains is how will tariffs ultimately impact inflation? An economist from Pantheon Macroeconomics said that he believed core PCE would peak later this year between 3.0% and 3.5%, if the current mix of tariffs remained in place. I would say it is difficult to forecast the tariff impact since we don’t know what will ultimately be passed on to the end consumer. It will definitely be interesting to see what numbers look like in the coming months, but ultimately, I believe most of the concerns around inflation are overblown and even if the rate for PCE is around 3%, I don’t see that as being problematic for the economy.
Financial Planning: What it Means to be an Accredited Investor
An accredited investor is someone who meets specific income or net worth thresholds—such as earning over $200,000 annually ($300,000 with a spouse) or having over $1 million in net worth excluding their home—and is allowed to invest in private securities offerings not registered with the SEC. These investments, which include private REITS, private equity, hedge funds, and startups, often promise high returns but carry significant risks such as illiquidity, limited transparency, and the potential for total loss. While many of these offerings are only available through fiduciary advisors—who are legally obligated to act in their clients’ best interest—investors must still exercise caution. Fiduciary duty applies only in certain contexts (such as investment advice) and may not extend to related areas like insurance or commission-based products. Additionally, what qualifies as “acting in your best interest” is often subjective and open to interpretation. Working with a fiduciary does not guarantee protection, and investors should remain vigilant, ask questions, and independently evaluate any recommendation. Also, private investments aren’t necessary better than public investments, so just because you qualify as an accredited investor doesn’t mean you should be investing in private securities.
Companies Discussed: Regeneron Pharmaceuticals, Inc. (REGN), Intuit Inc. (INTU), Target Corporation (TGT) & Toll Brothers, Inc. (TOL)
Friday May 23, 2025
Friday May 23, 2025
The U.S. just received a downgrade to its credit rating, should you worry?
Last week, Moody’s announced it downgraded the United States sovereign credit rating from AAA to Aa1. While a downgrade is important to understand and can have negative consequences for interest rates, this downgrade did not seem too problematic. I mainly say that because Moody’s was the last major credit rating agency to have the U.S. at the highest possible rating. The first downgrade carried the most weight in my opinion as it had the highest shock value. Standard & Poor’s was the first to move in August 2011 and the stock market fell 6.66% the session after the announcement. Fitch then lowered its rating on U.S. debt in August 2023 and the stock market lost 1.38%. After this Moody’s downgrade the stock market seemed to have little reaction as it actually had a small increase following the news. While this downgrade may sound scary, I don’t believe it will have long term consequences considering the fact that US debt is still viewed as a very safe asset. With that said, the US does need to address the growing deficit problem as further downgrades from these credit agencies could cause problems.
Demand for electric vehicles is falling dramatically
Electric vehicle sales in the month of April declined 5% while the overall car market grew by 10%. This is only the third monthly decline in four years for electric vehicles. The reason for the decline is consumers are watching their spending more than they have in a while and many of the deals and promotions for electric vehicles have disappeared. It was not just Tesla who had difficulty because of Elon Musk’s political association, but even Kia, Hyundai and Ford experienced drops. Rivian was hit hardest on their R1T pickup truck as it saw a 50% decline in sales for April. With some of the crazy electric vehicle lease deals gone, consumers are also asking the question about charging related concerns. There are some car buyers who were considering buying an electric vehicle but they said it’s not worth the stress of charging your vehicle all the time. It’s just much easier to pull into a gas station that is always easy to find. This is only one month of electric vehicle sales and not a trend that has been going on for a while, but with the increased production of oil from OPEC and a large potential supply of oil in the future, gas prices should decline which takes away the incentive of paying more for an electric vehicle.
High risk, private market investments are showing up in more 401(k) plans
Another big 401K provider called Empower who oversees $1.8 trillion in 401(k) assets for about 19 million people has decided it will start allowing private credit, equity and real estate in some of the accounts they administer later this year. I think this is a terrible idea for investors. I have seen the back end of these private deals and many times investors have made no money from them and can only get out a little bit of their money at a time, while they are suffering from low returns and high fees. No surprise Wall Street loves these private market investments because of high fees, which range anywhere from 1% to 2% of the portfolio balance on an annual basis. One way they are trying to sneak in the private market funds is with a 10% allocation in the popular target date funds. This is pretty sneaky because you may be thinking you’re getting a pretty conservative stock and bond fund that becomes more conservative as you get older, but with a 10% allocation in these private assets I believe it will increase the funds risk and lower the returns going forward. As always, the bankers on Wall Street only care about generating more fees, and don’t care if investors lose money as long as they bring in their billions of dollars in profits. If you see these in your 401(k) options, cross them off the list and stick to the traditional long-term investments that have worked for so many years now.
Financial Planning: Who Benefits from the new SALT proposal?
The current SALT deduction allows taxpayers who itemize to deduct up to $10,000 of certain state and local taxes, most importantly their state income taxes and property taxes, from their federal taxable income. The new proposal in the House bill would raise this cap to $40,000 for households earning under $500,000, with a phaseout that fully eliminates the expanded deduction at $600,000. Married and single tax filers alike with incomes over $600,000 would be subject to the $10,000 SALT limit. This change is intended to benefit middle- and upper-middle-income taxpayers in high-tax states, while limiting the benefit for higher earners. The proposal also includes annual 1% inflation adjustments beginning in 2026. If the bill is signed into law in its current form, the larger deduction would apply beginning in tax year 2025. If passed, tax payers who make less than $600k in high tax states who own a home with a mortgage will see the biggest tax benefit and they may want to adjust their tax withholdings or estimated tax payments to account for it. However, the bill has not passed the Senate, and the final terms are likely to change.
Companies Discussed: CAVA Group, Inc. (CAVA), First Solar, Inc. (FSLR), Levi Strauss & Co. (LEVI), & UnitedHealth Group Incorporated (UNH)
Friday May 16, 2025
Friday May 16, 2025
U.S. Tariffs are hurting China
Exports from China have dropped dramatically which has weighed on China’s economy. This has caused protests due to lost jobs and wages in their economy. Exports from China to the United States dropped 20% in April, but China did pick up exports from other countries like Indonesia, Thailand and Africa. While this may help a little, the export dollars for China to these other countries pales in comparison to the mighty consumption of the US consumer. China’s economy depends on exports considering the fact that in 2024 1/3 of GDP growth came from exports. The Chinese government is panicking a little bit with the central bank in China saying it would cut interest rates and inject more liquidity into the financial system. Some factories in China are pausing their production and laying off workers until things pick up again. Goldman Sachs estimates that roughly 16,000,000 jobs in China come from exports to the United States. With the news that tariffs are being lowered for 90 days it will be interesting to see how companies and these countries react. The US will still have a 30% tariff on many Chinese products, but that is much more manageable than the 145% that was in effect. It is important to remember this is a pause and that rhetoric could pick back up as negotiations continue. I do believe a reescalation in the trade war would really hurt the Chinese economy more than ours and I’m optimistic we will see a trade deal reached, but it will likely take time. I believe it is worth waiting for as a better trade agreement will benefit us for decades down the road.
Inflation continues to cool
The headline Consumer Price Index (CPI) for the month of April came in at a 12-month rate of 2.3%, which was below the estimate of 2.4% and marked the lowest reading since February 2021. Core CPI, which excludes food and energy, came in at 2.8% which matched expectations and was in line with March’s reading. Energy was a major help to the headline number as it fell 3.7% compared to last year with gasoline in particular down 11.8% over that timeframe. While this is all great many economists are worried about what the next few months will look like on the inflation front due to tariffs. Joseph Gagnon from the Peterson Institute for International Economics said he believes a 10% average tariff rate would add as much as 1 percentage point to the CPI after about six to nine months. While I would agree with the idea that inflation will likely increase in the months ahead, I still don’t believe it will be to a problematic level for two reasons. First, we should remember there are several players that can absorb the costs from these tariffs. You have to consider the companies importing products can reduce their margin, there would be shipping/transportation companies that can reduce their costs, the company’s manufacturing products can lower their prices, and then yes, the consumer is the last piece of the puzzle that could now have higher prices. With all that said I don’t believe a 10% tariff would result in a 10% increase in prices due to all the places in the supply chain that can absorb some of the cost. The second reason I wouldn’t be overly concerned is I wouldn’t see the tariff as embedded inflation and it could likely be viewed as a one-time lift to prices that would then be lapped next year. Nonetheless this story will be interesting to monitor in the coming months to see what the actual impact is, but I do remain optimistic about our economy and the inflation outlook.
Could artificial intelligence create more jobs?
Many people think that artificial intelligence, also known as AI, is going to reduce jobs for people. The CEO of IBM, who admits that AI has replaced hundreds of workers, said it has created more jobs than it has eliminated. He went on to say it frees up investment that the employer can put to other areas that include such jobs as software engineering, sales, & marketing. Normal things like creating spreadsheets and other routine tasks can be done with artificial intelligence, but it still takes a human to do the critical thinking on how to use that data to enhance business for the company. If you’re working for a company and you don’t have much contact with other workers that relate to your job, your job could be at risk of being replaced by AI. Make sure your job involves using data to work with other people, which should give you job security in the growing world of AI.
Oil at $50 a barrel?
There is talk that we could see oil drop from around $60 a barrel down to $50 a barrel, which would be a big benefit for consumers at the pump. The reason for this is that OPEC and its allies are increasing production of oil faster than anyone expected. By June they could be producing nearly 1,000,000 more barrels of oil per day compared to current levels. The United States is currently the number one producer of oil in the world with production of nearly 15,000,000 barrels per day. If you’re wondering does that meet our consumption? It does not as that stands at 19.6 million barrels per day. OPEC is not taking this sitting down and they want to regain market share. To do it appears they’re willing to see lower oil prices. The reason why oil prices are expected to drop is that the demand is about the same as it was just one year ago, so the increase in production means we’ll probably have an oil glut for a while. At $50 a barrel most oil companies can still make money off of producing oil, but US oil companies might stop doing stock buybacks and could no longer build new wells. What this would do is hurt supply in the future and oil would turn around and increase once again. If you invest in oil companies, you have to realize that supply/demand of oil will rule the price of the stock. But fortunately, most of the big oil companies pay a good dividend, which makes it a little bit easier to hold on when the stocks have a temporary decline. For consumers, this means the average cost per gallon of gasoline across the country, which is now around $3.20 per gallon, could drop to levels around $2.50 per gallon. Consumers in California may not see declines in the prices at the pump as California continues to drive refiners out of the state and reject refined gasoline from other states that do not meet a ridiculously high standard. If you want to blame someone for higher gas prices in California you can blame the governor and Sacramento for ridiculous policies on gasoline.
Financial Planning: Trusts and Retirement Accounts Do Not Mix
Naming a living trust as the beneficiary of a retirement account—such as an IRA or 401(k)—is generally not a good idea due to potential tax inefficiencies and administrative complexity. Under the SECURE Act, the "stretch IRA" option has been largely eliminated for most non-spouse beneficiaries, and replaced with a 10-year rule requiring the entire account to be withdrawn within a decade of the original owner's death. If a trust is named as the beneficiary and it isn’t specifically drafted to be the beneficiary of a retirement account, it may not qualify for this 10-year treatment and could face even faster distribution requirements, such as a 5-year distribution period, accelerating taxes significantly. Instead, it’s typically better to name individual beneficiaries directly on retirement accounts to preserve flexibility and minimize tax impact. For those needing control over distributions—for example, to protect minor children or spendthrift heirs—a carefully drafted trust designed to meet IRS requirements should be used with the help of a qualified estate planning attorney. For most other cases, listing actual people or charities as beneficiaries is a much simpler and more efficient strategy.
Companies Discussed: Dick’s Sporting Goods, Inc. (DKS), Charter Communications, Inc. (CHTR), Krispy Kreme, Inc. (DNUT) & Lyft, Inc. (LYFT)
Friday May 09, 2025
Friday May 09, 2025
Why I won’t be buying Palantir technologies anytime soon
When I’m out in public many times people ask me what my opinions are when it comes to investing, the markets or individual stocks. I have to say the one stock that people seem to be asking the most about recently is Palantir Technologies, their ticker symbol is PLTR. I believe I’m asked about this company because investors look at the hype of the past performance and the fact that this stock is up over 1,000% since going public in 2020. That creates excitement for investors, but is it worth buying now? The company currently trades around 60 times next year’s estimated sales, and again that is sales not earnings! That makes it the most expensive stock in the S&P 500. There are signs that growth outside of the US is slowing and I don’t like that they have three unnamed companies that accounted for 17% of the total revenue last year. Usually hype like this goes the same path, which ultimately results in large losses for buyers at this point in the cycle. A more recent example comes from the company Snowflake. In 2021, Snowflake hit an all-time high over $400 per share. Today that stock is down nearly 60% and trades around $167 per share. You don’t hear much about it now, but I remember back in 2021 many people were asking about this company as well. I’m also not thrilled with Palantir’s CEO, Alex Karp, who during an interview just a few months ago had some pretty nasty comments about analysts who don’t agree with him on the stock price. He said “I love the idea of getting a drone and having light fentanyl laced urine spraying on analysts who’ve tried to screw us.” Maybe I’m old school, but I don’t think that is anyway for the CEO of a company of any size to talk about anyone that does not agree with the CEO’s position. Especially considering many times they aren’t knocking the business, just the fact that this company’s valuation is extremely crazy! I will also try my best to refrain from making any comments on Mr. Karp’s hairstyle, but it just seems a little bit outlandish for a CEO to have that type of hairstyle. As far as the stock goes, maybe the craziness will continue and perhaps it does go higher, but if people ask me if they should buy, sell, or hold the stock, I would definitely say sell! I guess I now have to be careful of drones flying above my head that could be spraying fentanyl laced urine on me.
Good news, only 26% of big money managers are bullish
A recent poll from Barron‘s magazine, which they conduct twice a year, found that only 26% of big money managers were bullish and thought stocks would go up while 74% were either neutral or bearish on stocks. They said 32% of respondents were bearish and that was the highest percent since 1997 while the 26% that were bullish marked the lowest reading since 1997. I think Barron’s Magazine is a good source of information, but I was disappointed that they did not list the years of experience of the managers that were being polled. The reason for my concern is that the last big negative in the economy and the market was in 2008, which was 17 years ago. A current manager that graduated school at age 23 would now be 40 years old and they did not experience managing money through 2008. Living through and managing money through a challenge like that provided me with extremely valuable lessons that younger managers would not understand. But why is this negative report a good sign in my opinion? Their current asset allocation is only 64% in equities with 36% in other investments like fixed income and cash. They will not stay bearish forever and if they change direction in the next 6 to 12 months, they will start buying equities again, which will push up prices. If you’re looking for value, the least attractive sectors were energy, real estate, and utilities. I have talked about my concerns around the Magnificent Seven and now only 10% of these managers think the Mag Seven will lead the market over the next six months. Even looking out 12 months only climbed 32% thought the group would lead the market. When asked about the strength of the US dollar going forward 12 months, 68% of the money managers said it will be weaker, which I agree with. Only 15% of the managers think it will be stronger a year from now. These surveys also provide an interesting insight into what other money managers are thinking.
Apple’s stock continues to amaze me
There seems to be so much negative news that continues to come out against Apple, but the stock continues to remain relatively steady given the amount of negativity. We all know about the tariffs and the delayed AI rollout, but I was definitely concerned by a couple announcements that would have large impacts on Apple’s service revenue. This segment has been a bright spot for Apple, but in the most recent quarter it missed expectations and grew at just 11.6% compared to last year. The big concern I have is around Alphabet’s estimated payment of around $20 billion annually to be the default search engine. There is concern if this will hold up given the ruling that Alphabet holds a monopoly and the need for remedies, but also this week Apple executive, Eddy Cue, added additional concerns. He stated the searches in Apple’s Safari browser fell for the first time in April, something that has never happened in 20 years. He then added that the iPhone maker is looking at adding AI search options to the Safari browser. If they did this, would Alphabet really want to keep paying $20 billion a year for that right? I don’t think so! The other major concern that seemed to get little attention was the fact that in a recent ruling a judge ordered Apple to immediately stop imposing commissions on purchases made for iPhone apps through web links inside its apps. This has enabled developers like Amazon and Spotify to update their apps to avoid Apple’s commissions and direct customers to their own website for payments. This commission rate was around 27% for Apple and it could cost Apple billions of dollars annually. All this comes with the fact that Apple still trades around 25x 2026 earnings even though revenue is only estimated to grow low to mid-single digits. In my opinion, Apple really needs some good/exciting news to get this stock moving higher and at this time I don’t see where that is going to come from.
Financial Planning: Breaking Down Retirement Income Taxation
Retirement income varies widely in tax treatment, with some sources being far less tax-friendly than others. In order from worst to best, pension payments and traditional IRA withdrawals are among the least favorable—they're fully taxable as ordinary income at both the federal and state levels. Interest income from bonds, CDs, and savings accounts, as well as annuity earnings from non-retirement accounts, are also taxed as ordinary income at both levels and can trigger the additional 3.8% Net Investment Income Tax (NIIT) if income thresholds are exceeded. Rental income is similarly taxed but allows deductions and depreciation to offset some of the tax burden. Long-term capital gains and qualified dividends receive preferential federal tax rates—as low as 0%—but are still taxed as ordinary income in California and many other states. Social Security is partially taxed at the federal level—between 0% and 85% is included as taxable income depending on total income—but is not taxed in most states, including California, making it relatively tax-favorable. Roth IRA withdrawals are the most tax-friendly, being completely tax-free at both the federal and state levels if qualified. Understanding how each income type is taxed can help guide investment decisions during working years and inform how to structure withdrawals in retirement for optimal tax efficiency.
Companies Discussed: The Scotts Miracle-Gro Company (SMG), Block, Inc. (XYZ), Amazon, Inc. (AMZN) & McDonald's Corporation (MCD)
Friday May 02, 2025
Friday May 02, 2025
Should the United States delist Chinese stocks?
At first thought with all the craziness of the trade war it sounds like delisting all the Chinese companies from the American stock markets may be a good idea. It is important to know that there are 286 Chinese companies listed on major US stock exchanges. You’ll recognize some of the names like Alibaba, Baidu and JD.com. It is estimated by analysts at Goldman Sachs that US institutional investors currently own about $830 billion worth of Chinese stocks. That is more than two times what the Chinese own of US stocks as that is estimated around $370 billion. But a quick sell off could bring down stock valuations and make it difficult to get out of many of these stocks on both sides. An important piece of information I brought up a couple years ago was the Accountable Act which came to be in 2020. This allows the Securities Exchange Commission to ban foreign companies from trading if American regulators are not allowed to inspect the auditors for three years in a row. I always worry about Chinese companies because of what I call government accounting. They are not held to the same accounting standards there and I believe companies may list financial statements based on what the government tells them. There have been some Chinese companies that delisted themselves rather than going through an audit. I think that tells you quite a bit. My feeling is we should not delist all the Chinese stocks that trade on American stock exchanges under what is known as ADRs, but be sure that the Chinese companies have the same transparency as American companies when it comes to their financial statements. If we can’t get that transparency, then those companies should be delisted.
Jobs report shows more evidence the economy is in good shape
US nonfarm payrolls grew by 177k in the month of April, which easily topped the estimate of 133k. Jobs remained robust in health care as the sector added 51k jobs in the month of April and employment in transportation and warehousing and financial activities was also strong as the groups added 29k and 14k jobs respectively in the month. Other categories like construction, manufacturing, leisure and hospitality, and retail trade saw little or no change in payrolls, while government declined by 9k jobs in the month. Government jobs are now down by 26k since January, but remember employees on paid leave or receiving ongoing severance pay are still counted as employed. This likely means we will continue to see losses accelerate in this category as the year continues. Negatives in the report included the fact that employment numbers were revised down by a total of 58k in the previous two months. Also, April’s reading was lighter than March’s reading of 185k, but considering the unemployment rate remains at 4.2%, I still see these jobs gains as impressive, especially with all the negativity that people have been discussing. With that said, I still do anticipate weaker numbers in terms of the payroll additions in future months, but if the unemployment rate remains low I don’t see that as a problem. On the inflation front, we also got good news with average hourly earnings rising just 3.8%. I see this as a healthy increase that does not put pressure on inflation like when wages were growing over 5% in 2022.
Job openings look problematic on the surface
In the March Job Openings and Labor Turnover Survey, job openings totaled 7.2 million. This was below February’s reading of 7.5 million and the estimate, which also stood at 7.5 million. This is still not super concerning to me. We tend to forget how strong the labor market has been and while we continue to see a softening, there is plenty of room before I see cause for concern. Just for reference, job openings in 2019 averaged approximately 7.2 million, in 2018 they averaged approximately 6.8 million, and in 2017 they averaged approximately 6.2 million. Compare that to where we are today and that should give you more comfort. Another area I saw as positive in the report was the fact that quits totaled 3.3 million, which produced a quit rate of 2.1%. This is important because if people were truly concerned about a major slowdown and thought they would not be able to find work elsewhere, I don’t believe they would be quitting their jobs. These quit numbers are still quite close to 2019 levels, which many considered as a very strong economy. That year quits averaged approximately 3.5 million and there was an average quit rate of about 2.3%. Also in the report, we saw layoffs remained quite low at 1.6 million. Back in 2019, layoffs averaged around 1.8 million per month. There is no doubt that uncertainty remains and that will have some impact on businesses and their hiring plans, but in terms of it pushing the economy into a major recession, since we are coming from such a healthy level, I just don’t see that happening.
Are we in the middle of a recession?
The first reading of Q1 GDP showed a decrease of 0.3%. A recession is generally defined as two consecutive quarters of declining GDP, so some may argue we are half way there. Let us not forget in 2022 we did see two consecutive quarters of declining GDP as Q1 declined 1.4% and Q2 showed an advance estimate that was down 0.9%. After further research the second quarter ended up seeing a total reversal and it is now reported to have actually grown by 0.3%. Even with the difficult start, that year ended with a 2.1% growth rate. We also can’t forget that the National Bureau of Economy Research (NBER) makes the official call on recession and they use a broader set of indicators that led them not to declare a recession in 2022. I say all of this because I still believe even if we hit a technical recession, if employment remains strong, I don’t believe we would have an “official” recession. I am still unsure that we will even see Q2 GDP decline and we could also see revisions to Q1 that lift it to a positive reading. I say this because if you look at the actual underlying numbers in the report, it is not nearly as bad as the headline decline. On the positive front, consumer spending actually grew 1.8% in the quarter as services showed a nice increase of 2.4%. Also, private domestic investment saw a surge of 21.9%, this was led by investments in equipment as they grew 22.5% in the quarter. You might be asking with numbers like these how did we see a negative GDP? To start, government spending fell 1.4% in the quarter. This was led by a decline of 5.1% in spending by the federal government. The group as a whole ended up subtracting 0.25% from the headline GDP number. While this was impactful, the real reason for the decline in GDP was trade. Companies were trying to get ahead of looming tariffs and imports surged 41.3%. This compared to an increase of just 1.8% for exports. The huge discrepancy caused the trade component of GDP to decrease the headline number by 4.83%! While the economy is no doubt digesting these trade conversations and the tariffs, I still believe the economy is in alright shape when you look at the underlying numbers. I did also want to mention more good news on inflation as the March headline PCE showed an increase of 2.3%, which compares to last month’s reading of 2.7% and core PCE came in at just 2.6%, which was a nice decline from February’s reading of 3.0%. I believe these numbers will likely increase with the tariffs, but underlying inflation looks to be quite healthy.
Financial Planning: Protecting Yourself from Home Title Theft
Home title theft is a type of real estate fraud where someone illegally transfers the ownership of your home by forging your name on title documents. This is often done using stolen personal information to file fraudulent deeds with the county recorder’s office. Once the title appears to be in their name, the thief may try to take out loans against the property, sell it to an unsuspecting buyer, or use it in other schemes that could put your home and finances at risk. This crime can go undetected for months if property owners aren’t actively monitoring their title. Having a mortgage or HELOC on your house can make it more difficult for a thief to steal your title since the bank has a lien against the property, but it is still possible. There are private companies that charge monthly fees to alert you of changes to your home title, but they do not prevent the title from being stolen. You can also purchase home title insurance that will help pay for legal fees if you have to go to court if your title is stolen. Homeowners in San Diego County can access a free alternative called “Owner Alert”. Jordan Marks who is the San Diego County Assessor/Recorder/County Clerk was behind this, and it is a great benefit that all San Diego property owners should take advantage of. This service works by notifying you by email whenever a document is recorded against your property, helping you catch potential fraud early. Signing up is simple and can be done on the San Diego County Assessor’s website. You just need your name, email address, and parcel number and it provides the same type of monitoring offered by paid services, making it unnecessary to spend money for peace of mind when this tool is already available for free.
Companies Discussed: Zimmer Biomet Holdings, Inc. (ZBH), Take-Two Interactive Software, Inc. (TTWO), Northrop Grumman Corporation (NOC)Alphabet Inc. (GOOG)
Friday Apr 25, 2025
Friday Apr 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.
Companies Discussed: Netflix (NFLX), The Walt Disney Company (DIS), Albertsons Companies, Inc. (ACI) & UnitedHealth Group Inc (UNH)
Friday Apr 18, 2025
Friday Apr 18, 2025
Can the heartland states save our country?
The heartland states are 20 states pretty much in the center of the country. They have been regaining economic strength over the years and currently about 39% of the US population lives in these states, according to the census bureau for 2024. The population growth in this area was above the rest of the country for the last five years with numbers that have not been seen in over 65 years. Employers in this area grew by 13.2% between 2020 to 2023 and business capital expenditures totaled $76.9 billion in 2023 and have seen an average annual growth of 9.43% since the beginning of Covid. These 20 states on average have established more business-friendly policies along with tax incentives and grant programs that draw businesses to their area. The East and the West Coast just can’t seem to compete with the affordability of states in the middle of America. These mid America states have lower cost for land and utilities are far less being as much as 1/3 less than the rest of the country. This is according to the Energy Information Administration (EIA). The overall cost of living is lower, so wages can also be lower and still provide a good standard of living for their employees. In my opinion, states like California and others need to wake up and realize that perhaps stats in Middle America are on to something with policies that are attracting new residents. It would appear that foreign companies coming to the United States would build and prosper in one of these 20 states rather than states that are against business or have high taxes and other costs.
Consumer actions aren’t matching their words
We continue to see negative surveys about consumer confidence and sentiment, but you wouldn’t think consumers feel bad after looking at the recent retail sales report. March sales climbed 4.6% compared to last year and if gas stations, which fell 4.3%, are excluded the report was even more impressive as it climbed 5.3%. Some of this is likely due to concerns over looming tariffs as consumers pull forward demand before expected price increases. Some areas that are likely more impacted did see large gains as motor vehicle and parts dealers saw an increase of 8.8% and sales at furniture and home furnishing stores climbed 7.7%. With those said gains were quite widespread in the report and areas that would not see a pull forward in demand like food services and drinking places still saw a nice gain of 4.8%. If people were truly worried about the economy, they would not be spending money at restaurants, especially considering the fact that dining out has gotten quite expensive. While I am expecting the tariffs to have a short-term impact on the economy, we must remember the consumer is coming from a point of strength with relatively low debt levels, a low unemployment rate, and balance sheets that have seen asset prices significantly increase over the last several years. I continue to believe that our economy and the consumer will be able to whether this volatility, but the numbers will likely decelerate from here. We will continue to watch these reports closely, but I again remain confident we will get through the concerns about these tariffs.
Are TV networks tapped out on sports deals?
Last year Disney signed a $2.6 billion a year deal with the NBA; however, ESPN said goodbye after a 35-year relationship with the MLB where they were paying $550 million a year for their package of games. One area of growth that surprised me was Formula One car racing as over the last six years it has seen viewership double to 1.1 million viewers in a season. Liberty Media, who owns F1, is trying to get a rights package between $150-$180 million a year and all they’re hearing is crickets. Research firms estimate that it is worth over $100 million but it is not at the $150-$180 million that Liberty wants. Netflix, Warner Bros. Discovery, Fox, Amazon and NBC are not showing much interest in the asset. Netflix will probably not bid since there’s no real gain for them considering the estimate that 75% of F1 fans already have Netflix subscriptions. With so many people having Netflix, multiple big dollar sports packages probably don’t make much sense for the company. In a couple of months around June, Warner Brothers is distributing an Apple film called F1, starring Brad Pitt. If you want to watch this movie, which is projected to be a blockbuster, you must subscribe to Apple TV. I almost feel like I want to add Apple TV to the five or six other subscriptions I have, but I can’t watch everything I have access to now, so I should probably resist.
Financial Planning: Why Life Insurance Is a Poor Retirement Vehicle (And What to Do Instead)
Cash value life insurance is often pitched as a tax-free retirement strategy. On the surface it sounds great. You get tax-deferred growth, tax-free loans, no contribution limits, and a death benefit, but when you look under the hood the numbers often don’t work out. First, the returns simply don’t compare. With Indexed Universal Life (IUL) or Whole Life, your cash value growth is limited by caps and participation rates, and you miss out on dividends. Add in the cost of insurance, admin fees, and other hidden charges, and the actual return on cash value often falls well below the market. Second, the fees get larger over time. The older you get, the higher your cost of insurance becomes which directly eats into your cash value. If you’re taking policy loans and the policy lapses, you could even get hit with a massive tax bill in retirement. Third, the opportunity cost is huge. The high premiums needed to fund a policy could instead be invested in assets with better returns, more liquidity, and lower fees. Meanwhile, better tools for tax-free retirement income already exist. Most 401(k)s now offer a Roth option, allowing you to contribute after-tax dollars and grow your money tax-free, exactly what cash value life insurance offers. You can pair this with a Roth IRA or even a Backdoor Roth IRA if your income is too high to contribute directly. Together, these vehicles allow for substantial tax-free retirement savings without the complexity, high fees, or risk of policy lapse that come with life insurance. Don’t let marketing hype cloud your long-term strategy. Run the numbers and stick with what works.
Companies Discussed: Nvidia (NVDA), Hertz Global Holdings (HTZ), Car Max, Inc. (KMX) & (DOW)
Friday Apr 11, 2025
Friday Apr 11, 2025
Why I’m so excited about the tariffs
You may be thinking I’m a little bit crazy or blind to what is happening now, but I really wish people would be a little more patient and give this a few months to see the benefits. I want to remind people that the path we were on could’ve led to a collapse just like the great Roman Empire in 476 A.D. The United States in 2024 helped other countries grow their economies by sending them over $1 trillion in trade, not even close to fair trade and that is money we will never see again. Also in 2024, we saw our national debt climb to $35.5 trillion, an increase of roughly $2.5 trillion dollars in just one year! If that continued for the next 10 years, we would have debt of nearly $60 trillion, which would be unsustainable. Let’s not even talk about the interest payments on a debt level that high. What is already starting to happen is not the foreign countries, but rather the foreign companies themselves want to continue to be profitable and understand they must produce and be located in the United States. Companies like Siemens from Germany, Taiwan semiconductor and Foxconn along with others have already made huge financial commitments that will benefit their companies and also our country as well. As the days, weeks, and months pass along, I believe you will be hearing about more companies coming to the United States. I believe immigration will also change because we simply do not have enough workers to fulfill all these new jobs. This could lead these foreign companies to bring their workers along, which would make them part of the US consumer base that buys houses, cars, and simple things like go to the grocery store and go out to dinner and even get haircuts. This is quite a bit different from the problems we have with immigration now as it has become a big burden on the US economy. I believe this would create a major win for our country, please be patient!
Good luck if you are trying to time the market
If you have sold out of strong companies at good valuations during this market pullback, I believe you have made a huge mistake. As I have said there will be positive news that comes about and moves the market higher, which then leaves you with the question of what do you do now? Get back in? Wait for it to pull back? These trading mistakes can cost you immensely in the long run. I was surprised to see that going back over the last 20 years, seven of the top 10 days in stocks came within a two-week period of the worst 10 days. Which means many people that sold during the worst 10 days likely also missed those great days and the eventual recovery. A great example showing how quickly the tide can turn came on Wednesday after the announcement that there will be a 90-day pause on the full effect of tariffs since more than 75 countries have contacted US officials to negotiate a solution. There was also news that there is an “on the water clause” for cargo entering the US ports. This means any cargo “loaded onto a vessel at the port of loading and in transit on the final mode of transport on or after 12:01 a.m. EDT April 5, 2025, and before 12:01 a.m. EDT April 9, 2025, and (2) are entered for consumption, or withdrawn from warehouse for consumption, before 12:01 a.m. EDT on May 27 2025, are subject to the 10% additional rate in lieu of the country-specific rate of duty.” This is important as it will give companies more time to plan for elevated tariffs. These announcements led to a huge gain in stocks with the Dow climbing 7.87% on the day and the S&P 500 climbing 9.52%. The thing that surprised me was many companies that have China ties also rebounded substantially, but the tariff charged to China will be 125%, effective immediately. I’d be careful buying the dip here on all companies, but the important point I want to show is that the tide can turner quicker than you think!
How does the United States collect tariffs?
It is quite the system and it’s not as simple as a country/importer sending a check to the United States. The US doesn’t do the calculation for every shipment that comes into the country. No matter how it comes in, if it is by truck, plane or ships the country doing the importing is the one that calculates the tariffs and sometimes they use what are known as customs brokers to do the calculation for them. It may surprise you that it is somewhat on the honor system. Before a shipment approaches the border, the importer or the customs broker files electronically the paperwork and says what they are bringing and how much they owe. When the ship pulls into port, the information is reviewed by customs agents before they allow the goods to be unloaded and released. It is kind of like when we file our tax returns. It is on the honor system that you put in all the correct information and just like you may be audited on your tax return, customs do perform random inspections to verify what is being brought in and that the tariff amount is correct. Importers have an account with customs and pay the duties to them. If they use a licensed customs broker, then that broker would make the payment. After all this is completed, whoever imported the goods has 10 days to pay the duties. The penalties are pretty hefty if the importer does not pay within 10 days as they will be hit with admin fees, interest, and other penalties along with the biggest concern which would be suspension of deliveries to the United States. I would definitely say it is in the best interest pf these importers to pay the United States customs within 10 days.
China may look at other avenues to hurt the US in this trade war
I’ve said this before, but the tariffs on Chinese goods hurts them more than their tariffs on our goods. The simple math on it is the U.S. exported $143.5 billion of goods to China in 2024, while importing products worth $438.9 billion. Trade is way more important to their economy considering the fact they are a net exporter and a large one at that. In 2024, China exported roughly $3.58 trillion worth of goods, while importing just $2.59 trillion worth of goods for a surplus around $1 trillion. This makes trade a huge part of GDP as net exports contribute around 20% of GDP. The US on the other hand is a net importer so our trade deficit actually subtracts from GDP. What else can China do to harm the US? China did issue an alert warning its citizens of the potential risk of traveling to the US and attending schools there. Although there were approximately 1.6 million Chinese tourists that visited the US in 2024 and more than 250,000 students enrolled in schools, I don’t see this advisory as too problematic especially considering there was an estimated 77.7 million people from other countries that visited the US in 2024. The big concern people have is China selling our debt to drive up borrowing costs. I was disappointed by an article that said China could crush our housing market by selling mortgage-backed securities. Seemed a little dramatic to me considering foreign countries only owned 15% of the total outstanding mortgage-backed securities. Top owners did include China, Japan, Taiwan, and Canada, but I don’t see those other players selling at this point in time to harm US markets. It appears China holds just around 2-3% of these mortgage-backed securities and has been selling them over time with holdings down 8.7% year over year in the month of September and down 20% by the start of December. Even looking more broadly at U.S. treasury securities, China owned just $760.8 billion as of January 2025, which would represent about 2.2% of the total U.S. federal debt. Be careful falling for click bait, as I don’t believe China has the ability to “crush” our housing market. It would likely cause interest rates to increase slightly, but an outright crash would be extremely unlikely. Overall, while this trade war may hurt us, I still firmly believe it will have a far larger negative impact on the Chinese economy!
Why You Should Never Buy a Certificate of Deposit (CD) Again
For decades, certificates of deposit (CDs) have been a go-to option for savers looking to earn a little extra interest while keeping their money safe. However, in today’s financial landscape, CDs have become nearly obsolete, offering little to no advantages over more flexible and higher-yielding alternatives. One of the biggest drawbacks of CDs is their lack of liquidity. When you lock your money into a CD, you typically agree to keep it there for months or years. Withdrawing early results in penalties, often forfeiting several months' worth of interest. High-yield savings accounts, on the other hand, offer similar or even better interest rates while allowing you to withdraw funds at any time. Many online banks now offer savings accounts with yields that rival or exceed CD rates, giving you the best of both worlds: competitive returns and unrestricted access to your money. Another option is U.S. Treasury Bills (T-Bills) which are one of the best alternatives to CDs, offering higher returns with even greater security. Backed by the U.S. government, they are virtually risk-free and often yield more than CDs of similar durations. Additionally, T-Bills offer tax advantages, as the interest earned is exempt from state and local income taxes—something CDs cannot provide. Money market accounts provide another strong alternative to CDs. They often have rates similar to or higher than CDs but come with added flexibility and liquidity. Additionally, money market funds that hold federal or municipal debt come with some tax-exempt income as well. CDs may seem like a safe, simple choice, but in reality, they are an outdated savings vehicle that rarely makes financial sense anymore. Whether you choose a high-yield savings account, T-Bills, or money market funds, there’s always a better alternative that offers higher returns, more liquidity, or better tax advantages.
Companies Discussed: RH (RH), Caterpillar Inc. (CAT), Harley-Davidson, Inc (HOG) & Warner Bros. Discovery, Inc (WBD)
Friday Apr 04, 2025
Friday Apr 04, 2025
Tariff announcements cause market chaos
In an effort to balance trade relationships across the globe, several new tariff announcements were made on April 2nd. This caused the markets to decline sharply in Thursday’s session with the Nasdaq closing down nearly 6% and the S&P 500 closing down nearly 5%. I must say I was not necessarily surprised by that decline, but was more surprised by the run up in the market in the days leading up to the announcement. The administration has been talking about these tariffs for months and I for one was not necessarily surprised by the actions they plan on taking. The U.S. will be implementing a baseline tariff rate of 10% on all countries and that goes into effect on April 5th. After research into trade practices from other countries including tariffs, currency manipulation, and trade barriers the U.S. will also be implementing higher duties on several countries. This includes an additional 34% on China, which comes on top of the previous tariffs for a new effective rate of 54%. According to the administration, this compares to a calculated tariff rate of 67% from China. Other tariffs included a 20% rate on the European Union vs a 39% calculated rate on our goods, a 46% rate on Vietnam vs a 90% calculated rate on our goods, a 32% rate on Taiwan vs a 64% calculated rate on our goods, and a 24% rate on Japan vs a calculated rate of 46% on our goods. This is just a small sample as more than 180 countries and territories will be facing these reciprocal tariffs. The problem here is the bottom for stocks might not be in as there will likely be continued announcements from other countries with their response. Some countries like China, France, Canada, and Germany have responded with a combative tone and a promise to fight back. I continue to believe this trade war will not be solved overnight, but I must say with the pullback there definitely appears to be some opportunities surfacing. I’d be careful waiting for the all clear on this as by the time that comes, you may have missed some great opportunities.
Trade barriers increase around the world
It is not just the US that is increasing tariffs, many countries around the world are also increasing their tariffs. There are some economists predicting that we could be headed to the biggest increase in protectionism since the 1930s, when the Smoot-Harley tariff act was in place. Back then the average tariff rate in the US was nearly 30%. Today it is around 8.4%. When it comes to the group of 20 leading economies in the world, there are roughly 4650 import restrictions, of which the US has roughly 1000. The EU, China, Canada, Mexico account for roughly 700 restrictions with the other 15 countries accounting for 3000 restrictions. Some people feel the United States is being aggressive by adding all these tariffs to products coming in to our country, but when you look at the numbers and the facts, it appears we are just playing catch-up and we are way behind the rest of the world as they have been putting tariffs on our products going into their countries. I don’t understand why we are singled out as being such a bad country and unfriendly to other countries just because we want free trade in the world. I’m sure if they dropped their tariffs, we would do the same.
Jobs Report shows some positive news on a difficult day for the market
With all the news around tariffs and trade, it’s almost like everyone forgot that a jobs report was released on Friday. Job growth remained very healthy with nonfarm payrolls increasing by 228,000 in the month of March. This easily topped the estimate of 140,000 and was a nice increase compared to February’s reading of 117,000. The previous two months did see negative revisions of 34,000 in the month of February and 14,000 in the month of January. The unemployment rate did tick higher to 4.2% from last month’s reading of 4.1%, but this was largely due to an increase in the labor force participation rate. A major positive on the inflation front was wage inflation came in at annual rate of 3.8%, which was down from last month’s reading of 4.0% and was more in line with a healthy level that creates growing wages but puts less pressure on inflationary forces. I was surprised to federal government positions declined by just 4,000 in the month, but yet a report Thursday from Challenger, Gray & Christmas indicated Doge-related layoffs have totaled more than 275,000 so far. Apparently, the BLS noted that workers on severance or paid leave are still counted as employed, which would have a large impact on the employment numbers. It will be interesting to see how the employment situation shakes out in this category and if the private sector can absorb those lost jobs. It’s hard for some to look through the noise of all the trade announcements, but I still believe the economy is in alright spot and the growing concerns for recession may be overblown.
What is a Solo 401(k)?
A Solo 401(k) is a retirement savings plan designed for self-employed individuals or business owners with no employees. Also known as an individual 401(k), this plan offers significant tax advantages and higher contribution limits compared to other retirement accounts, such as SEP-IRAs. One major advantage of a Solo 401(k) is the ability to contribute as both the employer and the employee. For 2024, the contribution limit as an employee is $23,000 (or $30,500 if age 50 or older), which can be made on a pre-tax or Roth basis. For employer contributions, the limit is up to 25% of compensation, bringing the total maximum contribution to $69,000 (or $76,500 for those 50+). Many plans now allow employer contributions to be made on a Roth basis as well. To be eligible, you must be a business owner with no full-time employees, which includes sole proprietors, independent contractors, freelancers, and small business owners. However, spouses of business owners may also participate, effectively doubling the possible contribution. Another key benefit is that a Solo 401(k) can be paired with backdoor Roth contributions, making it an attractive option for high-income earners looking for additional tax-advantaged savings. This offers a distinct advantage over Traditional IRAs and SEP-IRAs, which can trigger taxes on backdoor Roth conversions. A Solo 401(k) is an excellent retirement savings tool for self-employed individuals due to its high contribution limits and tax benefits. Additionally, some business owners may still be eligible to make a 2024 employer contribution if completed before the tax filing deadline.
Companies Discussed: LPL Financial Holdings Inc. (LPLA), Deckers Outdoor Corporation (DECK), Apple, Inc. (AAPL) & Delta Air Lines Inc. (DAL)
Friday Mar 28, 2025
Friday Mar 28, 2025
US retailers push back against tariffs
I believe it is good news retailers are not pushing back against the US, but against countries where they buy products from. Companies like Home Depot, Walmart and Target are pushing back against production coming out of China. If a tariff is 10% the companies are pushing for the country to pick up the total cost and when tariffs jumped to 20%, they are getting push back on reducing costs by that amount but still having China producers pick up at least half. The companies are also looking at their profit margins and what they are doing is not increasing prices across the board, but perhaps raising prices on other items that are in higher demand and only raising the price slightly on products with less demand. The companies are also absorbing some of the cost themselves as opposed to passing the entire cost onto the consumer. In the end, the producer, the company, and the consumer will all absorb part of these tariffs and there may not be that much of an increase in price for many of these products. Unfortunately, I’m sure the regular media will find some products that went up dramatically and only discuss those. The big companies are also pushing for alternative places to produce products if China will not negotiate any reduction at all. Some companies are looking at producing the products here in the United States, which would be a win all the way around and I believe it would be the best thing for the United States.
Are 401(k) investors starting to panic?
A 401(k) is designed to be held for many years and should not be traded based on short term news. Unfortunately, the past month has seen the most trading activity in almost 5 years for 401(k)s. Individual investors added over $30 billion to money market funds in the first week of March alone. That type of activity in money markets has not been seen in the past year. In the first couple weeks of March, trading in 401(k)s was 400% above the normal level as people watched the market decline and they let their emotions take over as they headed to money markets. This is a huge mistake! Decision making seems to be politically driven. If people like the current administration, investors are seeing it as a buying opportunity. On the other hand, if they hate the new administration investors are either looking at going to cash or maybe shifting their investments internationally. Your retirement account is for the rest of your life and an investor should not be making decisions based on the current administration’s actions considering it’s such a small blip in the timeline of 30, 40 maybe 50 years of investing. Investors should go back to the basics and realize they are investing into American companies based on their earnings and what they are paying for those earnings. The country and the economy will always ebb and flow, but to try and figure out the best time to sell and buy has always been a losing game in the long term. If you have in your 401(k) good quality investments that are not overpriced, don’t worry about the short-term movements on a month-to-month basis. You should think about your investment plan not just year to year, but 5, 10, 15 years down the road, maybe even longer.
Inflation readings and consumer expectations are telling two different stories
The Fed’s preferred measure of inflation known as the core PCE showed an increase of 2.8% in the month of February, which was above the expectation of 2.7% and last month’s reading of 2.7%. Headline PCE includes the volatile categories of food and energy and showed an increase of 2.5%, which was in line with expectations and matched January’s reading. While the core PCE was a little hot, I don’t believe that rate of inflation is overly problematic. It would likely not be enough to get the Federal Reserve to lower rates, but it also would not be concerning enough for them to even consider increasing rates. Their wait and see approach is likely still in place and I’m optimistic, even with upcoming tariffs, there should be room to lower rates as we procced through the rest of 2025. Many consumers on the other hand seem very concerned about inflation with the final reading of the University of Michigan’s consumer sentiment survey showing expectations for inflation at a 5% rate one year from now and over a five-year horizon, the outlook now is for 4.1%. This marked the first time since February 1993 the reading was above 4%. I do believe these respondents are way off on their forecast and would be shocked if it came to fruition as that would be more than double the Fed’s 2% target. We talked about why we don’t like this survey in the past, but in case you missed it, the survey is tiny. It appears the survey typically interviews around 600 households each month for the preliminary report and around 800 for the final report. Considering there are over 130 million households in the US, I just don’t see the survey as a strong indicator.
US retailers push back against tariffs
I believe it is good news retailers are not pushing back against the US, but against countries where they buy products from. Companies like Home Depot, Walmart and Target are pushing back against production coming out of China. If a tariff is 10% the companies are pushing for the country to pick up the total cost and when tariffs jumped to 20%, they are getting push back on reducing costs by that amount but still having China producers pick up at least half. The companies are also looking at their profit margins and what they are doing is not increasing prices across the board, but perhaps raising prices on other items that are in higher demand and only raising the price slightly on products with less demand. The companies are also absorbing some of the cost themselves as opposed to passing the entire cost onto the consumer. In the end, the producer, the company, and the consumer will all absorb part of these tariffs and there may not be that much of an increase in price for many of these products. Unfortunately, I’m sure the regular media will find some products that went up dramatically and only discuss those. The big companies are also pushing for alternative places to produce products if China will not negotiate any reduction at all. Some companies are looking at producing the products here in the United States, which would be a win all the way around and I believe it would be the best thing for the United States.
Are 401(k) investors starting to panic?
A 401(k) is designed to be held for many years and should not be traded based on short term news. Unfortunately, the past month has seen the most trading activity in almost 5 years for 401(k)s. Individual investors added over $30 billion to money market funds in the first week of March alone. That type of activity in money markets has not been seen in the past year. In the first couple weeks of March, trading in 401(k)s was 400% above the normal level as people watched the market decline and they let their emotions take over as they headed to money markets. This is a huge mistake! Decision making seems to be politically driven. If people like the current administration, investors are seeing it as a buying opportunity. On the other hand, if they hate the new administration investors are either looking at going to cash or maybe shifting their investments internationally. Your retirement account is for the rest of your life and an investor should not be making decisions based on the current administration’s actions considering it’s such a small blip in the timeline of 30, 40 maybe 50 years of investing. Investors should go back to the basics and realize they are investing into American companies based on their earnings and what they are paying for those earnings. The country and the economy will always ebb and flow, but to try and figure out the best time to sell and buy has always been a losing game in the long term. If you have in your 401(k) good quality investments that are not overpriced, don’t worry about the short-term movements on a month-to-month basis. You should think about your investment plan not just year to year, but 5, 10, 15 years down the road, maybe even longer.
Inflation readings and consumer expectations are telling two different stories
The Fed’s preferred measure of inflation known as the core PCE showed an increase of 2.8% in the month of February, which was above the expectation of 2.7% and last month’s reading of 2.7%. Headline PCE includes the volatile categories of food and energy and showed an increase of 2.5%, which was in line with expectations and matched January’s reading. While the core PCE was a little hot, I don’t believe that rate of inflation is overly problematic. It would likely not be enough to get the Federal Reserve to lower rates, but it also would not be concerning enough for them to even consider increasing rates. Their wait and see approach is likely still in place and I’m optimistic, even with upcoming tariffs, there should be room to lower rates as we procced through the rest of 2025. Many consumers on the other hand seem very concerned about inflation with the final reading of the University of Michigan’s consumer sentiment survey showing expectations for inflation at a 5% rate one year from now and over a five-year horizon, the outlook now is for 4.1%. This marked the first time since February 1993 the reading was above 4%. I do believe these respondents are way off on their forecast and would be shocked if it came to fruition as that would be more than double the Fed’s 2% target. We talked about why we don’t like this survey in the past, but in case you missed it, the survey is tiny. It appears the survey typically interviews around 600 households each month for the preliminary report and around 800 for the final report. Considering there are over 130 million households in the US, I just don’t see the survey as a strong indicator.
Companies Discussed: Nike (NKE), Stanley Black and Decker (SWK), Wingstop (WING) & Viasat (VSAT)
Friday Mar 21, 2025
Friday Mar 21, 2025
Is there more pain coming for the stock market?
Both the NASDAQ and the S&P 500 have now hit correction territory and people are hoping that the worst is behind us. I would tell people to be prepared for more pain. The tariffs are still a big concern and the uncertainty around them has not cleared. Also, even with the pullback valuations for stocks are still high. We base our concerns on the fact that many valuation ratios are elevated compared to historical levels, but one that really stands out is the CAPE ratio, which stands for cyclically adjusted price-to-earnings. This was developed by professor Robert Shiller many years ago and the ratio uses a 10-year average of inflation adjusted earnings to value stocks. In January, it was at 37.74, which was the third highest level in the past 100 years. Not only was it the third highest level, but it was higher than what it was in 1929. After the ratio hit these high levels in the past, stocks declined dramatically. I believe with the headwinds ahead, we could be in for some stormy waters over the next 3 to 6 months.
How much more do top consumers spend?
When looking at consumer spending it is obvious that is not a constant level straight across the board and people making more money would obviously be spending more money in the economy. But just how much more is the high-end consumer spending than the average consumer? The top 10% of consumers account for 49.7% of consumer spending. If you’re thinking that sounds high, you are correct. You would have to go back to 1989 to match that type of imbalance for consumer spending. Is it a bad thing? Not really. The high-end consumer is what is keeping the economy going overall as it creates jobs and allows for the continued movement of money.
Holding stocks long-term doesn’t always pay off
You probably have heard that you should hold stocks for the long-term and you’ll be fine. I generally I agree with this statement, but there are always exceptions to the rule and that holds true here. If you look at different 10-year holding periods, you will see more losing periods than you probably expected. As an example, the 10-year period ending February 2009 had a loss of 37.4%. There are other 10-year holding periods such as the ones ending September 1974, August 1939, June 1921, October 1857 and April 1842 that all had losses ranging from 23 to 37.3 percent. Those losses are in real terms adjusted for inflation. One reason these periods had great losses is they were generally periods when there was high speculation that then caused prices to rise to elevated levels just to see them fall back to reality. This is why it is important for investors to not just buy into a story of a stock, but to understand what they are paying for the earnings, sales, book value, and cash flow of the business. If you don’t keep your eye on these valuation ratios, you would not realize when the stock becomes overpriced and you could end up with a big loss and then be left wondering what happened. I’ve been managing money for over 40 years and have continued to keep my eye on the ball as far as what we pay for any investment whether it is stock, real estate or bonds. If you invest blindly just based on the stock going up and the hype around the story, you could end up with a period of 10 years where you made no gains and then think stocks are risky or a bad investment. In a situation like that, it is similar to driving down the street with a bag over your head not seeing what is around you.
Financial Planning: What is Form 5498?
When funds are distributed from a retirement account, a 1099-r is generated and used to file your taxes to report what kind of distribution it was. This is true whether the distribution is taxable or not. For example, if you rolled money from a 401(k) to an IRA, it is a non-taxable rollover, but a 1099-r is still created since funds left the 401(k) which needs to be reported. A Form 5498 is generated when funds are received by any type of IRA for any reason. So, if you made contributions, conversions, or recharacterizations with a traditional, Roth, SEP, or Simple IRA, you will receive a 5498 stating what happened. Depending on what you did, you will likely need to report the activity on your taxes. The problem is, in many cases the Form 5498 is not ready until May of the following year, even though taxes are due the previous month, on April 15th. Here are some examples where this can create problems. If you did an indirect rollover where you withdrew retirement funds and replaced them within 60 days, the withdrawal should not be taxable. However, if only the 1099-r from the distribution is reported because there is no 5498 that shows money was replaced, it may be reported as a taxable distribution rather than a rollover. If you are doing backdoor Roth contributions, a 1099-r is generated when the funds are converted from the traditional IRA to the Roth. If it is not also reported that a non-deductible contribution was first made to the traditional IRA, the conversion may be treated as a taxable conversion. Lastly, if you have been making deductible traditional IRA contributions, but there is no 5498 showing the contributions, you may not receive the tax deduction. I don’t know why this form comes later than other tax forms, but this is necessary to be aware of to correctly report tax information and avoid unnecessary tax.
Companies Discussed: Tesla, Inc (TSLA), Lockheed Martin Corporation (LMT), Lear Corporation (LEAR) & Gilead Sciences, Inc.
Friday Mar 14, 2025
Friday Mar 14, 2025
Should private equity be allowed in your 401(k)?
70 million Americans have roughly $12 trillion in retirement accounts and the high fee private equity firms want a piece of that. Private equity comes with higher risk than traditional stocks and bonds that are found in retirement accounts. The big difference with private equity is they are generally illiquid investments in companies that are too small or risky to issue publicly traded shares. The businesses they invest in don’t issue quarterly reports on earnings and the valuations can at best be called questionable. It should be noted that private funds can tie up investors’ money for years and may give you some type of loose valuation of what your investment is worth. The fees that these funds charge is around 2 1/2%, which is well above the average fund of a half percent or so in current 401(k)s. Private equity tries to claim their investments far outperform the stock and bond markets, but a study from Boston College in 2024 found that long-term returns for pension funds, which allow alternatives, generated about the same investment return as a 60/40 split of stocks and bonds. Wall Street and the owners of these private equity funds just want to generate more fees even if it means putting your 401(k) in danger with high-risk investments with little to no liquidity. I’m in hopes that private equity’s pursuit of trying to get their hands on your retirement accounts hits a brick wall and the regulators protect your retirement plan.
A bitcoin strategic reserve is a terrible idea
Last week there was an executive order signed to create a strategic bitcoin reserve for the United States. Crypto enthusiasts were pleased by the action, but disappointed that the order did not specify a buying schedule or clear strategy to buy more bitcoin. In the current fashion, the reserve will include coins that are already owned by the government that it seized from past law enforcement actions. The US currently owns more than 198,000 bitcoins that are worth about $17 billion. Given our large debt and the current deficit, I think it is just silly to borrow money and buy a volatile asset like bitcoin. The government is not here to make investment profits with our taxpayer dollars, if that were the case why wouldn’t they also buy individual stocks? Something like the Strategic Petroleum Reserve makes sense as that commodity plays such an important part in our day to day lives. Bitcoin has no impact on our day to day lives and I just can’t see what the strategic benefit would be outside of shooting for investment gains. We should be focused on paying down debt and reducing deficits rather than trying to generate investment returns with taxpayer money. I think even the action of keeping seized bitcoin is a mistake as that could be used to reduce debt. As for the price of bitcoin, I believe it could keep falling. There seems to have been a lot of catalysts that took place last year including the launch of ETFs and a more crypto friendly administration taking office. I don’t see many new catalysts in the near future, which could lead to steeper declines. For me, I don’t want my own dollars or my tax dollars in bitcoin or any other cryptocurrency for that matter.
Inflation report puts stagflation risks at ease
The headline Consumer Price Index (CPI) for February came in at 2.8%, which was below the estimate of 2.9% and less than January’s reading of 3%. Core CPI, which excludes food and energy came in at 3.1%, which was also below the estimate of 3.2%. This reading was less than January’s reading of 3.3% and it marked the lowest increase since April of 2021 when we saw inflation rise 3%. That was really the beginning of the inflation problems as the March 2021 core CPI rate was 1.6%. I’ve said it before, but with inflation at these levels I really don’t see it as a problem. There are some areas like eggs that increased 59% compared to last year, but outside of that most categories are quite tame. Shelter also continues to lift the inflation numbers as the index rose 4.2% in the month of February. This was the smallest increase for the shelter index since December 2021, but it still remains above both the headline and core numbers, which means it is putting upwards pressure on those reports. This report would have shown limited impact from the recent tariffs, so it will be interesting to see in the coming months what the numbers look like as the tariffs work their way through supply chains. I still believe inflation will not be a problem in 2025 and that the Fed will be able to cut rates a few times this year.
Another win on the inflation front
The February Producer Price Index (PPI) showed no change in the pricing level when compared to January. For the 12-month period it rose 3.2%, which was much better than last month’s reading of 3.7%. Core PPI, which excludes food and energy actually fell 0.1% from January and the annual increase of 3.4% was down from last month’s reading of 3.8%. This report helps us breathe a sigh of relief as December and January produced hotter readings. As we’ve been saying, inflation will not go down in a straight line and month to month the readings will be bumpy, but the general trend should be lower. As we said with CPI, it will be interesting to see how the tariffs impact these inflation reports in the coming months. One thing that does not get much coverage is that we had tariffs back in 2018 and inflation did not see a major spike. Hopefully that will be the case again and we can move on from this battle against inflation that has lasted a few years now.
Who Benefits from Repealing the “SALT” limit?
One of the more controversial changes in the Tax Cuts and Jobs Act of 2017 was the $10,000 limit placed on the State and Local Tax (SALT) itemized deduction. Prior to 2018, those who itemized could deduct the full amount of state income taxes and property taxes on their federal tax returns. Under current law through the end of this year, only the first cumulative $10,000 of these taxes is deductible. This obviously hurts high earners in states like California. Someone making half a million dollars per year and paying $40,000 in California income taxes only receives a deduction on the first $10,000 and receives no additional deduction for any property taxes they pay. While there isn’t as much public sympathy for high-income earners paying more tax, this limit also impacted California homeowners, especially first-time homebuyers. When buying a home in California, property taxes are about 1.2% of the purchase price of that home. Thanks to Prop 13, property taxes increase minimally after purchase and generally much less than the property value increases. This means the longer you own a home, the lower your property taxes are relative to the fair market value of the property. This also means that property taxes are most expensive when first buying a home. In California, home values are high, mortgage rates are high, insurance costs are high, utilities are high, and because of the high value of homes, property taxes are also high. Virtually everything about homeownership in California is expensive, so it’s no wonder people are struggling to afford a house. This phenomenon has gotten worse in recent years, but it’s not new. Regarding the SALT deduction, it is common for homeowners to have state income taxes and property taxes that exceed the $10,000 limit even if they’re not really “high-earners” because of the income needed to simply afford a home and its corresponding property taxes. A young family could easily be looking at $20,000 to $25,000 just in state and local taxes, most of which would not be deductible due to the SALT limit. While the SALT deduction is mainly thought of as a high-earner issue, a lot of normal people in California would benefit from its repeal, especially if federal tax rates do not increase back to their pre-2018 levels.
Companies Discussed: DoorDash, Inc (DASH), Rocket Companies, Inc. (RKT) & Verizon Communications Inc. (VZ)
Friday Mar 07, 2025
Friday Mar 07, 2025
Church pension plans may be at risk
I hate to say this because we all want to believe that one of the safest places to go is church. Unfortunately, there are church pension plans like Saint Claire’s Hospital in Schenectady, New York and Saint Joseph Hospital in Rhode Island that had no or very little money left for retirees when it was time for their retirement. You may be wondering how can that be? Pension plans should be safe especially under federal law where there are protections from the Employee Retirement Income Security Act of 1974, which is commonly known as ERISA. You may also think if you know something about pension plans that employers must pay into the pension benefit guarantee corporation or what is also known as the PBGC. Unfortunately, when the government came up with the federal law on pension plans to protect retirees, there was concern about the constitutional separation of church and state and they did not want to cross that line. So they exempted churches and employers related to the church, which would include schools, hospitals and publishers. Church pension plans are allowed to contribute to the pension benefit guarantee corporation, but they’re not required to and unfortunately most do not. It is sad that we cannot trust some of our religious leaders to protect our financial future. If you or someone you know works for a type of association related to a church and they have a pension plan they may want to dig deep into it to make sure it’s really there. Unfortunately, there have been church pension plans that have exaggerated the returns on their investments in their pension plan and ultimately collapsed when people began retiring. It may be unfortunate but it could be wise to have a secondary retirement plan if you work for a church just to be on the safe side so you have something there in your golden years!
Structured products are back from 2008
Structured products that destroyed the economy in 2008 are back once again. In 2008 there was nearly $1.8 trillion of structured products issued. For 2025, the experts are forecasting structured product issuance of $2 trillion. If you don’t understand what a structure product is, it is nothing fancy other than Wall Street creating loans that hide their true value. In 2008 these were mainly mortgage-backed loans that Wall Street sold and told people there’s no way that these borrowers would default on their real estate loans. Today, they are even riskier with the loans backed by weak assets such as credit card debt, lease payments on cars, airplanes, golf carts and even plastic surgery loans. Recently in Las Vegas there was a convention for four days that was packed with bankers from Wall Street and around the country that were all in the buzz about the hype of the profits they can make off of these structured products. So far investors have been safe and have not had any losses, but that will change in the years to come especially if the economy weakens. With higher demand, prices for these products are now higher and I believe overpriced. The higher demand also creates riskier investments that look similar to products with less risk but make no mistake, they have far greater risk. It appears to me that the greed on Wall Street is back and the bankers are trying to tell you that stock investing is out. They tell you that you should be putting your money into these structured products for diversification to avoid market fluctuations, but the real reason for this is the fees they make are so much higher than if you just invested in good quality equities that pay dividends and grow over the long-term. Wall Street makes nothing off of that!
Jobs report seems uneventful, which is a good thing
February nonfarm payrolls increased by 151k in the month, which was less than the estimate of 170k. While I wouldn’t say that’s a positive, it was better than last month’s reading of 125k and it still shows the labor market remained healthy. Revisions to the previous two months were extremely minor as December was revised up by 16k and January was revised down by 18k for a net impact of -2k. Many areas remained strong with health care and social assistance adding slightly over 63k jobs, construction saw growth of 19k jobs, transportation and warehousing was up close to 18k jobs, and manufacturing increased by 10k jobs. Some areas were a little disappointing with professional and business services declining by 2k jobs, retail trade fell by a little over 6k jobs, and leisure and hospitality was the biggest drag with a decline of 16k jobs. The big question many people had was if the cuts from the Department of Government Efficiency, also known as DOGE, would be felt in this report. It appears there was a minor impact as government jobs actually increased by 11k in the month, but that was in spite of a decline of 10k federal jobs. My estimation is that we will see the declines for government jobs increase in future months as the survey data came largely after many of these announced job cuts. In a separate report from outplacement firm Challenger, Gray & Christmas there were 62,242 federal job cuts in the month of February. The report also showed U.S. employers announced 172,017 layoffs in the month of February, which was the highest monthly amount since July 2020. Announced layoffs through the first two months of the year totaled 221,812, which was the highest for the period since 2009 and up 33% compared to the same period last year. While this may sound concerning, the big question that we will have to follow is can the private sector replace these cuts with new hiring? Based on the continued strength we have seen in job openings; I believe the labor market will remain in a good place. With that said, the data should definitely be much more eventful in the months to come.
Avoid State Taxes from Federal Debt
Interest rates have been higher than normal for the last several years, and many investors have been taking advantage of this by placing cash in areas that pay higher rates of interest. A great way to do this is by buying U.S. Treasury Obligations such as Treasury bills, notes, and bonds. These are guaranteed, often pay a higher interest rate than high-yield savings accounts or CDs, and the interest is exempt from income tax at the state level. By purchasing a money market mutual fund that holds exclusively U.S. Treasury Obligations, you keep all those benefits while also maintaining liquidity. While this should not be viewed as a long-term investment, it is a great place for short-term cash. However, in order to receive the tax benefit, the interest income must be property reported. Every year investors receive 1099-INT’s for interest income and 1099-DIV’s for dividend income which includes interest from U.S. Treasury Obligations. However, the tax-exempt status of the interest is not always obvious on the 1099 form, especially when the interest came from a fund. Every year, custodians like Schwab, Fidelity, and Vanguard produce a supplementary tax information form that breaks down how much of their funds’ income was from non-taxable government debt. This form along with the 1099 can be used to calculate exactly how much tax-exempt interest you had so that you can correctly report your investment income. Whether you do your taxes yourself, or work with a tax preparer, make sure you are aware of any federal debt interest so that you don’t overpay on your state income taxes.
Companies Discussed: Sempra (SRE), The Mosaic Company (MOS), Zoom Communications Inc. (ZM), & Discover Financial Services (DFS)