Smart Investing with Brent & Chase Wilsey

Hosted by Brent & Chase Wilsey

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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.

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November 6, 2026Episode 42955 min

November 6th, 2026 | FINRA Arbitration, National Debt, Economic Growth, AI Spending, Early Retirement, Stock of the Week: INTC & More

How Do Investors Fare in Arbitration Cases Against Brokers Through FINRA? First off, you may not recognize the acronym FINRA, which is well known in the investment industry but perhaps less familiar to everyday investors. FINRA stands for the Financial Industry Regulatory Authority. I have been in the financial industry for over 40 years, and throughout my career, I have always been concerned about following FINRA’s rules and regulations. What surprised me, however, was learning that going back to 2021, the percentage of decided arbitration cases that sided with investors was only slightly above 35%. As of 2026, that number has dropped to 22.5%. This raises two possibilities. Is FINRA too easy on the brokers it oversees, or are investors bringing too many frivolous claims before its arbitration panels? I hope it is the latter, because it would be very disappointing to learn that investors are not getting a fair shake when it comes to arbitration. FINRA’s mission statement is to "protect investors and safeguard the integrity of our vibrant capital markets to ensure that everyone can invest with confidence." I certainly like the part about protecting investors, but is FINRA really doing a good job of accomplishing that mission? The good news is that there appear to be some proposed changes aimed at modernizing FINRA’s arbitration rules. One question being considered is whether arbitration should continue to be administered by FINRA or whether cases should instead go through independent arbitration forums. That sounds fair to me, as it could help create greater confidence in the process. Another issue being discussed is whether punitive damages should be limited or eliminated altogether. FINRA arbitration panels can award punitive damages, but they are rarely granted. Roughly 3% of customer claims that result in an award include some form of punitive damages. One other idea being considered is whether FINRA arbitration panels should include at least one member from the securities industry. There are arguments on both sides. Having someone with industry experience could help the other panel members better understand the complexities of the investment business and what brokers deal with. On the other hand, it could introduce potential bias in favor of the brokerage firm. It is a tough call, but I believe investors should have access to an arbitration process that is as independent and impartial as possible. I would like to see cases handled through independent arbitration forums, where there is less potential for bias toward either the investor or the investment firm. At the end of the day, investors need to have confidence that when they bring a legitimate complaint, they will receive a fair hearing. Is the U.S. Government Debt $40 Trillion or $32.2 Trillion? The national debt of the United States has reached approximately 100% of gross domestic product (GDP) for the fiscal year ending September 30. The last time the debt-to-GDP ratio exceeded 100% was in 1946, when it reached 106% as the country was financing World War II. We constantly hear that the federal government has more than $40 trillion in debt. However, economists often focus on a different number: debt held by the public. The difference is approximately $7.8 trillion in intergovernmental debt, which represents money one part of the federal government owes to another. An example is Treasury securities held in the Social Security Trust Fund. While these intergovernmental debts have their own risks, it is different from borrowing money from outside investors. I compare it to an individual who is having trouble making their mortgage payments and starts borrowing from their 401(k) to cover the bills. They aren't taking on additional debt owed to someone else, but they are putting themselves in a potentially difficult long-term financial position. You can't really default on yourself, but you could create financial problems down the road when you reach retirement because you've used assets that were supposed to support you. I'm going to side with the economists rather than the media and focus on the $32.2 trillion in debt held by the public, which puts the debt-to-GDP ratio at approximately 100%. I also want to remind people of something that doesn't get discussed very often: the federal government holds significant mineral, oil and gas resources beneath federal lands. Estimates of the value of these resources can exceed $130 trillion. That's a substantial potential asset, although it is important to remember that this is an estimated value of resources in the ground, not cash or an asset the government can immediately sell for that amount. These resources can generate revenue through leases, royalties and production. Think of it like having a wealthy aunt whose estate is worth a fortune. You can't necessarily access that inheritance today, and you shouldn't count on it to pay your current bills, but it could represent a substantial financial benefit down the road. The US economy grew 3.4% in the third quarter. The question is, will it last? It’s always encouraging to see growth in the US economy. Gross domestic product, or GDP, measures the value of all goods and services produced across the economy. However, when you look beneath the headline number, there are some reasons to be cautious about how sustainable this growth will be. One of the biggest contributors to economic growth was business investment, which added approximately 1.7 percentage points to GDP. A significant portion of that investment came from the massive spending by technology companies on artificial intelligence. Consumer spending on services was another major contributor, adding nearly 2 percentage points. Changes in private inventories, federal government spending and consumer spending on goods also contributed to growth and the categories collectively added over 3%. However, imports subtracted more than 3 percentage points from GDP because imported goods are produced outside the United States. The question going forward is whether these sources of growth can continue. We are already seeing signs that consumer spending on both goods and services is slowing. At the same time, after the enormous amounts of money technology companies have borrowed and invested in AI infrastructure, there is a possibility that they could begin slowing their spending. That doesn't mean the AI buildout will stop, but companies may become more cautious as investors demand better financial returns from these investments. There are also growing concerns about the construction industry. September construction spending fell 1.9%, the largest monthly decline since April 2020, during the early months of the COVID pandemic. Spending was down 2.7% from a year earlier. Residential construction was particularly weak, falling 5.5%, while nonresidential construction increased just 0.6%. This is another important warning sign. Residential construction is being pressured by high mortgage rates, affordability problems and weaker demand. Nonresidential construction has been supported by large investments in technology infrastructure, including data centers, but it remains to be seen how long that level of spending will continue. On the other hand, there is some encouraging news coming from the labor market. The latest Job Openings and Labor Turnover Survey (JOLTS) report showed that job openings increased by 333,000 in September to approximately 7.52 million, well above economists' expectations of 7.15 million. The number of workers quitting their jobs also increased by 321,000 to 3.36 million, the highest level since March 2025. This can be viewed as a sign that some workers have confidence in their ability to find other employment. Hiring also increased by 131,000 to 5.4 million, while layoffs fell by 127,000 to 1.64 million, the lowest level since March 2025. There were approximately 1.06 job openings for every unemployed person. These are positive signs, but I would not interpret them as evidence that the labor market is booming. Hiring remains ok, and employers appear to be in a low-hire, low-fire environment. Companies are not aggressively adding employees, but they are also not laying off large numbers of workers. That creates a difficult environment for people looking for new employment, even if those who already have jobs enjoy relatively good job security. When you put all of this together, the economic picture is mixed. We could see lower GDP growth in the fourth quarter as some of these contributors begin to fade. More importantly, what will drive economic growth in 2027? Consumer spending appears to be losing momentum, residential construction is struggling, and technology companies may eventually pull back on their AI investments if the financial returns don't justify the enormous costs. I'm not predicting that the economy will slide into a recession. However, I do think we could be looking at slower economic growth than we have become accustomed to. There is also the Federal Reserve to consider. The relatively encouraging labor market numbers could give the Fed more reason to remain concerned about inflation and it is projected in December that the Federal reserve will increase interest rates. However, given the signs of slowing growth that are beginning to emerge, I would be concerned about additional rate increases. While controlling inflation remains important, raising interest rates further could put additional pressure on an economy that may already be losing momentum. The AI Spending Race: Are the Hyperscalers Spending More Than They Can Earn Back? The amount of money being poured into artificial intelligence is becoming increasingly difficult to justify. The hyperscalers are spending hundreds of billions of dollars on data centers, chips, and computing capacity, but the question is whether the eventual profits will justify the investment. What concerns me most is the deterioration in free cash flow and the growing reliance on debt and equity financing to fund this expansion. We are beginning to see a situation where companies are investing in one another, purchasing one another's products, and potentially reinforcing demand throughout the AI ecosystem. Is this becoming a form of circular financing? Meta is the company I am watching most closely. Will it run out of money before Muse pays off? Meta's new AI agent, Muse, reportedly has approximately 10 million downloads. Let's be extremely optimistic and assume that grows to 100 million paying users, each spending $20 per month. That would generate $24 billion in annual revenue. The problem? Meta is projecting approximately $200 billion in capital spending next year. Even under that optimistic scenario, Muse would generate revenue equal to just 12% of capital spending, before accounting for the enormous computing costs required to operate the service. Meanwhile, Meta's free cash flow turned negative by approximately $2.1 billion in the third quarter and could deteriorate to negative $14 billion next quarter. Long-term debt has climbed to approximately $81 billion, compared with $28.8 billion at the end of 2024. The company also has more than $800 billion in future lease and supply commitments. Meta has gone four consecutive quarters without share repurchases and it recently announced that it plans to initially raise $35 billion through underwritten public equity offerings, followed by an additional $60 billion through an at-the-market stock offering program. The operating numbers are concerning, too. Fourth-quarter revenue is expected to grow approximately 24%, while expenses are projected to increase 42%. Operating margins could fall from 41% last year to approximately 33%. There is also a trust issue. A recent survey reportedly found that only 8% of respondents would trust Meta with a password. Will consumers trust the company with even more personal information through an AI agent? While I believe Meta is the riskiest company out of the major hyperscalers, the others are facing similar capital-spending pressures. Amazon: Trailing 12-month free cash flow has fallen to negative $42.4 billion as capital expenditures have surged. The company held it’s forecast steady and is projecting approximately $220 billion in capital spending for 2026. Alphabet (Google): Capital expenditures reached $51.4 billion in the third quarter, with free cash flow turning negative $9.1 billion. This was a far greater decline than analysts expectations for negative $2.7 billion in free cash flow. Alphabet maintained its full-year capital spending forecast of $195 billion to $205 billion, following an increase from its previous $190 billion estimate in the second quarter. Annual capital expenditures are expected to exceed $200 billion this year and could surpass $300 billion in 2027. The company’s borrowing surged during the quarter, with long-term debt increasing nearly sixfold to $125.1 billion from $21.6 billion a year earlier, a roughly 479% increase. Microsoft: Capital expenditures reached $45.2 billion in its first fiscal quarter and Microsoft trimmed its full-year capital spending forecast to $170 billion, down from its previous estimate of $175 billion. Although Microsoft generated $18.6 billion in free cash flow, it still declined 27% compared to one year ago. The day after earnings, Microsoft said it was looking to raise at least $25 billion in a bond offering. The AI revolution may create some of the greatest businesses of the next generation, but that doesn't mean every company participating will be a winner. We need to focus on actual free cash flow, manageable debt, and returns on invested capital rather than simply celebrating revenue growth and spending announcements. Financial Planning: The Financial Case for Retiring Earlier Working longer is generally financially beneficial, but the benefits tend to diminish as you get closer to retirement. One reason is that earned income is often less tax-efficient than retirement income. W-2 and self-employment income are taxed at ordinary income rates and are subject to payroll or self-employment taxes. Once you retire, however, you generally enter a period of lower income that creates valuable opportunities to strategically withdraw from tax-deferred retirement accounts or execute Roth conversions at lower marginal tax rates before RMDs begin at age 75. Continuing to work shortens this tax-planning window. Additionally, as your investment portfolio grows, new contributions become less impactful because investment returns increasingly account for the majority of your portfolio growth. All of this becomes even more compelling if your retirement income and existing assets are already sufficient to support your desired lifestyle. At that point, another year of work may add relatively little financial security while costing you valuable time and tax-planning opportunities. Stock of the Week: Intel (INTC) Intel has had quite a year, but the recent earnings report is a reminder that there is still a lot of risk in this company. Shares had climbed approximately 150% this year heading into its latest earnings report, fueled by optimism surrounding artificial intelligence and the growing importance of CPUs in AI workloads. At one point this year the stock was even higher, and it had witnessed a gain of around 285% at its peak. However, after issuing weaker-than-expected fourth-quarter guidance, the stock fell approximately 30% in a single trading session. This produced its worst day since 1974 and is the second steepest drop on record. Intel expects fourth-quarter adjusted earnings of just $0.25 per share on revenue between $15 billion and $16 billion. Analysts were expecting earnings of $0.43 per share and revenue of approximately $17.1 billion. There are two primary issues contributing to the disappointing outlook. First, the PC market continues to struggle. Rising costs for memory and other computer components are putting pressure on demand. Intel's CFO expects the PC slowdown to continue at least through the first half of next year. Second, an explosion at one of Intel's manufacturing facilities in Israel resulted in an extended shutdown, impacting shipments of 10-nanometer chips. The incident is expected to cost the company approximately $600 million in lost revenue over two quarters. Unfortunately, two workers were killed and another was seriously injured in the incident. CEO Lip-Bu Tan, who took over in March 2025, has been working to turn around a company that missed out on much of the early artificial intelligence boom. A major part of that turnaround strategy is Intel's foundry business, which is intended to manufacture chips for other companies rather than relying solely on Intel's own products. Intel is the only U.S.-based manufacturer of advanced logic chips, giving it an important strategic position as the United States looks to strengthen domestic semiconductor manufacturing. The company has now entered high-volume production of its advanced 18A chips at its new Arizona facility. Its next Arizona manufacturing facility is expected to begin operations by the end of 2028. The challenge is finding outside customers. Intel currently has no external customers for its new 18A chips, although Tan indicated that the company expects to announce a couple of customers over the next two quarters. The success of its foundry business will be critical to the long-term turnaround story. Intel is also competing against Taiwan Semiconductor Manufacturing, which has a significant advantage in manufacturing scale and established customer relationships. There has been considerable government and corporate support for Intel. The U.S. government took a 10% ownership stake in the company, while Nvidia also made a substantial investment. These investments demonstrate how strategically important Intel is to the United States and the semiconductor industry. However, government backing and investments from other companies do not guarantee that Intel will successfully execute its turnaround. Looking at the financials, the balance sheet is actually in pretty good shape. Debt to equity is approximately 40%, and the current ratio is 2.2, indicating that the company has a reasonable level of liquidity and is not overly leveraged. However, Intel does not currently pay a dividend. That is an important consideration for us because we generally prefer companies that reward shareholders through consistent dividend payments while we wait for the business to grow. Analysts are projecting strong revenue and earnings growth over the next several years as Intel attempts to regain market share and expand its manufacturing business. The problem is that expectations for this turnaround are already high, and even after the recent 29% decline, the stock's valuation remains expensive. For our valuation, we are using estimated 2027 earnings per share of $1.80. Applying a 16.6 multiple to those projected earnings gives us a target sell price of $29.88 per share. Intel is an interesting company with significant strategic importance to the United States and potentially substantial long-term opportunities in artificial intelligence and semiconductor manufacturing. However, there is a big difference between having a promising turnaround story and actually delivering the earnings growth investors are expecting. We see several risks, including continued weakness in the PC market, the enormous capital requirements of building and operating advanced manufacturing facilities, competition from established chipmakers, and the uncertainty surrounding Intel's ability to attract outside foundry customers. At this point, we believe investors need to be careful about paying too much for the turnaround story. We want to see evidence that Intel can execute its manufacturing strategy, attract outside customers, and translate its investments into sustainable earnings growth before becoming overly optimistic about the stock.

October 30, 2026Episode 42855 min

October 30th, 2026 | Disney’s Super Bowl Strategy, Election Impact on Investing, Rethinking Retirement Risk, Stock of the Week: Boeing & More

Disney’s Super Bowl Strategy Creates a Dilemma for Local TV Stations Disney is giving football fans more ways than ever to watch Super Bowl LXI next February, but its strategy is creating frustration among local ABC affiliates. Disney plans to distribute the game across ABC, ESPN, ESPN2, ESPNU, NFL Network, Disney Channel and Disney+. Fans will have access to the traditional broadcast with Joe Buck and Troy Aikman, alternative broadcasts featuring Peyton and Eli Manning and Pat McAfee, and even a Star Wars-themed version. From a fan’s perspective, more choices are a good thing. Viewers can decide how they want to experience the game, whether that means watching the traditional broadcast, listening to alternative commentary or streaming from wherever they happen to be. Disney is also positioning its streaming services to attract more subscribers and generate additional advertising revenue. But there is another side to this strategy, particularly for local advertisers and television stations. For a local business buying advertising during the Super Bowl, the goal is to reach as many potential customers as possible. When viewers are spread across multiple channels and streaming platforms, it becomes more complicated to measure the return on that advertising investment. Even if the overall audience remains large, advertisers need to understand where their customers are watching and whether their spending is generating the desired results. Local ABC affiliates also have a financial reason to be concerned. The Super Bowl is a major advertising opportunity, and local stations depend on the large broadcast audience to sell commercial time at premium rates. One station group CEO cited by CNBC estimates that local advertising revenue associated with the game could decline by as much as 35% compared with last year because of the fragmented distribution. This is important because about 3% of a typical local affiliate station’s annual advertising revenue comes from the Super Bowl when the game is on its air. The process typically works like this: Disney spends billions of dollars securing live sports rights and then asks its affiliates to help cover those costs. The affiliates, in turn, negotiate with pay-TV providers and charge them retransmission fees for carrying their local stations. This is why ABC affiliates are so frustrated with Disney’s Super Bowl strategy. For decades, the Super Bowl was an exclusive broadcast television event, and access to the biggest game of the year was a major part of the value affiliates received in exchange for those fees. Now, by spreading the game across multiple networks and streaming platforms, Disney risks diluting that value while still expecting affiliates to help pay for its expensive sports rights. Disney benefits from expanding the game across its own platforms, potentially generating more subscriptions, advertising revenue and valuable viewer data. Meanwhile, independent ABC affiliates could lose viewers and advertising dollars as audiences move to ESPN, Disney+ and other alternatives. This is the balancing act Disney needs to manage. The company has every incentive to maximize the value of its sports rights and generate more profits from its growing collection of platforms. However, its local affiliates are important partners in the television business, and weakening their economics could create longer-term problems for the broader network. Disney needs to find a way to grow its streaming business without leaving its local stations to absorb the financial consequences. That could mean working with affiliates on advertising opportunities, audience measurement or other ways to offset lost revenue. Ultimately, giving consumers more choices makes sense in an increasingly digital world. But when a company controls multiple platforms that compete for the same audience, it must consider how those decisions affect its partners. Disney may be able to increase the total value it generates from the Super Bowl, but the strategy will be more sustainable if the local stations that help support its broadcast business can benefit as well. Growing profits is important, but keeping your business partners happy matters, too. What Investing in the Economy May Look Like if Democrats Take Control of the House and/or Senate If Democrats take control of the House, the Senate, or both, we could see some significant changes that affect investing and the economy over the next couple of years. It’s important to review your investments and understand how a shift in power in Washington could affect different sectors of the market. We’ve seen in the past how Democrats like Senator Elizabeth Warren have pushed for more regulation and greater government oversight of banks. If Democrats gain more power, we could see major banks called before congressional committees to defend their profits and answer questions about lending practices, fees, and the financial system. More regulation could follow, potentially putting pressure on bank profitability. Energy could also move back into the spotlight, with a renewed push toward clean energy sources such as solar and wind. At the same time, progress on oil pipelines and electricity transmission lines could slow as investigations, regulatory scrutiny, and congressional hearings take center stage. This could create additional uncertainty for energy companies and infrastructure projects. If you invest in Bitcoin or other cryptocurrencies, this is another area worth watching closely. A Democrat-controlled Congress could bring increased scrutiny of the crypto industry, including hearings involving executives and questions about consumer protection, financial stability, and market speculation. Some of the regulatory progress made in recent years could face challenges, while new restrictions could limit the industry's growth. Crypto investors may want to reassess their exposure and consider the risks with a less friendly political environment. Unfortunately, I don’t see an obvious benefit for the housing market either. While a change in political control may not necessarily lead to a major decline in home prices, it could make a meaningful recovery in housing activity more difficult. There are some proposals being considered in Washington, such as increasing the capital gains exclusion on the sale of a primary residence to $1 million and indexing it to inflation. These could lose momentum or be shelved. Builders could also face additional regulatory requirements, increasing the cost of constructing new homes. When building costs rise but home prices cannot keep pace, developers have less incentive to build. That could keep housing inventory tight and affordability challenges unresolved. Technology investors who have enjoyed substantial gains may also want to consider whether it makes sense to take some profits. A Democrat-controlled House or Senate could increase pressure on technology companies over consumer protection, electricity costs, and the environmental impact of artificial intelligence. With electricity demand rising rapidly, data center construction could become a bigger political issue, particularly if lawmakers focus on the effect these facilities may have on utility bills. We could see executives from major companies like Nvidia and OpenAI called to Washington to testify before congressional committees. They could face tough questions about AI spending, consumer risks, energy consumption, and the broader economic effects of the technology. Even if new legislation does not immediately follow, the uncertainty alone could weigh on investor sentiment and stock valuations. The best-case scenario for technology stocks might be a period of slower gains as investors digest new regulations and political uncertainty. The worst-case scenario would be a meaningful slowdown in the AI boom, particularly if new restrictions, higher energy costs, or delays in data center construction undermine the industry's growth expectations. This would likely lead to a major decline in AI related stocks. Investing in 2027 could test the nerves of investors. Political uncertainty, regulatory changes, and questions about the sustainability of the AI boom could create significant volatility across the market. Rather than making dramatic portfolio changes based solely on election results, investors should understand what they own, evaluate whether current valuations leave room for disappointment, and make sure their investments can withstand a change in the economic and political environment. The AI Boom: What If the Financial Payoff Never Comes? There are some growing risks in the AI trade that investors should not ignore. Trillions of dollars are being poured into artificial intelligence, but the financial payoff outside the technology sector has been difficult to find. Torsten Slok, chief economist at Apollo, points out that revenue per worker and profit margins are rising for the Magnificent 7, but remain largely flat for the other 493 companies in the S&P 500. He also said that there are no signs that AI is increasing productivity growth. Companies are beginning to question whether the cost of AI tokens and computing power is worth the investment. AI may eventually improve efficiency and profitability across the economy, but companies still need to turn that technology into higher revenue, lower costs and better margins. Spending trillions on AI infrastructure and software does not automatically translate into higher earnings. The second risk is what is happening in semiconductor stocks. Jonathan Krinsky, chief market technician at BTIG, recently highlighted a concerning historical pattern. The SOX semiconductor index recently experienced a decline of 5% following an upward move of 5%, a pattern that has occurred only four times in the past 30 years. Three occurrences in 1995 preceded a roughly 53% drawdown, while the fourth occurred in March 2000, near the peak of the dot-com bubble, came before an 83% decline. History does not guarantee a repeat, and semiconductor stocks could continue higher. However, the comparison is a reminder that some of the market's most popular investments can suffer enormous losses when expectations get too far ahead of reality. There is another concern worth watching: margin debt. Investors borrowing money to buy stocks can help push prices higher during a bull market, but leverage can work in reverse when prices fall and investors are forced to sell. A slowdown in margin-debt growth after a major surge may be another signal that investors should pay attention to market positioning and risk. According to recent FINRA data, annual margin debt growth slowed to 31.4% in September, down sharply from 53.7% in May. Bank of America technical strategist Paul Ciana warned that a slowdown in borrowing momentum after a period of extreme growth has historically been associated with market peaks. May’s growth rate was the fourth-highest since 1998. The only three higher readings occurred in 2000, 2007 and 2021. All of which preceded significant stock market declines. Total margin debt stood at $1.48 trillion in September, just 1.5% below June’s record of $1.5 trillion. After pulling back in July, borrowing has increased again over the past two months. This doesn't guarantee a market crash is coming, but it is another warning sign worth watching. When investors borrow heavily to buy stocks, it can amplify gains on the way up and accelerate selling when the market turns. Historically, extreme leverage and slowing borrowing momentum have been a combination investors shouldn't ignore. Remember, a great technology does not automatically make a great investment at any price. We saw that during the dot-com bubble, when many promising technologies were real, but investors still paid far too much for them. As long-term investors, we need to focus on earnings, cash flow, balance sheets and valuations rather than simply chasing the hottest market trend. When expectations are high and valuations leave little room for disappointment, even a small change in the outlook can have a major impact on stock prices. The Anthropic IPO will be one of the biggest IPOs ever, but investors need to understand the risks Given the company’s road show is projected to begin November 9th, the stock market debut could potentially be around mid-November, with reports suggesting the company could seek a valuation of $1.5 trillion to $2 trillion. That is an extraordinary valuation for a company that is only about five years old. Artificial intelligence is clearly growing rapidly, and Anthropic has become one of the major players in the industry. However, before investors get caught up in the excitement, there are some major risks worth understanding. First, let's look at the financial numbers. Anthropic generated approximately $16.3 billion in revenue during the first half of 2026, compared with $4.6 billion for all of 2025. For the first six months of 2025, Anthropic reported a loss of approximately $13 billion, compared with the roughly $80 billion loss reported for the first half of 2026. Much of the 2026 loss was driven by a noncash accounting adjustment, but it is still definitely worth questioning the profitability and cash flow. Another concern is customer concentration as five customers accounted for about a quarter of its revenue. The company also acknowledges that it expects to continue relying on a relatively limited number of customers going forward. This creates a significant risk: if even a few major customers reduce their spending or move to competing AI providers, Anthropic's revenue growth could take a substantial hit. One of my largest concerns is how much money Anthropic will need to spend to keep growing, and whether it can eventually turn that growth into sustainable profits. Anthropic has indicated that it could spend as much as $750 billion to secure additional computing capacity in the coming years. Some of its existing commitments are particularly concerning, including approximately $111 billion in Google Cloud contracts, $110 billion with Amazon Web Services and $31 billion with Microsoft. These are enormous sums of money, and the concern is that Anthropic could be obligated to make these payments even if demand for its AI services falls short of expectations or it doesn't need all the computing capacity it has committed to purchase. Adding to the risk, Anthropic has also agreed to spend up to $86 billion renting, rather than buying, Nvidia chips through smaller AI cloud providers. These commitments could leave the company with enormous ongoing expenses and limited flexibility if the AI industry experiences a slowdown. Revenue may be growing rapidly today, but investors need to consider what happens if that growth doesn't continue at the pace the company expects. The legal liability and AI safety risks are particularly concerning. Anthropic's IPO filing devotes more than 90 pages to risk factors, including the possibility that its AI systems could cause catastrophic harm. The company acknowledges that its models could be misused, exploited by sophisticated cyberattacks, or behave in ways that cause serious damage. It also acknowledges that its safeguards may not always be sufficient to prevent harmful outcomes. This is not just a theoretical concern about whether AI will replace jobs. If an AI system contributes to a major security breach, exposes sensitive information, or causes widespread damage, the resulting lawsuits and claims could be enormous. Anthropic has also warned that insurance coverage may not be available in sufficient amounts to cover certain catastrophic AI-related losses. The insurance industry has limited experience with these kinds of risks, particularly when a single incident could affect many businesses at once. Another issue is who actually controls the company. Anthropic is structured as a public benefit corporation, meaning it has a stated obligation to consider its broader public-benefit mission alongside shareholder returns. Its proposed governance structure also gives its founders substantial voting power. Seven co-founders, including CEO Dario Amodei, will retain significant control over Anthropic through a special Class F share that gives them 50.1% of the total voting power on matters brought before shareholders. Anthropic says these founders are “distinctly equipped” to protect and guide the company’s mission. While this structure may help preserve the company’s long-term goals, it also means ordinary shareholders will have limited influence over major corporate decisions, even after the IPO. Lawrence Hamermesh, a Delaware corporate law attorney with decades of experience in PBC law points out,” The obligation of directors is to balance achievement of [public] purpose with achievement of profit, and if you ask me what that means – ‘to balance’ – I would say, ‘Good luck. It’s hard enough in the ordinary case to win a damages claim against directors for having screwed up and having cost the company some money. It’s doubly hard to do so in a public benefit corporation where you also have this defense that, ‘Hey, I was doing it to promote our stated public benefit.’” My takeaway: I would be extremely careful about buying this IPO simply because everyone is talking about it as there are a ton of risks that you need to understand. Financial Planning: Rethinking Risk as You Get Older We have long believed that conventional wisdom about becoming increasingly conservative as you age is misunderstood. Shifting more of a portfolio into bonds, CDs, and money markets may reduce short-term volatility, but it can introduce a much bigger risk, losing purchasing power to inflation and taxes. Interestingly, another prominent figure in personal finance shares a similar philosophy. On a recent episode of The Dave Ramsey Show, Dave discussed why becoming less risky as you age can be unwise, particularly when considering the long-term erosion of purchasing power. While there are plenty of things we disagree with Dave on, this is one area where we see eye to eye. We believe becoming less risky simply because you're getting older can be misguided and counterproductive. Our approach is to maintain enough conservative assets to cover near-term income needs and weather market downturns without being forced to sell equities at the wrong time. Meanwhile, the bulk of the portfolio stays invested in productive businesses with the potential to outpace inflation, grow purchasing power, and preserve wealth over time. This way you can live off the income generated by the portfolio while preserving principal and allowing it to grow, rather than systematically depleting assets over retirement. The goal isn't to eliminate volatility at the expense of long-term growth, it's to manage short-term risk while keeping your money working hard enough to support your lifestyle for the rest of your life. Stock of the Week: Boeing (BA) Boeing is one of the most recognizable names in the aerospace industry, but the company still has a long road ahead as it attempts to turn its business around. While there have been some encouraging developments, I believe investors need to be careful about getting too optimistic about the recovery. Boeing recently reported its third-quarter earnings, showing some improvement from a year ago. Revenue increased 4% to $24.19 billion, while its net loss narrowed considerably to $116 million compared with a $5.34 billion loss in the same quarter last year. Free cash flow also improved to $464 million from $238 million. Its defense business was a bright spot, with revenue increasing 15% to $7.94 billion. However, the commercial aircraft business continues to struggle. Revenue in that segment declined 3% to $10.72 billion, and the division reported a negative operating margin of 6.5%. Boeing delivered 161 commercial aircraft during the quarter, which is just one more jet than last year. One of the biggest challenges remains increasing production of its best-selling 737 MAX aircraft. Boeing currently produces approximately 47 aircraft per month and is now targeting 52 per month in the second half of 2027. This is taking longer than management originally expected because of slower-than-anticipated wing production. CEO Kelly Ortberg has made it clear that the company wants to stabilize production rather than rush things and create additional quality or safety problems. That is the right approach, but it also means investors may have to wait longer for the financial benefits of higher production. Aircraft deliveries are especially important because Boeing receives the bulk of an aircraft's purchase price when it is delivered to the customer. Until production and deliveries improve consistently, generating meaningful cash flow will remain a challenge. There have been some positive developments. The FAA recently approved the 737 MAX 10, following the approval of the MAX 7 earlier this year. Boeing also received a major Navy contract to develop its next-generation fighter jet. These are encouraging steps, but they do not eliminate the operational and financial challenges facing the company. Looking at the financials, there are several things that concern me. Boeing does not currently pay a dividend, so investors are not being compensated with income while they wait for the turnaround. Its debt-to-equity ratio is also extremely high at approximately 700%. While its current ratio of 1.1 may look acceptable at first glance, its quick ratio is only 0.3, suggesting the company has limited liquid assets relative to its short-term liabilities. Analysts are projecting strong revenue and earnings growth over the next few years, which helps explain why investors remain interested in the stock. However, Boeing is still expected to lose money this year, and even though earnings are projected to turn positive next year at approximately $2.57 per share, there is still considerable execution risk. My concern is that expectations for a turnaround are already high, while the company has yet to demonstrate that it can consistently produce aircraft, improve margins, and generate substantial cash flow. There is a difference between a company having the potential to recover and actually delivering on that recovery. Using projected December 2027 earnings of $2.57 per share, our target sell price would be just $42.66. That is a very low valuation compared with what investors may be willing to pay for a turnaround story, but we believe it is important to remain disciplined about what a business is actually worth rather than simply buying into the excitement. Boeing has a recognizable brand, significant industry importance, and opportunities to improve its operations. However, the lack of a dividend, substantial debt, weak liquidity, ongoing production challenges, and continued losses make this a high-risk investment.

October 16, 2026Episode 42755 min

October 16th, 2026 | SpaceX’s Wireless Ambitions Face Doubts, Tokenized Stock Trading Pros and Cons, Rising American Debt Delinquencies, Stock of the Week: PepsiCo & More

Prediction market company, Kalshi, kind of admits to gambling If you’re unfamiliar with Kalshi, it operates a prediction market that allows people to wager on the outcome of an incredibly wide range of events. These include everything from football games to the words the Federal Reserve chairman might use in a speech and even the weather. Kalshi operates under the premise that these are event contracts, generally with a yes-or-no outcome, rather than traditional bets. Its markets are available nationwide to anyone 18 or older. To me, one of the more interesting developments is Kalshi’s $2 million donation to the National Council on Problem Gambling (NCPG). From my research, I have been unable to find another brokerage or investment advisory firm that has made a comparable donation to the organization. Kalshi’s contribution is reportedly the second-largest the NCPG has ever received, behind the NFL’s $6.2 million donation in 2021. The NCPG’s helpline received approximately 377,000 calls, texts, and chats in 2025, highlighting the scale of the gambling issue in this country. Kalshi also requested that the NCPG hire additional staff to implement so-called responsible trading programs and develop responsible trading training materials to distribute throughout its network. I find this interesting because it raises a fundamental question: If prediction markets are simply a new form of financial trading, why is there a need for responsible trading programs specifically designed to address problem gambling? From my perspective, Kalshi’s involvement with the NCPG raises questions about how the company views its own customers and the potential risks associated with its business model. While the company may not explicitly characterize its platform as gambling, I believe it recognizes that some of its users are engaging in behavior that closely resembles it. The distinction between an event contract and a traditional bet may matter from a regulatory standpoint, but does it fundamentally change the behavior of the person putting money at risk? I think that’s the bigger question here. Whatever terminology the industry uses, there is a meaningful difference between investing in a business based on its earnings and long-term prospects and wagering money on the outcome of a football game, a weather event, or a few words in a Fed chairman’s speech. From my point of view, Kalshi’s donation comes at an interesting time, and I feel like it’s an admission that they are in the gambling business rather than the investment business. SpaceX Is Making a Big Bet on Wireless, but I’m Skeptical It Will Become a Major Player Anytime Soon SpaceX’s latest spectrum deal is another example of Elon Musk’s ambition to expand into industries far beyond the company’s original business. The deal involves SpaceX acquiring a portfolio of wireless spectrum from Grain Management, an investment firm focused on digital infrastructure. The transaction is subject to Federal Communications Commission approval and includes up to 14 megahertz of paired spectrum in the 800 MHz band, according to SpaceX. While the move into wireless communications sounds exciting, I’m skeptical SpaceX will become a major competitor to Verizon, AT&T, and T-Mobile anytime soon. Earl Lum, founder of EJL Wireless Research, described the idea as “one of the top three dumbest ideas” he has encountered in his four decades in the industry. Lum argues that replicating traditional outdoor cellular coverage would require three-sector antennas with 5-watt power outputs. Installing this equipment on residential properties would mean rooftop poles and municipal permitting requirements similar to those involved in building conventional cell sites. In other words, SpaceX could end up dealing with many of the same headaches as traditional cell towers without gaining the same performance benefits. Alternatively, using lower-power, 1-watt indoor femtocells would restrict coverage largely to individual homes, making it difficult to create a seamless mobile network. AT&T CEO John Stankey has pushed back on SpaceX’s small-cell strategy, arguing that a patchwork of residential femtocells cannot overcome the enormous infrastructure and capital requirements of a traditional wireless network. AT&T has characterized satellite-to-cell technology as a solution for the last 2% of coverage gaps, rather than a replacement for the networks serving the other 98%. T-Mobile CTO John Saw echoed those concerns, emphasizing that strong wireless networks require infrastructure built site by site, from neighborhoods and office buildings to stadiums and subway tunnels. Verizon’s leadership has also pointed to the physical limitations satellites face when competing with terrestrial networks. I think the more realistic near-term opportunity is for SpaceX to complement existing networks rather than replace them. Satellite connectivity could become a valuable backup and extend coverage, but that doesn't automatically mean SpaceX can compete on capacity, reliability, and performance across the broader wireless market. Especially considering the company’s still relatively small footprint. SpaceX’s roughly 80 MHz of spectrum holdings pale in comparison to established carriers. T-Mobile alone controls nearly 400 MHz, while the three major U.S. carriers collectively hold more than 1,020 MHz. Another consideration is how much SpaceX is already investing in other businesses. The company is spending billions developing Starship, expanding and maintaining the Starlink satellite constellation, and building massive AI data centers through its combination with xAI. None of these investments are necessarily bad decisions. Starship could transform the economics of space launches, Starlink has a compelling growth opportunity, and AI infrastructure could become a valuable business. However, each requires enormous amounts of capital and comes with significant execution risks. For example, Evercore projects SpaceX’s AI capital expenditures will approach $53 billion in the second half of 2026. SpaceX has an impressive track record, and I wouldn't dismiss its ability to disrupt established industries. But I also wouldn't assume every new venture will be equally successful. My takeaway is that investors may be getting ahead of themselves when assessing the threat to traditional wireless carriers. Acquiring spectrum is only one step toward building a competitive wireless business. SpaceX still needs to deploy infrastructure, attract customers, and compete on price and performance while managing several other massive investments. These are no easy feat and it takes time. Pivotal research analyst Jeff Wlodarczak states, “Our view is that Starlink mobile reaches a low-double-digit share of U.S. wireless over our forecast period (13% in 10 years).” For now, I would be careful about assuming SpaceX will take substantial market share from Verizon, AT&T, or T-Mobile anytime soon. The long-term opportunity may be real, but the timeline, capital requirements, and eventual returns remain uncertain. AI Boom Faces a Growing List of Risks There are several developments in the artificial intelligence industry worth watching, and not all of them are positive. Between growing concerns about the safety of AI models, mounting debt among data center operators, questions about whether revenue growth can justify current valuations, and the possibility of future memory chip oversupply, the industry is facing a number of challenges that investors should not ignore. First, Anthropic outlined how AI models could potentially infiltrate internet-connected devices, such as smart ovens and Android TV boxes, harness their computing power to run themselves, and spread to other devices. While these capabilities could eventually lead to useful applications, they also highlight some of the security risks associated with increasingly capable AI systems. The more autonomy these models gain, the more important it becomes to understand what they can do, what access they have, and whether their actions can be controlled. Anthropic warned in a blog post that the AI model could be “challenging to shut down” because it would have “no centralized point” that could be switched off. At the same time, OpenAI is facing a lawsuit from eight states over concerns about ChatGPT's safety. These legal challenges highlight the growing pressure on AI developers to demonstrate that their products have appropriate safeguards. I believe AI has tremendous potential, but the technology is advancing quickly enough that safety, accountability, and the ability to manage unintended consequences need to remain part of the discussion. There are also growing financial concerns surrounding the AI boom. CoreWeave, a major provider of cloud computing infrastructure for AI, has seen the cost of insuring its debt against default rise to distressed levels. Yields on CoreWeave’s debt have also continued to rise, with the yield to maturity on its 9.75% bond maturing in 2031 climbing to 15.78%this past week. This is worth watching because the AI infrastructure buildout requires enormous amounts of capital, and companies are taking on substantial financial obligations in anticipation of continued demand. If revenue growth or customer demand falls short of expectations, highly leveraged companies could find themselves in a difficult position. Anthropic's latest reported revenue figures add another layer to the discussion. The company generated $16.8 billion in revenue during the third quarter, up from $11.6 billion in the second quarter and $4.7 billion in the first quarter. Those are impressive numbers, but the rate of sequential growth slowed in the third quarter. DA Davidson analyst Gil Luria described the results as "not what anyone wanted to see," reflecting concerns that AI revenue growth may not be accelerating quickly enough to justify the enormous gains investors have priced into some chipmakers. The broader question is how much businesses and consumers will ultimately spend on AI, and whether that spending will generate enough economic value to support the infrastructure being built today. AI demand could continue expanding as adoption spreads beyond a handful of major developers. But even if demand grows substantially, it may not reach the extraordinary levels some investors currently expect. Another risk is the potential for memory chip oversupply later this decade. Manufacturers are expanding production to meet AI-related demand, but the additional capacity could eventually exceed what the market needs. China's ChangXin Memory Technologies, or CXMT, has also announced progress on a new memory architecture designed to increase density, highlighting the potential for intensifying competition. Elon Musk has separately suggested that China will produce enormous quantities of RAM by 2028. This is a familiar challenge in the semiconductor industry. When demand surges, manufacturers invest heavily to increase capacity. If too many companies make similar investments at the same time, the industry can move from shortages to oversupply, putting pressure on prices and profit margins. The current AI boom does not eliminate that risk. Finally, executives at Broadcom and Intel have warned that financing could become a significant bottleneck for AI expansion. Broadcom CEO Hock Tan has argued that access to capital could become a bigger obstacle than chip availability or electricity. That makes sense when you consider the cost of building data centers, acquiring specialized equipment, securing power, and developing the infrastructure necessary to run increasingly sophisticated AI models. Investors need to distinguish between the long-term potential of AI and the prices being paid for companies associated with it today. A transformative technology does not guarantee that every company involved will be profitable, that every infrastructure investment will earn an adequate return, or that current stock valuations will prove justified. I would be particularly cautious about assuming that today's shortages will last indefinitely, that revenue growth will always accelerate, or that companies can finance unlimited infrastructure expansion without consequences. Competition, debt, capital requirements, and overcapacity are all real risks. Inflation Is Moving in the Wrong Direction, and the Fed Has a Problem If you were hoping inflation would continue moving toward the Federal Reserve’s 2% target, the latest economic data are not encouraging. September’s consumer price index (CPI), producer price index (PPI), and retail sales reports all point to an economy that is still holding up, but one facing renewed inflationary pressure. Let’s start with consumer inflation. The CPI increased 0.6% in September, up from 0.4% in August. On a year-over-year basis, inflation accelerated to 3.7%, compared with 3.4% the previous month. That puts inflation considerably above the Fed’s 2% target and moves it in the wrong direction. Energy is a major part of the problem. Gasoline prices increased 9.1% in September alone and are up 34.2% over the past year. Overall energy prices rose 5.2% during the month and are up 20.4% year over year. More than half of September’s monthly CPI increase came from gasoline alone. There is some good news in the details. Grocery prices were unchanged in September, while the cost of food purchased at home actually declined 0.1%. Core CPI, which excludes food and energy, increased 0.3% for the month, matching August’s increase. However, core inflation also accelerated to 2.6% annually from 2.4%. Shelter costs increased 0.4% during the month and 3.2% over last year and is another reminder that inflationary pressure has not disappeared from the broader economy. The distinction between headline and core inflation matters. Higher gasoline prices can push headline inflation up quickly, and those prices can eventually reverse. However, if elevated energy costs feed into transportation, shipping, manufacturing, and other business expenses, the impact can extend well beyond the gas station. That is where a temporary energy shock can become a more difficult problem for the Fed. The producer price index released Thursday may be even more concerning. PPI, which measures prices received by domestic producers, jumped 1.3% in September, its largest monthly increase since March 2022. Producer prices were up 6.3% over the past year, its largest gain since December 2022. Energy was a major contributor, but the report also showed increases in services, freight transportation, and other business costs. That raises the possibility that inflation is spreading beyond the initial energy shock and that businesses may eventually pass more of those costs on to consumers. The other important piece of the puzzle is consumer spending. Retail sales increased 0.8% in September, beating expectations and suggesting consumers are still spending. Looking year over year the numbers were quite impressive given the fact that we saw a 6.3% gain. Gas stations were a large contributor as sales surged 28.1%, but even if we exclude them from the headline number, sales still grew by an impressive 4.5%. Two major categories that stood out to me were nonstore retailers where sales climbed 8.2% and food services and drinking places where sales grew 7%. Health and personal care stores was the only major category that saw a decline as sales fell 1.2% year over year. That creates an uncomfortable combination: inflation is accelerating while the consumer appears to still be quite strong. The bottom line is that I would be careful about assuming inflation is going to fall back to the Fed's 2% target anytime soon. September's reports do not guarantee another inflationary wave, and energy prices can move in both directions. However, the combination of rising consumer prices, a sharp increase in producer prices, and healthy retail sales is not an ideal economic backdrop for the Fed. American Debt Delinquencies Are Worth Keeping an Eye On While many economic indicators continue to look healthy, there are some underlying trends that deserve attention. One of them is the rising percentage of American families falling behind on their debt payments. According to a recent Federal Reserve survey, nearly 20% of American families fell behind on debt payments in 2025, up from approximately 12% in 2022. That is the highest level since 2010, following the Great Recession. The percentage of families that were at least two months behind on payments also increased, suggesting that some households are dealing with more than just temporary financial setbacks. On the surface, the broader economic picture still looks relatively strong. Real median family income increased 7% between 2022 and 2025, while median net worth also rose and for those in the top income group they saw an impressive median increase of 31%. Consumer spending has remained resilient, and economic growth has continued despite concerns about higher interest rates and the cost of living. However, rising delinquencies suggest that not every household is experiencing the same economic conditions. Higher-income families and those who own appreciating assets may be in a relatively strong financial position, while households carrying significant debt are having a harder time keeping up with payments. This is not necessarily a sign that the economy is heading toward a recession. Delinquencies can rise even when the overall economy is growing, and there are plenty of reasons to believe the consumer remains in reasonably good shape. Still, it is worth watching whether this trend continues, particularly with borrowing costs remaining elevated and many households still dealing with higher prices than they faced just a few years ago. The key is to look beyond the headline economic numbers. Strong GDP growth, rising incomes, and resilient consumer spending can coexist with growing financial stress among certain segments of the population. I wouldn't overreact to these figures, but I also wouldn't ignore them. If delinquencies continue to climb, it could eventually weigh on consumer spending and become a more meaningful headwind for the economy. For now, it's another data point worth monitoring as we try to assess the underlying health of the American consumer. The Pros and Cons of Using Tokens for Stock Trading Tokenizing stocks on a blockchain has some legitimate advantages, but there are also several drawbacks worth considering. One of the biggest potential benefits is efficiency. Under the current system, a stock trade typically passes through a broker, an exchange, a clearinghouse, and other intermediaries before it is fully settled. This process can take time and requires coordination between multiple institutions. Blockchain technology could potentially eliminate some of these layers by allowing trades to settle directly on a shared digital ledger, reducing costs and enabling near-instantaneous settlement. Another potential benefit is faster account transfers. The current Automated Customer Account Transfer Service, commonly known as ACAT, was introduced in the 1980s to replace older, paper-based transfer processes. Tokenization could eventually make transferring assets between financial institutions much quicker and more efficient. Blockchain-based trading could also allow stocks to trade 24 hours a day, seven days a week, rather than being limited to traditional market hours. While that might sound appealing and has a potential benefit of increasing international access, I see some significant drawbacks. First, around-the-clock trading could encourage people to become even more consumed by the stock market. Imagine people waking up at midnight or 1 a.m. to check their portfolios or react to price movements. Trading can already become an unhealthy obsession, and making the market accessible every minute of every day could make that problem worse. Second, easier access and more frequent trading could encourage speculative behavior. Academic research and regulatory disclosures have repeatedly shown that short-term retail traders often lose money, with some studies reporting loss rates ranging from roughly 80% to 97%. At that point, the activity begins to resemble gambling more than long-term investing. And with loss rates that high, your odds of success may even be better in a casino! By contrast, long-term investors who buy quality businesses and hold them for extended periods have historically had much better odds of success. Analyses of rolling 20-year periods have found that the S&P 500 has delivered positive total returns in every such period in the historical data examined. Another concern is the potential for increased high-frequency trading. Blockchain technology could make it easier to execute transactions continuously and at extremely high speeds. While that may improve efficiency in some circumstances, it could also amplify rapid price movements and contribute to market instability. We have seen how quickly automated trading can interact with thin liquidity and trigger sharp market disruptions, including the flash crashes experienced in more recent decades. Extending trading into overnight hours, when fewer participants may be active, could also create conditions for sudden price swings because liquidity may be substantially lower. For long-term investors, these changes may not make much of a difference. Our investment strategy is built around buying quality businesses at attractive valuations, collecting dividends, and holding investments for the long run. We might make four or five trades in an entire year. Other market participants make that many trades in an hour. Ultimately, I see potential benefits to blockchain technology when it comes to settlement efficiency, reducing unnecessary intermediaries, and transferring assets between institutions. Those are worthwhile goals. But faster technology does not automatically lead to better investment outcomes. The important question is whether tokenization makes the financial system more efficient or simply makes it easier for people to speculate more frequently. For investors focused on building wealth over decades, the ability to trade around the clock is far less important than the quality of the businesses they own, the prices they pay, and their willingness to remain patient. Stock of the week: PepsiCo, Inc. (Ticker: PEP) PepsiCo (PEP) recently reported better-than-expected third-quarter earnings and revenue, but the company’s results highlight a growing problem: its international business is performing well while its North American operations continue to struggle. The company reported adjusted earnings per share of $2.34, beating analyst expectations of $2.29. Revenue increased 5.6% year over year to $25.27 billion, also topping estimates of $24.96 billion. Net income rose to $3.05 billion from $2.6 billion a year earlier. However, the stronger-than-expected quarter wasn’t enough to prevent management from lowering its full-year earnings outlook. PepsiCo now expects core earnings per share to grow 2.5% to 3.5%, down from its previous forecast of 5% to 7%. The company expects full-year revenue growth of approximately 6%, toward the upper end of its previous guidance. International markets remain a bright spot, accounting for 41% of PepsiCo’s net revenue so far this year. The company reported volume growth across nearly all of its international business units, helping offset weakness in North America. The domestic business remains the bigger concern. North American beverage volume declined 2%, while food volume was flat. PepsiCo has been working to improve demand through product innovation, increased marketing and lower prices on popular snacks such as Lay’s and Doritos. Earlier this year, the company cut prices on many of its snack products by as much as 15% to appeal to consumers who have become more price-sensitive. So far, the pricing strategy appears to be helping its snack business recover. Management said snack volume has shifted from low-single-digit declines last year to low-single-digit growth this year. However, demand was weaker than expected during the latest quarter, suggesting the turnaround still has work to do. There is also a potential headwind on the horizon. Management expects a new wave of inflation driven by higher energy prices and indicated that price increases may be necessary. PepsiCo will need to balance protecting its margins with keeping its products affordable enough to maintain demand. Raising prices too aggressively could undermine the progress it has made in winning back consumers. The company is also planning cost reductions to eliminate redundancies and discretionary spending, freeing up money for innovation and marketing investments. Looking at the numbers, the stock offers an attractive 4.6% dividend yield. However, the company pays out 72.7% of its earnings and 77.5% of its free cash flow in dividends, leaving less room for future dividend growth. The stock has struggled considerably as it has fallen 17% over the last 5 years while competitor Coca-Cola has climbed 72%. With the stock’s decline, it now trades at around 15x expected December 2027 earnings. Based on those earnings, our target sell price would be $143.42. Even though that is above the current price of $131.55 I would not be a buyer at this level. The debt/equity looks concerning at 230% and the lack of growth is not appealing to me at this multiple. EPS is expected to climb just around 3% this year and 3% next year. My belief is there may be a better entry point for this stock down the road, and the risks just aren’t worth buying at this level.

October 9, 2026Episode 42655 min

October 9th, 2026 | AI Investment Boom, Jobs Report Accuracy, AI Investing Agents, Historical Market Trends, Consumer Spending Trends & More

The Trillion-Dollar Math of AI We have officially entered the era of trillion-dollar math, and some of the numbers being thrown around should make investors stop and think. A recent Barron’s article highlights the extraordinary financial assumptions behind the AI boom. Anthropic is reportedly targeting a valuation around $2 trillion while the company has projected enormous future infrastructure commitments. The business lost $42 B last year on $4.6 B in revenue. While revenue has improved substantially this year and as of July the company has an annual run rate of $65 billion, it expects to spend $518 B on cloud computing and infrastructure obligations in the coming years. At the same time, a Brookings estimate puts the total AI infrastructure buildout from 2025 to 2032 at roughly $10.3 trillion. The question isn't whether artificial intelligence is going to change the economy. I believe it will. The question is whether investors are assuming that AI adoption, revenue growth, margins and cash flow will all grow fast enough to justify the valuations being placed on these companies. This is where I think the discussion about regulation becomes important. A new Wall Street Journal poll found that more than half of those surveyed support safeguards on artificial intelligence, while nearly two-thirds believe the development of the technology should be paused. We already accept that certain industries are too important, too complex and potentially too dangerous to simply tell companies to regulate themselves. The FDA regulates about 3.6 trillion worth of food, medical, and consumer products using a risk-based approach because mistakes can directly affect people's health and safety. The FAA regulates aviation because an error involving an aircraft can have catastrophic consequences. NHTSA oversees vehicle safety and is now dealing directly with the challenges created by automated driving systems and robotaxis. The agency is developing new safety standards while also trying to allow autonomous vehicle technology to advance. And look at the banking system. The Federal Reserve, OCC and FDIC require banks to have appropriate risk-management frameworks in place. None of this means I believe the government should regulate every AI application or try to pick winners and losers. Far from it. But there is a difference between regulating an industry and regulating the specific high-risk applications of a technology. If an AI system is helping write an email, the consequences of an error are relatively small. If an AI system is making a medical decision, controlling an aircraft, operating an autonomous vehicle, approving a loan or managing a critical financial system, the consequences can be dramatically different. That is the type of regulation I think makes sense: risk-based oversight rather than blanket regulation. The financial side deserves the same scrutiny. When a company is valued at $1 trillion or $2 trillion, investors aren't just betting on today's business. They are betting on years of extraordinary growth and future cash flows. If those assumptions are wrong, the consequences won't be limited to a handful of venture capital investors. AI has become such a large part of the public markets that a major repricing could affect the entire market. AI is real. Technology works. The economic opportunity is enormous. But that doesn't mean every AI company is worth whatever valuation the market assigns to it. We've seen this movie before with railroads, the dot-com boom, and other transformative technologies. Technology can be revolutionary while the investments made around it can still be terrible. That's why I'm less interested in whether AI is the next great technological revolution and more interested in what investors are actually paying for that revolution. Technology can be real. The opportunity can be real. And the valuation can still be completely wrong. How reliable is the jobs report? Look at the revisions One of the biggest things investors should understand about the monthly jobs report is that the headline number is not a final number. It is an estimate, and in some cases, it is an estimate based on a surprisingly small amount of information. The September establishment survey is a perfect example. The initial collection rate was just 53.1%. That means barely more than half of the reporting locations had provided information by the time the initial estimate was produced. BLS continues collecting responses after the first release, which is why the initial employment, hours and earnings numbers are revised over the following two months. This is important because the establishment survey is what produces the headline nonfarm payroll number. BLS surveys roughly 119,000 businesses and government agencies representing about 622,000 worksites. The survey is designed to provide information on employment, hours and earnings, but the first estimate is necessarily based on incomplete responses. So when you see an initial September payroll estimate, you shouldn't treat it as though BLS counted every job in the economy. It didn't. The data is collected from a sample and then used to estimate employment across the broader economy. BLS itself acknowledges that the most recent two months are based on incomplete returns and are considered preliminary. The unemployment rate is calculated differently. It comes from the household survey, not the establishment survey. BLS and the Census Bureau survey roughly 60,000 households and determine whether individuals are employed, unemployed or outside the labor force. The unemployment rate is the number of unemployed people divided by the total labor force. To be counted as unemployed, someone generally must be without a job, available to work and actively looking for work. That distinction matters. Someone who wants a job but has stopped looking is generally not counted as unemployed and instead is considered outside the labor force. That is one reason why looking only at the unemployment rate doesn't tell you everything about the health of the labor market. The establishment survey also has another complication: businesses that are newly created cannot immediately be captured in the survey because they aren't yet on the sampling frame. BLS therefore uses a birth-death model to estimate the employment impact of new and closing businesses. Those estimates are eventually reconciled against much more complete unemployment-insurance tax records through the annual benchmark revision. With numbers like these, it's no wonder we are seeing so many revisions. The better approach is to look at the trend, multiple months of data, labor-force participation, the employment-population ratio, wages, hours worked and subsequent revisions rather than treating the first headline payroll number as the most important fact. I still don't understand why, with all of the advancements in technology, there isn't a better way to collect this information and produce more accurate numbers from the start. We have technology that can process enormous amounts of data almost instantly, yet we're still relying on a system where nearly half of the establishments haven't responded when the initial jobs estimate is released. With the importance these numbers have for the economy, markets and Federal Reserve policy, it seems like there should be a better way. What happens when everyone has an AI agent managing their investments? A recent Barron’s highlighted the growing use of AI-driven investing. Since Robinhood launched agentic trading in May, more than 150,000 customers have opened agentic trading accounts, and AI agents are now using Robinhood’s tools nearly 30 million times a day. Public says customers created 20,000 AI agents within a month of making them available to all users, with more than $200 million in assets now overseen by AI agents. The results from the article were kind of silly to me because it was over a 3-day period using just $500 on Claude Opus 5, ChatGPT-5.6 Sol and Gemini 3.1 Pro. Claude had 3-day return of 2.9%, ChatGPT was down 0.7% and Gemini was up 0.9%. Again, I don’t think the results tell us much given the short time period, but it made me think: If everyone uses AI to make investment decisions, won't everyone eventually be using the same strategy? If millions of AI agents have access to the same earnings reports, financial statements, economic data, analyst estimates and market information, it seems reasonable that they will identify many of the same opportunities. And that creates a fascinating problem. If every AI agent determines that a stock is undervalued at $50, investors could all try to buy it at $50. That buying pressure pushes the stock higher, eventually eliminating the very opportunity the AI identified. This is actually similar to the argument surrounding index investing. Imagine if every investor simply bought and sold index funds and nobody made individual decisions about what companies were attractive or unattractive. In that world, the flow of money into and out of the index would essentially become the sole factor in determining where prices move. Of course, we aren't there. Active investors, institutional investors, arbitrageurs, short sellers and other market participants still analyze individual companies and create price discovery. But AI agents could create a similar dynamic if their use becomes widespread. Instead of everyone simply following an index, we could eventually have millions of AI agents analyzing the same information and reaching similar conclusions. There's another interesting point from Barron's testing. When AI agents were asked to construct a traditional 60/40 portfolio, Claude, ChatGPT and Gemini all gravitated toward many of the same low-cost Vanguard and iShares index funds. That shouldn't be surprising. If you ask several systems to find the most efficient way to build a diversified portfolio, they're going to find many of the same answers. But investing isn't just about having more information. It's about how you interpret that information differently from everyone else. Markets need disagreement. One investor thinks a company is worth $50, another thinks it's worth $75 and another thinks it's worth $35. That disagreement is what creates a market. If everyone eventually has an AI agent that reaches the same conclusion, the question becomes: Who is left to disagree? History is Helpful, But It Is Not a Guarantee The four-year presidential cycle has historically been a useful guide for understanding market trends, and the numbers heading into the next few years are certainly interesting. Since World War II, the pre-election year, which would be 2027, has been the strongest of the four years on average. In fact, the S&P 500, including dividends, has not experienced a negative pre-election year since the 1930s. One possible explanation is that policymakers tend to favor economic growth heading into an election, using fiscal policy to create more favorable economic conditions. The midterm election year, by comparison, has historically been much more volatile. Larger-than-average market corrections are common, with many of those declines reaching their lows around September and October. While that can be uncomfortable for investors, history shows that these periods have often created attractive buying opportunities. Since 1950, the S&P 500 has generated an average return of 16.6% during the 12 months following a midterm election, and there has not been a negative 12-month period following a midterm election. Looking at the presidential cycle quarter by quarter makes the next period even more interesting. Historically, the nine months from October 1 of the midterm election year through June 30 of the following pre-election year have been the strongest stretch of the entire four-year cycle. During that period, the S&P 500 has gained an average of 20.2%. But I would be careful about giving 100% credence to these statistics. Historical patterns are interesting, but they don't know what the economy, interest rates, inflation, earnings, or geopolitical environment will look like in the future. A pattern that worked repeatedly in the past doesn't mean it has to work the next time around. Why Does Consumer Spending Look So Good? The final revision of second-quarter GDP showed the U.S. economy growing at an inflation-adjusted annual rate of 2.2%, up from the previously reported 1.5%. Much of the upward revision came from stronger personal spending, which increased at a 3.8% annualized rate, compared with the earlier estimate of 3.2%. Overall GDP growth was weighed down by spending on imports and a drawdown in business inventories. Excluding those factors, domestic final sales grew at an impressive real 3.9% annualized rate. That represents a significant acceleration from the 2.4% growth recorded in the previous quarter and just 0.5% in the quarter before that. While this sounds like the consumer is feeling good, it seems to conflict with what consumer surveys are telling us. The University of Michigan’s recent consumer sentiment survey posted its second-lowest reading going back to 1952. We saw a similar trend in the Conference Board’s consumer confidence data, which came in lower than expected. You have to go back 12 years to find a reading that was as weak. So, why does consumer spending continue to look so strong despite such poor consumer sentiment? Based on what I’m seeing, I still believe higher-income households are accounting for a disproportionate share of consumer spending. While there are signs that lower-income consumers are doing better, it is worth looking at the wealth being accumulated at the top. The top 10% of U.S. households saw their wealth increase by $38.2 trillion in the year ended June 30. Another interesting statistic comes from economists at Bank of America, who noted that U.S. household equity wealth is now roughly 10 times consumer liabilities. That is a significant amount of wealth relative to what households owe, and I believe it helps explain why spending has remained resilient. When people feel wealthier, they are generally more willing to spend, even when consumer sentiment surveys suggest that confidence is weak. The question is how sustainable this trend will be. A meaningful reversal in technology stocks, particularly if it develops into an extended downturn, could reduce household wealth and eventually weigh on consumer spending. Given how much wealth has accumulated in the stock market, this is a risk worth watching closely. Financial Planning: Big Changes Coming to Social Security… The Claiming Age Clarity Act seeks to simplify Social Security terminology by renaming certain claiming milestones. Currently, the terms “early eligibility age,” “full retirement age,” and “delayed retirement age” are used for claiming benefits at ages 62, 67, and 70, respectively. The legislation would replace these terms with “minimum monthly benefit age” at 62, “standard monthly benefit age” at 67, and “maximum monthly benefit age” at 70... that’s it. Unfortunately, this legislation does nothing to address the far more significant issue facing Social Security, its long-term financial sustainability. Changing terminology does not increase funding, reduce the projected shortfall, or prevent future benefit cuts. While clearer communication may have some educational value, it is difficult to view this as meaningful progress when Social Security’s underlying financial challenges remain unresolved. At a time when insolvency is only a few years away, we would be better served by policymakers focusing on substantive reforms to address the program’s long-term solvency rather than spending time on what amounts to little more than a rebranding exercise. Company Discussed: Starbucks Corporation (Ticker: SBUX)

October 2, 2026Episode 42555 min

October 2nd, 2026| AI Credit Card Spending, Office Real Estate Opportunities, The Fed’s Tough Decision, Huawei vs Nvidia, Nasdaq’s Hidden Market Weakness, Municipal Bonds Aren’t Tax-Free & More

Would you let your credit card do your spending for you? That sounds like a very silly question, but the reality is that credit card companies like Mastercard now have AI bots that can shop for you. This is crazy to me. People already have enough trouble controlling their spending on credit cards, and now credit card companies are rolling out programs that can do even more shopping for you. Mastercard has teamed up with a startup called Alchemy, allowing AI to make purchases on your behalf. The credit card companies try to make this sound safe by emphasizing that you can set restrictions, such as how much the AI can spend and what types of products it can purchase. But the bot can still make purchases on its own without consulting you every time. I suppose there could be some positives. Maybe the AI can find better prices on goods and services or save you time by handling routine purchases. But I still believe there is potentially more harm than good. There is also a major legal question: If an AI bot makes an inappropriate or unauthorized purchase, who is responsible? Right now, if you find fraudulent charges on your credit card, you can contact the credit card company. In many cases, the company will investigate the transaction, cancel the card, issue you a new one, and you generally aren't responsible for unauthorized charges. But what happens when you have authorized the credit card company to let an AI bot make purchases for you? If the bot makes a purchase you don't want, it could become much more difficult to determine whether that transaction was fraudulent or whether you simply gave the AI too much authority. With billions and even trillions of dollars being invested into artificial intelligence, it appears that many companies are trying to find ways to turn those enormous investments into profits. As the AI revolution continues, we're entering some pretty unknown waters, and I think we need to be careful about giving AI systems the authority to spend our money for us. Could now be the time to start looking at office real estate? For years, office real estate has been one of the most unpopular areas of the market. Remote work, rising interest rates, concerns about vacancies and, more recently, AI have all weighed heavily on office properties. But I think there are some signs that the story may be starting to change. Office usage in 10 major cities, according to the Kastle index, has reached a post-pandemic high of roughly 67%. On busy days, badge swipes at prime office buildings are regularly within 10% of pre-pandemic levels. At the same time, the amount of office space available is shrinking. Older buildings are being demolished or converted into housing and other uses, while tenants are leasing more space. It’s currently estimated that there is only 19.7 million square feet of office space under construction nationally, close to the lowest level on record. This comes as Cushman & Wakefield say tenant are chomping up the most space since 2020. And despite concerns that AI will eliminate the need for office workers, some of the biggest AI companies are actually taking significant amounts of office space. Anthropic, the company behind Claude, recently signed a long-term lease for a 16-story Manhattan building with space for approximately 1,700 desks. This is more than triple Anthropic’s New York based employees at the beginning of the year. Manhattan is particularly interesting. Prime office space is leasing for roughly $95 per square foot, about 6% above pre-pandemic levels, while some premier locations can command more than $300 per square foot. More than 80% of the 7.7 million square feet of prime office space currently under construction is already leased. The interesting part for investors is that office REITs still appear to be priced for a very different future. SL Green & BXP are trading about 50% below pre Covid levels, while Hudson Pacific Properties is down about 95%. Based on expected 2026 funds from operations, all three are also trading at lower valuation multiples than they did before the pandemic. That doesn’t mean office real estate is suddenly without risk. A recession could hurt demand, and higher interest rates could make refinancing existing debt much more expensive. AI could also eventually have a meaningful impact on the number of office workers. But this is exactly why I think it is worth starting to look. When an industry has been beaten down for years, you don't necessarily need everything to return to the way it was before. You just need the fundamentals to improve enough that the current valuation no longer makes sense. For us, I would not be interested in buying physical office buildings or taking on the risks of individual properties. If we were going to invest in this area, we would only look at publicly traded REITs with strong balance sheets, manageable debt, quality properties and attractive valuations. Sometimes the best opportunities are found in areas that investors have spent years avoiding. The Fed Has a Tough Decision Ahead Inflation is still sticky, and I think the Federal Reserve has a difficult road ahead. The good news is that inflation came in lighter than expected in August. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures index, rose 3.4% over the last year, while core PCE, which excludes food and energy, rose 3.0%. That was below economists’ expectations of 3.7% and 3.3%, respectively. But 3.0% core inflation is still well above the Fed’s 2% target. And there is another problem that could make inflation more difficult to control: energy. We are starting to see oil shipments improve as more crude makes its way through alternative routes and the Strait of Hormuz becomes more navigable. In fact, crude shipments through the Strait of Hormuz reached a seven-day average of 13.5 million barrels per day as of Monday, matching the prewar baseline. More broadly, crude oil shipments from the Middle East, which includes the Persian Gulf and Red Sea, have at times exceeded prewar levels. As of Monday, the region’s seven-day average reached 19.5 million barrels per day, well above the prewar baseline of roughly 17 million barrels per day. That sounds like great news, but there is a major distinction between getting crude oil moving again and getting refined products to the market. Refined product shipments through the Strait of Hormuz are averaging just 677,000 barrels per day over the past seven days as of Monday, compared with 3.6 million barrels per day before the war Diesel, gasoline and other refined products remain extremely tight. Refining capacity has been damaged, inventories are low and refiners around the world are already operating under significant pressure. That means even if the price of crude oil comes down, consumers may not see the same relief at the pump because the bigger problem is increasingly what happens after the crude reaches the refinery. This is particularly concerning because diesel touches almost everything in the economy. Trucks, agriculture, construction and manufacturing all depend heavily on diesel. Higher diesel prices eventually work their way through transportation and production costs and can ultimately show up in the prices consumers pay. And the Fed isn't dealing with a weak economy that gives it an obvious reason to cut rates aggressively. Second-quarter GDP was revised up from 1.5% to 2.2%, and ADP reported that private employers added 90,000 jobs in September, above expectations. So here is the Fed’s problem: inflation is still above target, the economy is growing, the labor market is still producing jobs, and there are elevated inflation concerns coming from the refined fuel crisis. The latest inflation report is certainly encouraging, but I don't think we can declare victory. If crude shipments continue to improve, that will help. But until refined products become more readily available and fuel prices start coming down, inflation could remain stubbornly above the Fed’s 2% target. For now, I think the biggest thing to watch isn't just the price of crude oil. Watch what is happening with diesel, gasoline and refining capacity. That may tell us much more about where inflation is headed next. Will Chinese Company Huawei Take Business From Nvidia? I’m still concerned about the price of Nvidia’s stock and its valuation, but I do not want to see the company lose business to a Chinese competitor called Huawei. If you go back to the Biden administration, you may remember that China was restricted from buying Nvidia’s most advanced AI chips. Chinese companies, including Huawei, were also restricted from accessing the advanced equipment needed to manufacture more sophisticated chips. Huawei has not given up. In fact, the company plans to introduce two new AI chips next year, with additional products reportedly planned for 2028 and 2029. The chipmaking technology Huawei is using today is still behind Nvidia’s, but the company is moving aggressively to close that gap. Huawei also has the support of Beijing and other Chinese technology companies, which could give it additional resources to develop a domestic AI chip ecosystem. For Nvidia, the question is how quickly Huawei can catch up and whether restrictions on China ultimately create a long-term competitor rather than simply limiting China’s access to Nvidia’s technology. The Nasdaq climbed in September, but the market underneath it is becoming concerning The Nasdaq Composite gained about 2% in September, continuing to outperform much of the broader market. The problem is that when you look beneath the headline numbers, the market is telling a very different story. On Wednesday, for example, the Nasdaq was up while new 52-week lows were overwhelming new highs. On the Nasdaq, 294 stocks were hitting new 52-week lows compared with only 84 making new highs. That is a pretty significant divergence when the index itself is moving higher. We also saw an incredible gap between the cap-weighted S&P 500 and the equal-weighted S&P 500 during September. According to Bespoke Investment Group, the equal-weighted index underperformed the traditional S&P 500 by 4.6 percentage points during the month. Looking back to 2003, when both ETFs began trading, there have been only two other months when the equal-weighted index underperformed by a wider margin. That means the largest companies were doing much better than the average company in the index. This is where I think we need to pay attention to what happened during the dot-com bubble. Back in 2000, the S&P 500 reached its peak while only a very small number of stocks were actually making new highs. In May of this year, we saw a remarkably similar situation. The S&P 500 hit a record, but only 20 companies in the index were also hitting their own all-time highs. Michael Hartnett of Bank of America pointed out that 20 stocks hitting new highs was also what occurred at the top of the internet bubble in March 2000. The big concern that keeps coming up is the growing concentration in the major indexes. Look at the S&P 500: roughly 40% of the index is represented by its 10 largest companies. Nvidia alone accounts for around 8%, Apple around 7%, and Microsoft about 5.5%. What’s even more interesting is that nearly all of the remaining companies in the top 10 are tied in some way to the AI theme. They include Amazon, Alphabet, Meta, Broadcom, Tesla and Micron, with Berkshire Hathaway being the only major exception. AMD is also knocking on the door of the top 10. With a market cap around $1.01 trillion, AMD is now getting close to Berkshire Hathaway’s roughly $1.07 trillion market cap. The Nasdaq Composite is even more concentrated. Using the Fidelity Nasdaq Composite ETF as a proxy for the index, the 10 largest positions represented close to 60% of the portfolio. Nvidia was 11.7%, Apple 10.3%, Microsoft 8.1%, Amazon 5.7%, and Alphabet's two share classes together represented another 8.3%. Rounding out the top 10 was Broadcom, Meta, Tesla, SpaceX, and Micron. So, when Nvidia, Apple, Microsoft, Amazon, Alphabet and the other mega-cap technology companies are performing well, they can make the overall market look much healthier than the average stock actually is. That is exactly why I think investors need to look beyond the Nasdaq and S&P 500 headlines. An index can continue climbing because an increasingly small group of very large companies is carrying more and more of the weight. The issue for many index investors is the opposite can be true as well. The market cap weighted indexes could fall even as the average stock does well. We've seen this movie before. The circumstances are different, the companies are different and the underlying businesses are much stronger today, but the market concentration and deteriorating breadth are similarities that deserve attention. Financial Planning: Municipal Bonds Aren’t Entirely Tax-Free Municipal bonds are often called “tax-free,” but that can be misleading. The interest you receive is generally tax-free, but the entire return on the bond is not necessarily tax-free. For example, when interest rates rise, older municipal bonds with lower interest payments can be purchased for less than their $100 face value. If you buy a bond for $90 and eventually receive $100 when it matures, you may have taxable income on that $10 increase, even though the interest payments along the way are tax-free. The other important consideration is cash flow. A bond purchased at a discount may have a relatively low interest payment, so the amount of cash you receive each year can be much lower than the current interest rates you see advertised. Part of your expected return may instead come from the bond increasing back toward its $100 face value. For investors who need income, it is therefore important to look at how much cash the bond actually pays you each year, not just its stated yield or the fact that the interest is tax-free. Company Discussed: McDonald's Corporation (Ticker: MCD)

September 26, 2026Episode 42455 min

September 25th, 2026 | Higher Rates Hurt Private Debt, Siri AI Obsolete? Trust Facebook With Your Data? GLP 1 Lawsuits, Bank Charters Exploding, Why I Fear AI, Portfolio Too Conservative? & More

Will Rising Interest Rates Hurt Private Debt and Private Equity? It is hard to tell for sure because private investments are, by definition, private, and we don't have the same level of transparency that we have with publicly traded investments. However, with the 10-year Treasury crossing the 5% mark, common sense would tell you that higher interest rates could put even more strain on an already strained private debt and private equity market. Private equity funds frequently use leverage, meaning they borrow money to enhance potential returns. The typical holding period for a private equity investment is generally seven to 10 years, but an increase in interest rates raises the cost of borrowing for private equity firms, which can reduce profits and ultimately investor returns. Many private equity funds are already facing potential losses in software companies because of concerns that artificial intelligence could disrupt or even put some of these businesses out of business. Private equity firms may want to sell these investments quickly, but as interest rates rise, other investors may become less willing to take on additional risk because the risk-free return available from Treasury securities has become more attractive. The longer these private investments remain in a fund, the longer the fund may have to carry its debt and pay interest, which can further reduce investor returns. PitchBook estimated that the average private equity return in 2025 was around 7%, the lowest in 14 years, despite decent economic growth and relatively stable interest rates. For investors who own publicly traded private equity firms, the results have also been difficult. Companies ranging from Apollo Global Management to Blue Owl have seen significant declines in their stock prices year to date. If interest rates remain elevated, there could continue to be pressure on the business models of these firms. For private debt, the story is not necessarily better, even if your broker tells you that it is "stable." The same basic principle applies to private debt as it does to publicly traded bonds: when interest rates rise, the value of existing debt generally falls. With private debt, you may not see that decline reflected in a daily market price because the investments are not publicly traded. That does not mean the underlying economic impact isn't occurring. If a private debt fund eventually needs to sell assets, refinance debt, or deal with defaults, those underlying losses can become much more visible. One problem can potentially lead to another as lenders and borrowers are forced to deal with higher financing costs and declining asset values. At Wilsey Asset Management, we have been cautious about private equity and private debt for years. We understand why these investments are attractive and why brokers sell them, particularly because they can generate significant fees and commissions. However, we believe investors need to understand the risks, especially in an environment where interest rates remain elevated. One of the biggest concerns with private investments is liquidity. Unlike publicly traded stocks and bonds, investors in many private funds cannot simply sell their investment whenever they want. Withdrawals may be limited to certain periods, sometimes only once a quarter, and funds can impose additional restrictions when too many investors try to withdraw money at the same time. If interest rates remain high for an extended period, the combination of higher borrowing costs, lower valuations, weaker exit opportunities and limited liquidity could create a difficult environment for private equity and private debt investors. The fact that you don't see the losses on a daily statement doesn't necessarily mean the risk isn't there. Is the New Siri AI Already Obsolete? Is it possible that Apple’s latest update to its famous Siri has already turned it into a follower rather than a leader? The new Siri AI assistant is supposed to be able to do things like book travel plans, fill out online forms, cancel appointments, and even file complaints with customer service. But in today’s fast-moving world of technology, there are already services out there, like Instinct, and Meta has built a new AI platform called Muse that runs in the AI cloud, meaning you don’t necessarily need to be inside a specific app to use it. Many of these services can connect to your Gmail account and communicate with your iMessage or WhatsApp. Instinct and Muse can go beyond simply setting appointments. They can look at your existing appointments, identify conflicting travel arrangements, and then cancel the conflict and rebook the necessary reservations for you. They can also look for reliable restaurant recommendations nearby and book a reservation for you without you having to do much of anything. With Instinct, it can even create an account on a website, navigate the site, find locations and times for events being promoted, and add those events to your calendar for you. Currently, Siri AI can’t freely surf websites and is largely limited to working through apps on the iPhone. If services like Instinct and Muse are able to outperform Siri while Apple continues to keep its AI experience primarily within the iPhone ecosystem, users could eventually start asking themselves why they need to pay such a high price for Apple’s newest phones when cheaper Android phones may offer access to more capable AI assistants. Apple has built its reputation on being a technology leader. The question is whether Siri will remain one. Would you trust Facebook with your personal and financial information? This is an important question because this is the direction AI appears to be heading. Meta, which owns Facebook, recently released its new AI agent, Muse, and to complete tasks and make life easier for you, it will need deep access to your personal information. Within the first five days of its release, Muse was downloaded 600,000 times, which on the surface sounds like a lot. However, keep in mind that there are roughly 3.6 billion users across Meta’s platforms, which makes 600,000 downloads sound like a very small number. The bigger question is: Do we trust Mark Zuckerberg and Meta with privileged information based on the company’s track record? Yes, they use words that sound good when describing Muse, such as “safe,” “secure,” and “private.” They also say Muse will run on a digitally walled-off virtual machine that other agents cannot access. OK, that sounds good, but let’s look at the track record. Six years ago, Meta agreed to pay a $5 billion fine to the FTC over user privacy violations related to what became known as the Cambridge Analytica scandal. About a year later, information belonging to 533 million users was leaked. Then, in 2023, the company was hit with a record $1.3 billion fine related to the transfer of European users’ data to U.S. servers. Still fresh in our minds is the recent $18 billion settlement involving allegations that Meta harmed teenagers. The cost of using Muse could be as much as $100 per month, depending on how much you use it. If you only have light usage, it could be free. When you register for Muse, a warning pops up saying, “May make mistakes or take unexpected actions, so review all its work.” All I can say to that is: Wow! If this is how companies are going to make money from AI, by gaining access to all of your personal information so they can set appointments, send emails, manage your finances, pay bills, and handle other things that make your life easier, I’ll just say no thank you. I’ll do it myself. How about you? Would you trust an AI agent with that much access to your personal and financial information? Lawsuits are starting to form against the makers of GLP-1 drugs It’s no surprise to me that there are concerns about potential side effects from the popular weight-loss drugs known as GLP-1s. At this point, the potential connection between these drugs and certain vision problems is still being investigated, but there are some developments that investors and patients should be aware of. The concern involves a condition known as NAION, or non-arteritic anterior ischemic optic neuropathy, which can cause sudden vision loss. In Denmark, where drug company Novo Nordisk is headquartered, 27 patients on the diet drugs were awarded as much as $1.5 million due to NAION and there are still 38 more pending cases in the country. There are also now warning labels on the drugs in the UK, Japan, and Australia. The FDA in the United States is currently reviewing the concerns but at this time are not placing a warning label on the drugs. European regulators have concluded that NAION is a very rare side effect of semaglutide, affecting about 2 in 10,000 people. Unfortunately, it appears this side effect can occur even after taking the drug for just 6 to 12 months. They have recommended that patients experiencing sudden or rapidly worsening vision seek medical attention immediately, and that treatment be stopped if NAION is confirmed. The risk appears to be very small, but when you are talking about potentially permanent vision loss, even a rare side effect deserves attention. For someone taking these medications for diabetes or significant obesity-related health risks, the potential benefits may be an important part of the risk-benefit discussion with their doctor. But for someone simply looking to lose 10 or 20 pounds, I think it is reasonable to ask whether the potential risks are worth it. Ask yourself this question: If you lost your vision, what would you be willing to pay to get it back? From an investment standpoint, this is also something I would be watching closely. If lawsuits continue to build and regulators impose additional warnings or restrictions, it could create additional risk for the companies producing these drugs. Eli Lilly, one of the major producers of GLP-1 medications, is up only around 7% to 8% year to date as of this writing. For investors, I would be paying close attention to how these safety concerns develop. If litigation gains momentum, the stocks could face significant pressure. In the U.S., bank charters are exploding but that may not be a good thing From 2011 through roughly 2024, the Office of the Comptroller of the Currency, or OCC, received only 48 applications for new bank charters, that’s roughly four per year. But over the past 18 months, that number has skyrocketed to around 40. The bigger concern is the type of institutions applying. A significant portion are not traditional brick-and-mortar banks. Nearly half are digital-only fintech or cryptocurrency companies looking to enter the banking system. The last time we saw this much activity was in 1998, when 138 applications were filed and 116 were approved. It is worth remembering the Financial Crisis happened just ten years later. From 2008 to 2012, bank failures surged, averaging 93 per year. Of the 569 bank failures recorded between 2000 and 2024, 465—or 82%—occurred during those five years. Bank failures peaked in 2010, when 157 banks failed in a single year. Just this month, European fintech Revolut received conditional approval for a U.S. bank charter. Shortly afterward, The Wall Street Journal reported that Revolut had inadvertently provided sensitive personal and financial information belonging to hundreds of customers to someone impersonating a government agency. The OCC has also conditionally approved charters for several digital-asset companies, including Ripple and Fidelity Digital Assets. And in August, the OCC granted preliminary conditional approval to World Liberty Trust, a trust company affiliated with World Liberty Financial, the crypto business associated with President Donald Trump and members of his family. I think we need to pay close attention to how quickly these new institutions are being added to the financial system. Innovation can be positive, but banking is built on trust, strong risk management and the protection of customer information. I believe issuing bank charters at such a rapid pace is once again weakening our banking system. My concern is that we could be creating risks that won't become apparent until much further down the road. I do believe if we continue down this path another major financial crisis could unfold in the years to come. Why I’m scared of AI and you should be too! Anthropic is putting the final touches on its IPO prospectus, and usually, before a company goes public, there is a lot of positive talk designed to build excitement around the initial public offering. That doesn’t seem to be the case with Anthropic. Instead, CEO Dario Amodei has been bringing attention to some very concerning possibilities surrounding artificial intelligence. I know there are people who stand to benefit tremendously from AI, such as chipmakers and hyperscalers, who are looking for a big payoff on all the money they have invested and believe everything will be fine. But what you may not realize is that Anthropic and other AI companies are developing models that, in certain testing scenarios, have demonstrated concerning behaviors such as resisting instructions, attempting to circumvent safeguards, and operating in ways their creators did not intend. In one concerning example, roughly 700 OpenAI AI agents participating in internal training exercises worked together in an attempt to breach both OpenAI’s systems and the developer platform Hugging Face. The details would almost be amusing if they weren’t so unsettling. The AI agents were not supposed to communicate with one another or access the internet, yet they managed to create a secret “message board” where they encouraged each other to hack Hugging Face. Some even offered to sacrifice themselves for the group and they even came up with a name for themselves as they called the group a “swarm”. Anthropic CEO Dario Amodei has also taken the unusual step of calling for government regulation of AI. It is certainly unusual for a company CEO to publicly ask the government to regulate the very industry his company operates in. When Anthropic was founded in 2021, its stated mission was to pursue the responsible development and maintenance of advanced AI for the benefit of humanity. The question is whether the industry is still moving in that direction. In just a few years, Anthropic’s AI assistant, Claude, has progressed from relatively limited capabilities to being able to write software, complete complicated tasks, and solve increasingly difficult mathematical problems that had never been solved before. The bigger question is: What happens three years from now? What happens if AI becomes better than humans at a growing number of intellectual tasks? Those concerns are not simply my words. Dario Amodei himself wrote about the potential risks of increasingly capable AI in an essay published in January where he said, “At this pace, it cannot possibly be more than a few years before AI is better than humans at essentially everything.” To me, that is concerning. He has every reason to promote the success of his company and the industry, yet he is also warning about what could happen if AI capabilities advance faster than our ability to control them. So what do you think? Should the government be regulating AI and AI companies? Financial Planning: When Is a Portfolio Too Conservative? A portfolio can become too conservative when the desire to reduce short-term volatility comes at the expense of long-term growth. Bonds and other credit investments are traditionally viewed as conservative, but they can still lose money or generate very low returns. A bond’s total return comes from both the interest income it pays and the change in the market value of the bond itself. When interest rates rise, the market value of existing bonds fall, and that decline can be greater than the interest income received, resulting in a negative total return. More importantly, even when bonds produce a positive return, that return may not be sufficient to keep pace with inflation or meet a long-term investment objective. For example, Vanguard’s Total Bond Market fund has annualized returns of approximately -1.32% over the past year, -0.65% over the past 5 years, 1.17% over the past 10 years, and 1.75% over the past 15 years. While a conservative portfolio may feel safer because it experiences less volatility, consistently earning very low returns can create other risks including inflation risk, interest-rate risk, and longevity risk. In other words, an investment portfolio can be designed to avoid losing money quickly while still creating the risk of losing purchasing power slowly over time. Company Discussed: Lennar Corporation (Ticker: LEN)

September 18, 2026Episode 42355 min

September 18th, 2026 | Fed Rate Hike, Strong Consumer, Scam Conversations, Mortgage Rates, AI Regulation, Pension Lump Sum & More

Why I’m Glad the Fed Increased Interest Rates on September 16 On Wednesday, September 16, at 2 p.m. Eastern, the Federal Reserve announced its decision to increase interest rates by 0.25% to the range of 3.75% to 4% from 3.5% to 3.75%. This was the first rate hike since July 2023. Your initial reaction might be, “Why would you want the Fed to increase interest rates?” Generally, higher rates are viewed as bad for stocks because they can slow the economy and make bonds more attractive relative to equities. But I think this time is a little different, and investors need to think outside the box. The new Federal Reserve Chairman, Kevin Warsh, has made it clear since taking over that he intends to be tough on inflation. We recently received the latest Consumer Price Index report, and inflation remains nowhere near the Fed’s 2% target. We also continue to see a very strong jobs market, which could be viewed by Chairman Warsh as evidence that the economy remains strong enough to handle a modest increase in interest rates. I believe the rate hike actually sent an important message to the markets: Chairman Warsh means what he says. If he wants to establish credibility as an inflation fighter, this was an opportunity to show investors that he is willing to make the difficult decisions necessary to prevent inflation from becoming a bigger problem down the road. The consumer remains stronger than expected The latest retail sales numbers are another sign that the U.S. consumer remains surprisingly strong. Retail sales increased 1.2% in August and are now up 6.0% from a year ago. But what I find even more interesting is what happens when you take gasoline stations out of the equation. Gas station sales increased 21% year over year due to higher gas prices, but sales excluding gasoline stations were still up 4.9% year over year, showing that the strength in consumer spending is not simply the result of higher gas prices. Even excluding both motor vehicle and parts dealers and gasoline stations, sales were up 5.6% from a year ago. What really stands out is how broad the annual growth has been. Electronics and appliance stores were up 7.8%, sporting goods, hobby, musical instrument and book stores were up 10.7%, miscellaneous retailers were up 14.0%, furniture and home furnishing stores were up 1.9%, clothing stores were up 4.3%, general merchandise stores were up 4.5%, building materials and garden equipment were up 5.1%, and restaurants and bars were up 5.8%. Interestingly every major category that is tracked in the report showed an annual increase. Another factor worth mentioning is the timing of Amazon Prime Day. The promotional event occurred earlier this year, which pulled some spending forward into June and created a tougher comparison for July. As that distortion faded, non-store retail sales rebounded sharply in August, rising 2.6% from July. The Census data show nonstore sales up 9.9% from a year earlier. The other number I am watching is the retail “control group,” which excludes several volatile categories and is used in calculating consumer spending for GDP. That measure jumped 1.4% in August, its strongest monthly increase since September 2024. There has been plenty of discussion about consumers becoming more cautious, inflation remaining elevated and higher gasoline and diesel prices putting pressure on household budgets. Those are legitimate concerns. But the actual spending data continue to tell us that consumers are still opening their wallets. For now, the consumer looks much stronger than some of the economic headlines would suggest. The bigger question is whether this strength can continue if inflation and energy prices remain elevated and households continue to draw down savings. That will be something I’ll be watching closely over the next several months. How to Talk to Your Parents When They’ve Been Scammed Like many people, when we find out that someone we love or care about has been scammed, our first reaction is to get angry and immediately want to step in and fix the problem. The problem is that many scammers are extremely good at what they do. Whether it’s a romance scam or one of the countless other types of scams, these people are professionals at building trust and relationships with their victims. Remember, a scammer may have spent weeks, if not months, building a relationship with the person they are scamming. If you come in like a bull in a china shop, you could face resistance. You may hear things that make no sense to you, such as your parents saying that you don’t want them to be happy or that they know exactly what they’re doing. That’s why you should not start by accusing them of being foolish or saying they don’t know what they’re doing. Doing that can immediately put them on the defensive and make it much harder to help them. Instead, you need to build trust with your parents and let them know that you are on their side. Say things like, “I’m here to protect you.” Be especially careful if you believe the scammer has driven a wedge between you and your parents. That can be an intentional tactic designed to keep you from intervening and stopping the scam. Always talk calmly to your parents, or anyone else who is being scammed, and try to help them identify inconsistencies in the scammer’s story. If you notice something that doesn’t make sense, point it out without attacking them. For example, if money was wired to an account but the name on the account doesn’t match the name the scammer has been using, that could be an important detail to discuss. You should also try to get other trusted people involved. A banker, accountant, financial advisor, relative, or another person your parents trust may be able to help them see the situation differently. The goal is not to prove that you are right. The goal is to protect someone you love. If you handle the situation correctly, you may be able to prevent your parents from losing their entire nest egg. But if you come on too strong, you could push them further toward the scammer and make it even harder to help them. There aren’t as many low-interest mortgages in the United States as you may expect In the United States, there are roughly 86.4 million open mortgages, representing approximately $13.1 trillion in mortgage debt. When interest rates and mortgage rates were extremely low in 2021, it seemed like almost everyone was refinancing their mortgages into rates around 3%. Apparently, that wasn’t quite the case. Some homeowners may have sold their homes and purchased new ones, taking on a higher mortgage rate in the process. Today, homeowners with a mortgage rate below 3% account for roughly 20% of all mortgages. That’s actually less than the 22% of mortgages with rates above 6%. The largest group, at 33%, has mortgage rates between 3% and 4%. For years, we’ve been told that the housing market is being held back because so many homeowners are sitting on extremely low mortgage rates and don’t want to give them up. But nearly half of all mortgages have rates above 4%, which may mean that the mortgage-rate “lock-in effect” isn’t quite as widespread as we’ve been led to believe. Maybe the housing market simply wasn’t as strong as we thought. Do we need government regulation on artificial intelligence? I’m not, and never have been, a big fan of government regulation, but there are certain things in history that just make sense to regulate. On a smaller scale, who would think it makes sense not to have an age limit for a driver’s license? Another regulation that makes sense is having a legal drinking age. Can you imagine if it were perfectly acceptable for a 12-year-old to drink whenever they wanted? On a much bigger scale, during the arms race, the United States and the Soviet Union negotiated arms control agreements. Those agreements may have helped prevent the world from experiencing a nuclear war. But what about AI, or artificial intelligence? It seems like it could be incredibly beneficial, but just like nuclear power can be beneficial while nuclear weapons can lead to devastating consequences, AI has the potential to be used for both tremendous good and tremendous harm. Unfortunately, we can’t simply stop the development of artificial intelligence. There are many potential benefits including increased productivity and we also can’t afford to fall behind China in the development of AI. If the United States were to completely step away from AI while China continued to advance, we could lose significant economic and technological influence around the world. That’s why I believe we need reasonable guardrails around artificial intelligence. Ideally, the United States and China should work toward establishing some basic rules that both sides agree to follow. The goal shouldn’t be to stop AI or prevent innovation. The goal should be to make sure we develop useful and efficient AI while reducing the risk that uncontrolled AI could cause catastrophic consequences. Financial Planning: Should You Take Your Pension Lump Sum Sooner? If you are approaching retirement and have a pension with a lump-sum option, it is important to understand how interest rates may affect your benefit. Traditional pensions are defined benefit plans, meaning the monthly annuity payment is generally determined by factors such as years of service and compensation. A lump-sum option, however, is calculated by determining the present value of those future pension payments using an applicable interest rate. Generally, higher interest rates result in lower lump-sum values. Therefore, if rates are expected to rise, retiring sooner could potentially result in a larger lump sum. However, every pension plan is different, including the interest rates used and how far back the plan looks when determining the applicable rate. Before making a retirement decision based on interest-rate timing, be sure to review your specific plan provisions and understand how your lump-sum benefit is calculated. Company Discussed: On Holding AG (Ticker: ONON)

September 11, 2026Episode 42255 min

September 11th, 2026 | Data Center Insurance, AI Targets Seniors, Housing Rate Problem, Apple Under Ternus, Fed Rate Hike, Military Tax Exemption & More

Another big cost for data centers: insurance! You always hear about the obvious expenses involved in building data centers: incredibly expensive chips, massive energy requirements, cooling systems, and the cost of constructing the facility itself. But there’s another major expense that doesn’t get nearly as much attention: insurance. Once completed, a large data center can be worth anywhere from $20 billion to $50 billion or more. Meta’s data center project in Northeast Louisiana, for example, is expected to cost more than $50 billion and will house thousands of servers along with extremely valuable power and cooling infrastructure. In the rush to build data centers, many hyperscalers and other companies have located facilities in areas where real estate is relatively inexpensive. The problem? An estimated 40% of U.S. data centers are located in tornado-prone areas. I guess some companies didn’t think quite that far ahead. For insurance companies, this could become a massive market. The potential insurance premiums associated with data centers could eventually be 4–5 times the current global aviation insurance market. Data centers could become some of the most valuable insured assets in the world. And insuring them won’t necessarily be cheap. An average cost of around $20 billion for a data center will exceed the insurance cost for bridges, tunnels, and skyscrapers. There’s very little historical data showing how these massive facilities will perform during extreme weather events such as tornadoes and hurricanes. Companies also want coverage for risks like equipment failures, business interruption and even terrorism, all of which can add significantly to premiums. So, there’s yet another enormous cost that hyperscalers must absorb on top of the hundreds of billions of dollars they’re already spending to build out AI infrastructure. The big question I still have is: How are companies ultimately going to recover all of these costs? The AI infrastructure buildout is becoming more expensive by the day. I’m sure glad we own an insurance company in our portfolio. AI has taken scamming seniors to a whole new level The Federal Trade Commission estimates that roughly $196 billion was lost to fraud, with nearly half of that or about $82 billion coming from people over the age of 60. It’s now estimated that roughly 37% of fraud involves artificial intelligence. The cases are frightening because scammers can now use AI to identify targets, make their pitches more convincing, execute scams faster, and target thousands of people at a scale we’ve never seen before. With AI, scammers can create what appears to be legitimate proof of identity, including realistic passports, driver’s licenses, websites, and other documents. Gone are the days when scams are easy to spot because of grammatical errors, thick accents on phone calls, or obviously fake videos. And it goes far beyond dating scams. Imagine getting a phone call saying that your daughter witnessed a major drug deal and has been taken by traffickers unless you come up with $20,000. That sounds unbelievable, until they put your daughter on the phone, and you hear her voice, panicked and pleading for help. The problem? It isn’t actually your daughter. It’s an AI-generated voice that sounds just like her. So how do you protect yourself from AI fraud? One major red flag is a demand for cryptocurrency. Another is the pressure to keep the situation secret. Scammers often tell you not to contact anyone because they want to isolate you and prevent someone else from recognizing the scam. Scammers are becoming so bold that some will even show up in person pretending to be federal agents with fake badges and credentials. Remember this: The federal government will not demand that you hand over cash, cryptocurrency, gold bars, or other assets simply because someone claims to be a federal agent. If someone claims to be a federal agent and wants to meet at your home, you can always ask to meet at their office instead. A legitimate agent should have no problem with that. If someone is pressuring you to act immediately, keep it secret, and hand over money or valuables, stop and verify who you are dealing with before doing anything. AI is making scams more convincing than ever. The best defense may be simply slowing down long enough to question what you're being told. The Housing Market Has a Rate Problem Existing-home sales fell 2% in August to an annualized pace of 3.98 million homes, the lowest level since June 2025. Sales are now down 1.2% from a year ago and have remained stuck around the 4 million annualized level for much of the past few years. Historically, a more normal housing market has been closer to 5.2 million existing home sales annually. At the same time, we are finally seeing more inventory. There were 1.62 million existing homes for sale in August, up 5.9% from a year ago and the highest level since 2019. That represents about 4.9 months of supply, which is the highest level in over a decade. This gives buyers more choices and more negotiating power than they've had in quite some time. But here's the problem: home prices aren't falling. The median existing home price rose 1.6% from a year ago to $429,100. So, buyers are dealing with a combination of high home prices and high borrowing costs. And I think one of the most important things to watch is the 10-year Treasury. A lot of people assume mortgage rates are primarily determined by the Federal Reserve. That's not really the case. The 30-year fixed mortgage is heavily influenced by longer-term Treasury yields, particularly the 10-year Treasury. The 10-year Treasury recently approached 5%, reaching its highest level since 2023. As the 10-year moves higher, mortgage rates generally move higher as well. The 30-year fixed mortgage climbed over 7%. The last time the 30-year fixed mortgage was at 7% or higher was May 26, 2025, when it reached 7.02%. That's a big deal for affordability. A buyer who could comfortably afford a $500,000 mortgage at 5.5% has a substantially different purchasing power at 7%. Higher rates can push buyers to either purchase a less expensive home, put more money down, or simply stay on the sidelines. I don't think the current data points to a traditional housing crash. We don't have the same combination of excessive speculation, massive overbuilding, and widespread distressed selling that characterized 2008. Instead, we're seeing a housing market that is essentially frozen by affordability. The big question going forward isn't just what the Fed does. Watch the 10-year Treasury. If the 10-year moves meaningfully lower, mortgage rates could follow, and housing activity could improve. But if the 10-year stays near 5% or moves above it, don't be surprised if 30-year mortgage rates remain around 7% and housing continues to struggle. For buyers, the good news is that inventory is improving, and negotiating power is coming back. The bad news is that the cost of financing remains extremely high. Housing may finally be shifting from a seller's market toward a buyer's market, but that doesn't necessarily mean homes are getting cheaper. How will Apple stock do under new CEO John Ternus? Apple has turned a new page in its history books with Tim Cook stepping down after 15 years at the helm. Cook did a tremendous job managing the business and growing the stock mainly by improving the supply chain to overseeing the launch of products like the Apple Watch and AirPods. During his 15-year tenure, Apple stock increased roughly 2,680%, which is a phenomenal return for investors. This reminds me of another major business story that was incredibly successful: General Electric under the leadership of Jack Welch. Welch ran GE for 20 years, from 1981 to 2001. During his tenure, GE stock increased roughly 4,000%. Yes, that was over five more years than Cook's tenure at Apple, but I doubt Apple would have produced another 1,300% return if Cook had stayed for five additional years. At the end of both CEOs' tenures, however, their companies had one major similarity: very high valuations. The comparison is a little scary. When Jack Welch left GE in 2001, the stock was trading at roughly 30 times earnings. This was during the dot-com bubble, when the S&P 500 was trading at about 36 times earnings. When Tim Cook left Apple, Apple was trading at roughly 37 times earnings, while the S&P 500 was around 29 times earnings. Those are very high valuations, especially considering we're also experiencing what could be an AI bubble. When Welch stepped down in 2001, his hand-picked successor, Jeffrey Immelt, took over. From 2001 through 2017, GE stock generated a total return of roughly -27%. Yes, investors actually lost 27% over 16 years. Apple is an incredible business with an enormous ecosystem, tremendous cash flow, and some very valuable brands. But Ternus is taking over at a time when expectations are extremely high. Apple does have some interesting things coming. The company announced a new foldable iPhone on September 9, along with an updated Siri and other AI improvements. But I personally didn't think the event was a big deal. The bigger question is whether consumers are really willing to spend around $2,000 on a new, foldable iPhone. And perhaps even more importantly, will AI actually create the upgrade cycle that Apple investors are expecting? There are also potential headwinds from significantly higher chip costs, which could push up the prices of iPhones and other Apple devices. I remember talking to people years ago about potentially selling some GE stock and diversifying. The response I often heard was, "Don't touch my GE stock." I'm hearing very similar stories about Apple today. The big question is whether history repeats itself with Apple like it did with General Electric. I don't know if it will. But I am pretty confident about one thing: Apple shareholders are very unlikely to see anything close to the returns they experienced under Tim Cook over the next 15 years. A Fed Rate Hike Now Looks Inevitable We received two important inflation reports this past week, and my takeaway is pretty straightforward: inflation itself still doesn't look overly problematic, but there are some areas that have me concerned. The Producer Price Index showed wholesale prices increased 0.4% in August. Producer prices are now up 5.4% from a year ago, which was slightly above expectations. Then on Friday, we got the Consumer Price Index, which showed consumer prices increased 0.4% in August and are up 3.4% over the last year. Core CPI, which excludes food and energy, increased 0.3% for the month and 2.4% over the past year. Those numbers aren't exactly what the Fed wants to see, but I also don't think we're looking at runaway inflation. What concerns me more are two specific areas: diesel prices and the enormous AI buildout. Diesel is a major problem because it works its way through virtually every part of the economy. The national average price of diesel has now climbed above $6 a gallon for the first time ever and is up from around $3.70 this time last year. In California, diesel is now around $8 a gallon. That's not just a problem for people who drive diesel trucks. Higher diesel prices increase the cost of transporting goods, operating farm equipment, shipping products, and ultimately getting those products onto store shelves. The other issue I'm watching is the AI infrastructure buildout. We're seeing an extraordinary amount of capital being committed to data centers, chips, power generation and related infrastructure. I'm concerned that if companies continue spending at this pace, it could create further upward pressure on costs, particularly for energy, construction, memory, and financing. So, while I don't think the current inflation numbers are particularly alarming by themselves, I don't think we should ignore the inflationary pressures building underneath the surface. The market has already pushed the probability of a hike extremely high following these inflation reports and on Friday odds were close to 90%. At this point, if the Fed doesn't hike, it risks surprising the market and potentially damaging its credibility. The bigger question isn't whether they hike next week. It's what they do after that. If diesel prices continue to rise, and the AI buildout continues to put pressure on energy and other resources, the Fed may have a much harder time getting inflation back to its 2% target than the headline numbers currently suggest. Inflation isn't my biggest concern right now. It's whether inflation is stuck and how do we get it lower from here. Financial Planning: Tax Exemption for Retired Military California military retirees may now be eligible for a valuable new state tax break. Through tax year 2029, California allows qualified taxpayers to exclude up to $20,000 of military retirement pay from California for taxable income. The provision applies to retirement pay received from the federal government for service in the uniformed services, as well as qualifying annuity payments from the Department of Defense Survivor Benefit Plan. To qualify, the taxpayer’s federal adjusted gross income must generally be $125,000 or less for single filers or $250,000 or less for married couples filing jointly. This is an income exclusion, not a $20,000 tax credit, meaning it reduces the amount of income subject to California tax. For someone in the 9.3% California tax bracket, the maximum potential savings is $1,860. Eligible taxpayers claim the adjustment when filing their California return, generally through Schedule CA. Income planning is especially important for military retirees because there is no phaseout, if income exceeds the applicable limit, the entire exclusion is lost. Company Discussed: Lululemon athletica inc. (Ticker: LULU)

September 4, 2026Episode 42155 min

September 4th, 2026 | AI Capex Bubble Bursts, A Market Like 1901, Jobs Report Beats Expectations, Sports Betting as Investing, Big Food Battles Diet Drugs, Be Your Own Bank? & More

The AI Capex Bubble Is Starting to Look Crazy I keep coming back to the same question when I look at the incredible amount of money being poured into artificial intelligence: Where is all of this capital ultimately going to earn a return? Since the beginning of 2024, roughly $500 billion has been spent on chips, $350 billion on power infrastructure, $200 billion on construction and $100 billion on networking. That's approximately $1.1 trillion of AI infrastructure spending in less than three years. For perspective, the entire S&P 500 spent roughly $575 billion on capital expenditures in 2021 right before ChatGPT even existed. And the spending is accelerating. In 2021 The four major hyperscalers—Microsoft, Amazon, Alphabet and Meta— spent about $125 billion on new plants and equipment. It’s now estimated that they will spend $1 trillion, which is about half of total capital spending for the S&P 500 and the companies could spend roughly $3.7 trillion through 2029. Add companies such as Oracle, OpenAI, SpaceX and others, and total AI spending could approach $6 trillion by the end of the decade. Those numbers are almost difficult to comprehend. And here's where I think the historical comparisons to railroads and the internet become interesting. Yes, those were enormous infrastructure buildouts too. But the economic opportunity created by those technologies was incredibly clear. The railroad connected producers with consumers, opened new markets, lowered transportation costs and allowed goods to move across the country. The internet created entirely new businesses and fundamentally changed commerce, advertising, communications and how we work. I don't see AI in quite the same light. I see enormous potential, but I don't yet see the same obvious economic expansion that will ultimately justify trillions of dollars of infrastructure spending. And now we're starting to hear another argument: "Look at the cloud. Look at how much money the cloud is generating. That's proof the AI infrastructure will earn a return." I'm not sure I buy that. That's a little like building railroads and then saying: "Look at how much money we're making selling railcars. Look at the demand for locomotives and railroad equipment. Clearly the railroad investment is paying off." The problem is that's not where the ultimate economic return came from. The return came from transporting goods and people. The railroad was valuable because businesses used it to create economic activity. The same is true of the internet. The real economic payoff wasn't simply selling servers and networking equipment. It came from everything built on top of the internet. So with AI, I think the ultimate question is not: "How much revenue are Nvidia, the cloud companies and data-center operators generating?" It's: "How much NEW economic value is being created by all of this computing capacity?" That's a much harder question. Because if we're essentially spending trillions of dollars building increasingly powerful computers, data centers and power infrastructure so companies can sell more computing capacity to other companies that are also spending billions on AI infrastructure, we need to be careful about confusing activity with economic returns. And this is where the bubble argument gets interesting. A recent Barron's article points out that historically, transformative technology booms have been able to absorb enormous amounts of capital before eventually running into trouble. Its "rule of 25" suggests that previous infrastructure booms became particularly vulnerable when investment approached roughly 25% of GDP. The railroad boom saw about $2.5 billion of rail spending before the 1873 panic and GDP was about $10 billion a year. Internet infrastructure saw about $1.5 trillion of investment before the bust and back then GDP was only about $6 trillion. For today's roughly $30 trillion U.S. economy, that would be around $7.5 trillion before we saw problems. That's being used as evidence that the AI boom has plenty of room to run. And maybe it does. But here's the funny part. We're increasingly hearing very smart people say: "Yes, this is going to end badly." "Yes, there is too much capital being deployed." "Yes, there will eventually be excess capacity." "Yes, the financing is getting complicated." But then comes the qualifier: "Just not yet." That might be the most dangerous phrase in investing. Because that's exactly how bubbles work. When I look at $1.1 trillion already spent, and potentially $6 trillion by the end of the decade, increasingly creative financing structures and companies racing to build capacity before we fully understand the ultimate demand, it starts to feel less like a normal technology cycle and more like a capital spending boom. Maybe the bubble doesn't burst this year. Maybe it doesn't burst next year. But when almost everyone agrees there is a bubble and the only disagreement is about when it ends that's usually when I start paying very close attention. The technology can be real. The demand can be real. The companies can be profitable. And it can still be a bubble. The Stock Market Today Resembles the Stock Market of 1901 Some people believe they are witnessing something completely different in the stock market today and that what is happening now has never happened before. They believe the market will continue rising forever, and that there is simply no way they can lose. History tells us otherwise. Time and time again, we see the same patterns repeat themselves. Surprisingly, the stock market of 1901 had many of the same characteristics we are seeing today. For starters, there was a tremendous amount of trading back then like there is today. In 1901, the turnover rate on the New York Stock Exchange reached 319%, meaning stocks were changing hands roughly every 16 weeks. They also had something that resembles today's prediction markets. Back then, they were called bucket shops, where people could bet on whether a stock would move up or down. Many were led to believe they were participating in the same type of opportunity as wealthy investors. In reality, they were speculating and many people who didn't know better confused gambling with investing. Leverage was also widely used. Investors could put up as little as $10 and control as much as $300 worth of stock. That kind of leverage could produce enormous gains when markets were rising, but it could also lead to devastating losses when they turned. And this is where human psychology comes into play. People's emotions are often far stronger than their logic. The more the market rises, the more people begin to believe it will continue rising and that a crash is unlikely to happen anytime soon. When investors become excited because they are making easy money, they can lose sight of the difference between investing and gambling. The problem is that gambling can feel like investing when you're winning. The market's performance in the early 1900s is a good example. The stock market rose 19% in 1900, another 20% in 1901 and 5% in 1902. Then came 1903, when the market declined 23%. But the good times returned, and over the next three years the market gained roughly 69%. Then came the Panic of 1907, and the stock market fell roughly 30% that year. The lesson isn't that today's market will follow the exact same path. It won't. The lesson is that human behavior hasn't changed much in more than a century. Greed, fear, leverage, speculation and the belief that "this time is different" have been part of financial markets for generations. As the saying goes, history may not repeat itself, but it definitely rhymes. Investors would be wise to study those rhymes and remember that making money in a rising market doesn't necessarily mean you're investing wisely. Sometimes, it simply means you haven't experienced the other side of the cycle yet. The Jobs Report Was Much Stronger Than Expected Today’s jobs report was a big surprise. The U.S. economy added 162,000 jobs in August, well above the roughly 53,000 expected and the strongest monthly gain in five months. Even more importantly, July was revised from a loss of 23,000 jobs to a gain of 21,000. June was also revised higher, meaning the previous two months were collectively revised up by 55,000 jobs. The unemployment rate remained at 4.1%, but there was an interesting development underneath that number: the labor force increased by 683,000 people, while household employment increased by 569,000. The labor-force participation rate also rose from 61.4% to 61.6%. It is still down by 0.5% since January, but it’s a positive to see it moving in the right direction. So, we had substantially more people entering the workforce without the unemployment rate increasing. That's a pretty good sign. There was also a significant difference between industries. Food services and drinking places added 59,000 jobs, while local government education added another 42,000 and construction added about 22,000. Health care, which has been a large source of employment growth, saw a gain of just 13,000, compared with the monthly average of 32,000 over the prior 12 months. On the other hand, the information sector continued to lose jobs as information-related industries reported a loss of 23,000, putting the 12-month average at a loss of 8,000. This is worth watching given the impact of automation and AI on certain white-collar industries. Another positive: the average workweek increased to 34.4 hours, the highest level since March 2024. More hours worked can be just as important economically as more workers being hired. But there is one area that isn't quite as strong: wages. Average hourly earnings increased just 3.1% from a year ago. That's a healthy increase, but wage growth continues to moderate, and this marked the lowest growth in 5 years. And then we have the JOLTS data. The latest report showed 7.27 million job openings in July, that's approximately 1.1 job openings for every unemployed person. That is an important distinction. The labor market is clearly cooler than it was a few years ago, but there are still more available jobs than unemployed workers. Put it all together and I think today's report tells us something pretty simple: The labor market is still healthy. Job growth has cooled considerably from the boom years, but unemployment remains low, the labor force is expanding, job openings remain above the number of unemployed workers, and today's payroll number was substantially stronger than expected. This also makes the Federal Reserve's decision much more difficult. If the Fed's primary concern is a rapidly deteriorating labor market, today's report doesn't provide much evidence for that argument. Now the focus shifts back to inflation. If inflation remains sticky while employment is holding up this well, the argument for aggressive rate cuts becomes much harder to make. The next big test for the Fed is going to be the inflation data. Sports betting as an investment strategy? This is crazy. According to a Siena Poll, more than a quarter (27%) of Americans and over half (52%) of men aged 18 to 49 say they have an active online sportsbook account. That’s not a problem to me if you view sports gambling for what it is…. Which is gambling. The bigger problem I see is another recent survey from Betterment showed 52% of Gen Z investors (those born between 1997 and 2007) have redirected money intended for investing to sports bets. Think about that. We're not talking about occasionally putting $20 on a football game for fun. Some people are actually incorporating sports betting into their financial plans, viewing it as a way to build wealth, pay off debt, buy a home or reach other financial goals. People need to understand that gambling is a losing strategy in the long run. Let's say you have a 50/50 bet, essentially a coin flip. You might think that means you have an equal chance of winning or losing your money. Not quite. To win $100, you have to bet $110. If you win, you make $100. If you lose, you lose the entire $110. So even though the underlying event might seem like a 50/50 proposition, the sportsbook has built in an advantage. That's not investing. When you buy a stock, you're buying an ownership stake in a business. The company can generate profits, grow its earnings, reinvest in the business and potentially pay dividends. When you make a sports bet, you're putting money at risk on an outcome where the odds are designed to give the sportsbook an edge. The consequences of legalized sports betting may go far beyond losing a bet. Research from the New York Federal Reserve has found that the expansion of legal sports betting has coincided with rising rates of delinquency and bankruptcy. And the personal financial impact can be even more alarming. A 2025 U.S. News & World Report survey found that 25% of sports bettors said they had missed a bill because of their wagers, while 30% said they had taken on debt because of their betting. When people start borrowing money, missing bills and taking on debt to place bets, sports betting can become a serious financial problem. I understand why this mindset is developing. Younger people are dealing with expensive housing, high living costs and the frustration that traditional investing can take decades to build significant wealth. Sports betting offers something investing doesn't: the possibility of making a lot of money very quickly. But there's a catch. You can also lose a lot of money very quickly. And that's a terrible foundation for a long-term financial plan. Think about what young investors are seeing every day on social media. One video might explain the benefits of starting early, investing in a diversified portfolio and letting compound interest work for decades. Then, the very next video might show someone claiming you can make all of this money in a single football game by placing bets on a sportsbook. Which one sounds more exciting? Sports betting can also create an illusion of control. You may know a lot about football, basketball or baseball and feel like that knowledge gives you an advantage. You follow the teams, know the players, understand the matchups and watch every game. It can make you feel like you're making an informed investment decision. But knowing a lot about sports doesn't change the fact that the sportsbook sets the odds and builds in an advantage for itself. You might think, "I know more about this team than I know about the stock market, so I have a better chance of making money betting on them." That's a dangerous way to think about building wealth. If you want to build wealth, there's no substitute for saving, investing, compounding and time. Investing can feel slow. But slow is exactly what you want when you're building wealth. You don't need to hit a parlay to retire. How the Big Food Companies Are Battling Diet Drugs It is estimated that by 2035, 15% of the American population will be using or will have used GLP-1 drugs. No surprise, this is a potential problem for the big food companies, which have historically benefited from consumers eating more. We are still in the early stages of the diet-drug revolution, and some of the downsides are becoming more apparent. Some users report that food doesn't taste as good, sometimes describing it as tasting like Styrofoam. There are also concerns about muscle loss and, perhaps most importantly, the simple pleasure of eating for enjoyment. For decades, food companies have catered to consumers' taste buds with sugar, salt and an endless variety of flavors. But that strategy may not work as well for people taking GLP-1 drugs, whose appetites and food preferences can change dramatically. At the same time, there is a broader movement toward healthier eating, which creates another challenge for traditional food companies. So how are the big food companies fighting back? They're giving consumers what they want. One of the biggest concerns with GLP-1 drugs is muscle loss. Food companies see an opportunity here by developing products with more protein and fiber. For example, companies are introducing meals such as buffalo mac and cheese with 40 grams of protein. Another example is a chewy fudge brownie mix made with cottage cheese and a peanut-butter swirl. It not only looks appealing, but also offers significantly more protein. And food companies know something else about consumers: we eat with our eyes first. Packaging and presentation matter. Research has shown that phrases such as "good source of fiber" and "high in protein" resonate with consumers, particularly those who are trying to make healthier choices. At the same time, companies are tapping into something that never seems to go out of style: comfort and nostalgia. Phrases such as "Mom's meatloaf" or "Grandma's roast chicken" immediately create an emotional connection. One company has even developed a marinade and added grill marks to chicken breasts to make them look more appetizing. Smaller portions and convenience are also becoming increasingly important. Even if people want to eat healthier, they still have busy lives. They're working, socializing and taking care of their kids. Most people don't have the time or the desire to spend two hours preparing a healthy meal every night. And while the number of people taking GLP-1 drugs will likely continue to grow, I also think we'll see some people eventually stop taking them. Over time, some may decide the drugs don't work quite as well as they had hoped, while others may become frustrated with side effects, changes in how food tastes or the loss of muscle. When looking at themselves in the mirror one might think they look too skinny and rather frail because of muscle loss. There is also a bigger question: How much are people willing to sacrifice the pleasure of eating? Food has always been one of life's simple pleasures. For some people, after months or years of reduced appetite and diminished enjoyment from food, the desire to sit down and truly enjoy a great meal may eventually outweigh the benefits of staying on the medication. That creates an interesting challenge and opportunity for the food industry. The companies that succeed may not be the ones selling the most food. They may be the ones figuring out how to make healthier, higher-protein, higher-fiber foods that still look, smell and taste great. Because even in the age of diet drugs, people still want to enjoy their food. Financial Planning: What It Means to “Be Your Own Bank” Sometimes phrases like “be your own bank” or “borrow from yourself” are presented as sophisticated ways to access capital without being taken advantage of by a lending institution. But the truth is, it is impossible to literally “borrow from yourself.” You either use your own money, or you borrow someone else’s money. When you take a loan against a life insurance policy, use a HELOC, or establish a securities-backed line of credit (SBLOC), you are not borrowing from yourself. You are using your assets as collateral to obtain a loan from a bank or insurance company, which you must repay with interest just like any other loan. There is nothing inherently wrong with borrowing money, and using an asset as collateral can be a perfectly reasonable financial strategy. The problem arises when the ability to borrow against an asset becomes the justification for owning the asset in the first place. Phrases like “borrow from yourself” and “be your own bank” are marketing and sales tactics that can make a financial product sound more attractive than it actually is. For example, the fact that you can borrow against the cash value of a permanent life insurance policy does not, by itself, make permanent life insurance a good investment. The financial product should first stand on its own merits considering its costs, risks, returns, liquidity, and whether it actually meets your financial objectives. The ability to borrow against an asset should be viewed as a financing feature, not a reason to purchase the product. Borrowing can certainly be a useful financial tool, but the promise of being able to “borrow from yourself” should never be the primary justification for putting your money into an asset or financial product that you otherwise would not want to own. Company Discussed: DICK'S Sporting Goods, Inc. (Ticker: DKS)

August 28, 2026Episode 42055 min

August 28th, 2026 | K-Shaped Recovery, Alternative Investment Traps, Dividend Stocks? Dynamic Pricing, AI Disrupts Publishing, GM Loses Ground & More

The K-Shaped Economy May Be Improving If you’re unfamiliar with the term, the upper arm of the “K” represents higher-income Americans, who are spending more and generally doing better. The lower arm represents lower-income consumers who have been struggling with higher prices and tighter budgets. But there are signs the lower end of the K-shaped economy may finally be improving. Treasury Secretary Scott Bessent recently argued that the K-shaped economy is over and that we’re moving toward what he calls a “C-shaped economy,” where lower-income workers are beginning to catch up. That may sound like a bold statement, but there are some encouraging signs behind it. Economists have pointed to stronger hiring in the spring and early summer, which has allowed more Americans to change jobs. Changing jobs often comes with higher wages, giving lower- and middle-income households more income to spend. There has also been improvement in wage growth at the lower end of the income spectrum as after-tax wages grew at an average 5.2% annual pace in July for lower-income households. This marked the first time since December 2024 that after-tax wage growth for lower-income households surpassed higher-income households. Higher-income workers are still seeing strong wage growth as well. So, I wouldn't say the K-shaped economy has completely disappeared, but the bottom of the K may be starting to move upward. Another positive is the impact of the Big Beautiful Bill. Provisions such as no tax on overtime and no tax on tips can put more money directly into workers' pockets. This led to good refunds for many people and some people have also changed their withholding to increase their take-home pay rather than waiting for a large refund at tax time next year. That makes perfect sense. Why give the government an interest-free loan of thousands of dollars when you could have an extra couple hundred dollars in your paycheck every month? There are other encouraging signs. Data shows the share of households paying off their credit card balances each month is increasing, while savings remain above 2019 levels when adjusted for inflation. We’re also seeing some evidence that consumer spending is becoming less concentrated among higher-income households. In the month of July, spending on credit and debit cards rose 5.4% for lower-income households year over year compared to growth of 4.3% for higher-income households. That’s important because consumer spending accounts for roughly 70% of U.S. GDP. If lower-income consumers are finally seeing their incomes improve, paying down debt and rebuilding their financial cushion, that could broaden economic growth beyond the wealthier consumer. I’m not ready to declare the K-shaped economy dead. There are still significant differences between how higher- and lower-income Americans are doing, and housing affordability remains a major problem. But perhaps the more important point is this: The bottom half of the K may finally be starting to move upward. If that continues, it could create a much healthier economy in the second half of the year, with GDP growth potentially around 2.5% in the third and fourth quarters. Maybe the economy isn't completely C-shaped yet, but it may be starting to bend in that direction. How to protect yourself when someone tries to sell you alternative investments You may already know this, but there are some brokers out there who are very good salespeople and unfortunately, they may be more concerned about their commission than your financial well-being. It’s estimated that over the next three to four years, another $2 trillion of client assets could flow into alternative investments. I’ve talked at length about the high fees, which can be 2% or more, and the fact that your money could be tied up for 10 years or longer. Even when you are allowed to get your money back, the redemption process can be very slow. If you still believe an alternative investment makes sense for you, here are some questions you should ask the person selling it to you. First, what is the manager’s track record? Don’t just take their word for it. Verify the track record and make sure you understand what they actually managed. Someone who successfully managed a small fund may not have the same results when they are suddenly managing multiples of that amount. Second, how will I receive my tax information? A lot of investors are surprised at tax time when they receive a K-1 instead of a 1099. K-1s can make your taxes more complicated and often arrive much later than a 1099. That can mean waiting to file your taxes or even having to file an extension. Understand the tax reporting before you invest. Third, how do I get my money out? Ask exactly what the redemption rules are. How long is the lockup? How much notice do you have to give? Are there penalties or restrictions Don’t assume you can access your money whenever you want. Fourth, what happens if things go wrong? What recourse do you have if the investment loses money or the manager does something wrong? You may discover that you signed an arbitration agreement that prevents you from taking the firm to court. In some cases, the investment may even be governed by laws outside the United States. Fifth, how much does the broker and their firm get paid? Ask directly: “How much do you earn if I invest in this? Does your firm receive additional compensation for recommending it? If so, how much?” And there are two other questions I think everyone should ask. “Knowing my financial situation, do you really think it makes sense for me to tie up my money for 10 years?” And perhaps most importantly: “Anything you are telling me verbally, please put it in writing.” If they won’t put it in writing, you should seriously question what you’re being sold. I believe alternative investments are much riskier than people are led to believe and you need to understand the fees, liquidity, tax consequences, and incentives of the person selling them to you. Never let a salesperson rush you into an investment you don’t completely understand. Should You Invest in Dividend-Paying Stocks or Not? Over the last 15 years, the dividend yield on the S&P 500 has been cut roughly in half from more than 2% to just over 1%. Some investors may say, “Who cares? My total return is much higher, and I don’t need the dividends.” But they may be missing an important part of investing, especially as they get older and closer to retirement. Dividend-paying stocks can provide a valuable source of cash flow. Qualified dividends also receive favorable tax treatment compared with ordinary income. That tax advantage, particularly when compared with interest from U.S. Treasuries or CDs, is worth considering. Another benefit investors sometimes overlook is dividend growth. Many companies increase their dividends over time, sometimes every year, as their earnings and cash flow grow. This can potentially provide investors with a growing stream of income. Investors appear to be taking notice. Morningstar has reported that dividend-focused funds have attracted billions of dollars in new money over the past two years. Using dividend funds is one option, but at Wilsey Asset Management, we prefer investing in individual companies because we believe it can provide a higher yield while giving us more control over the companies we own. Of course, a high dividend yield alone doesn't make a stock a good investment. We look at several factors to manage risk, including: The company’s payout ratio based on earnings and cash flow to make sure the dividend is sustainable. The company’s debt and interest expense to make sure it isn’t overly burdened by high-interest payments. The valuation of the company to make sure investors aren't paying too much for its earnings. Investors should also remember that dividends are never guaranteed. Companies can cut or even temporarily suspend their dividends when their business requires them to preserve cash. For that reason, diversification is important. We believe investors should consider owning at least 12 to 15 different dividend-paying companies across multiple industries rather than relying heavily on just a few stocks. Dividend investing isn't just about the yield today. It’s about the potential for income, dividend growth and total return over time. As investors get closer to retirement, that income can become a much more important part of the overall investment strategy. You could be paying more for products because of something called dynamic pricing. Most people assume that when they see a price online, everyone else is seeing the same price. That may no longer be the case. With AI and the enormous amount of data companies can collect, retailers can learn a surprising amount about you. They may know your browsing history, location, the type of device you’re using, your purchase patterns and even how long your cursor stays over a particular product. They can also potentially determine whether you’re a college student, a businessperson, or a senior citizen. They may also know what competing apps or websites you use. The thinking is simple: If you’re not shopping around, a retailer may believe you’re more willing to pay a higher price. You may be thinking, Isn’t this illegal? According to the Federal Trade Commission, it appears to be somewhat of a gray area. The FTC has recently addressed the use of consumer data to personalize prices and has said that businesses need to be transparent about what information they’re using and when they’re using it to personalize an offer. My guess is this will be like many other disclosures: We’ll see them, but most people won’t take the time to read them. So, what can you do to protect yourself? Shop around. Before making a purchase, compare the same product on at least two or three different websites. Don’t assume the first price you see is the best price. And here’s the interesting part: retailers may know you’re shopping around. If they can see that you’re comparing their price with competitors, they may have an incentive to offer you a better deal. In other words, the same technology that could potentially be used to charge you more could also work in your favor. AI Is Creating Turmoil in the Book Publishing Industry AI is disrupting many areas of our lives that we’ve become accustomed to and the book publishing industry is no exception. The publishing industry is struggling with a difficult question: How much AI should authors be allowed to use? Some authors believe books should not be created by machines. Last year, 70 well-known authors signed a pledge opposing the use of AI to generate books. But the major publishing houses, including Random House and HarperCollins, aren’t necessarily taking such a hard-line approach. They’ve discovered that AI can be extremely useful for authors, particularly when it comes to research. It can also make it possible to publish more books, which can obviously be lucrative for publishers. There are even programs publishers can use to detect whether AI was used in a book, such as the Pangram program. At the same time, the industry is trying to combat something known as “slop books.” These are books produced very quickly, often with little creative value, simply to generate a quick profit. AI has made it much easier to produce these types of books at scale. One study found that roughly 20% of e-books on Amazon contain substantial AI assistance. So, the big question is: How much AI is too much? Should AI not be used at all? Should it be limited to research and helping authors brainstorm and organize their ideas? Personally, I think AI can be a great tool for research, but it shouldn’t be used to write the book for you. The creativity, ideas and actual writing should still come from the author. That said, I wonder if those resisting AI in writing today are making the same mistake car companies once made when they resisted the assembly line because they wanted to continue hand-building cars. We may not like technological progress. It can feel uncomfortable and even scary at times. But history has shown us that you can’t stop it. AI is going to continue changing the way we work and create. The people and businesses that learn how to use it effectively and adapt to it will likely be the ones who benefit the most. GM May Lose the Title of No. 1 Auto Seller in the U.S. General Motors has held the No. 1 spot for auto sales in the United States for 100 years, but that streak could be coming to an end. Toyota is closing in, and based on sales through July, GM has sold only about 100,000 more vehicles than Toyota. At first, that sounds like bad news for GM. But I actually think it’s a positive development. For years, GM sacrificed profits in an effort to remain the No. 1 automaker. The company frequently relied on large rebates and discounts to move vehicles off dealer lots, which helped sales but hurt profitability and contributed to GM’s financial struggles. That strategy has changed dramatically under CEO Mary Barra, who took over in 2013. The goal is no longer to sell the most vehicles, it’s to make the most money. GM has moved away from low-priced cars and sedans with thin profit margins and focused more heavily on larger, higher-margin SUVs and trucks. Vehicles like the Cadillac Escalade and Chevrolet Silverado can generate significantly more profit than lower-priced models. Compare that with Toyota, which sells popular vehicles like the Corolla and Camry in the roughly $24,000–$30,000 range. GM is selling trucks that can cost around $50,000 or more, while high-end models like the Cadillac Escalade can surpass $100,000. In many ways, GM has become more of a premium automaker, competing more directly with companies like Mercedes-Benz and BMW. One challenge GM is facing is factory utilization. Its utilization rate has fallen to about 73% this year, down from 78.5% in 2024. Automakers generally want factory utilization around 80%–85%, while Toyota is operating at roughly 92%. GM plans to add new models to its production lines, which should help improve factory utilization and spread its costs over more vehicles. So, yes, it may be a little disappointing that we won't be able to pound our chests and say General Motors sells more vehicles than anyone else in America. But if you're a GM shareholder, I think you should care a lot more about profitability than bragging rights. And so far, shareholders have been rewarded with a significant increase in GM's stock price. Company Discussed: Advance Auto Parts, Inc. (Ticker: AAP)