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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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)

August 21, 2026Episode 41955 min

August 21st, 2026 | AI Boom Leverage, Oil Supply Risks, Travel Boom, Healthcare Stocks, Treasury Bond Buybacks, Home Insurance Deductible & More

The AI boom is starting to look a lot more leveraged than investors realize There is a growing risk in the AI infrastructure buildout that isn’t getting nearly enough attention: how much of this spending is being financed, and how much of the risk is sitting off the balance sheet. The headline numbers around capital expenditures are already staggering, but what concerns me more is what sits underneath them: joint ventures, off-balance-sheet financing arrangements and leases that haven’t even commenced yet. In other words, some of the financial obligations associated with this AI buildout aren't necessarily showing up in today's debt figures. And the spending is enormous. Goldman Sachs analysts estimated that hyperscalers have combined lease commitments for data centers, R&D facilities, offices and equipment of $1.5 trillion, up from about $200 billion five years ago. This includes about $1 trillion of “uncommenced” lease commitments, which are not yet shown in financial statements but will result in future payments. This pairs with consensus forecasts that hyperscaler capital spending alone will surpass $1 trillion per year from 2027 onward and there are with no clear signs of moderation. According to a multi-asset credit strategist at PIMCO, the AI capex cycle is, adjusted for inflation, on track to be the largest investment cycle since the 19th-century railway construction. The problem is what happens if the revenue doesn't grow fast enough to justify the investment. This is where Steve Eisman’s warning is particularly interesting. Eisman, who became famous for betting against the housing market ahead of the financial crisis, believes the AI boom has become increasingly dependent on just two companies: OpenAI and Anthropic. According to Eisman, those two companies account for roughly 70% of AI-related revenue at Microsoft, Amazon, Alphabet's Google and Oracle, and potentially 25%–35% of their overall cloud revenue. That creates a concentration risk that investors shouldn't ignore. If OpenAI and Anthropic continue growing rapidly, the economics of all this infrastructure can work. But what if they don't? Eisman believes one of the biggest threats could come from China. Chinese open-source and open-weight AI models are significantly cheaper, and if they continue gaining market share, the industry could face something that investors haven't really modeled into these enormous infrastructure investments: an AI price war. If the price of AI inference and cloud computing falls dramatically, the companies that have spent hundreds of billions building capacity could find themselves with a serious problem. The infrastructure doesn't disappear just because pricing does. The debt doesn't disappear. The leases don't disappear. And the depreciation expense certainly doesn't disappear. Another major concern given all the commitments from OpenAI is the turnover the company has seen. The company recently announced that Chief Revenue Officer Denise Dresser is leaving less than a year after joining the company. Dresser had brought more than a decade of Salesforce experience and was viewed as someone with important enterprise expertise as OpenAI tried to compete with Anthropic. She isn't the only senior executive to leave. Fidji Simo stepped down from her product and business role, and several other executives including COO Brad Lightcap departed earlier this year. Executive turnover doesn't necessarily mean something is wrong. Fast-growing companies go through enormous amounts of change. But when two companies are potentially responsible for such a large percentage of the revenue supporting an enormous AI infrastructure investment cycle, leadership stability becomes much more important. There are a lot of things that need to go right to justify the enormous amount of spending in the AI space. And increasingly, there seem to be more and more question marks that investors need to consider. I’m not saying the AI boom is over. I’m saying investors should spend a lot more time asking who is financing this boom, who is ultimately responsible for the obligations, and what happens if the economics of AI change. Refined oil could be in jeopardy over the next 6 to 12 months U.S. refineries are currently operating at historically high utilization rates at around 96.5%. Aside from July 25 of this year, when utilization briefly reached 97.2%, the last time refineries were operating at this level was in 2018, when utilization hit 96.6%. Part of the problem is our own doing. California politicians deserve a significant amount of blame. Over the past 20 years, nine of the 12 refineries that have closed in the United States have been located in California. At the same time, the push toward electric vehicles led many refiners to avoid investing the billions of dollars required to build new refining capacity. Now, we not only lack significant new capacity, but some existing refineries are also in need of repairs and upgrades. That leaves us particularly vulnerable considering we are in hurricane season, which runs from June 1 through November 30. A major hurricane hitting the Gulf Coast could knock out anywhere from 10% to 30% of U.S. refining capacity, depending on the severity and location of the storm. That could put enormous pressure on already-tight supplies of gasoline and diesel. And supplies are already below normal. Global inventories of refined fuels, which primarily consists of gasoline and diesel, are estimated to be roughly 130 million barrels below normal levels for this time of year. This isn't just a U.S. problem. Gasoline and diesel are globally traded commodities, and the global refining picture has changed significantly because of the war in Ukraine. Ukraine has reportedly knocked out roughly 30% of Russia's refining capacity, while Russia has also reduced exports of refined products as it prioritizes its own domestic needs. The United States is a free market, and American businesses can trade refined products on the global market. U.S. refineries currently export roughly 900,000 barrels per day of gasoline, while diesel exports recently reached a record 1.9 million barrels per day. This is why having millions of barrels of crude oil doesn't necessarily solve the problem. You can have all the oil in the world, but if you don't have the refining capacity to turn it into gasoline and diesel, that oil is of limited use to consumers. As an investment firm, we're always looking for the other shoe that could drop. This is one that concerns me. If we get a major hurricane over the next few months and refining capacity is reduced even temporarily, the impact on gasoline and diesel supplies could be significant. A disruption lasting only a week could be enough to send energy markets into a tizzy, particularly given how tight inventories already are. The irony is that we spent years aggressively pushing toward electric vehicles while underinvesting in traditional refining capacity. EV adoption hasn't progressed as quickly as many expected, but the refining infrastructure we depend on for gasoline and diesel hasn't magically expanded either. Now we're heading into hurricane season with historically high refinery utilization, below-normal refined fuel inventories, limited new refining capacity and a global market that is already facing disruptions. That's a combination worth paying attention to. Americans are traveling more than ever If you’ve noticed how busy airports have been lately, there’s a reason: Americans are traveling more than ever, and there’s little sign of that slowing down. One reason is wealth. Americans collectively hold roughly $100 trillion in wealth. They’re also living longer and, perhaps more than any previous generation, are choosing to spend their later years enjoying life, traveling, and creating experiences. Back in the 1970s, 80s, and even the 90s, Americans seemed more content to stay home, spend time with family, and enjoy their homes. Fast-forward to today, and travel has become a much bigger priority. Trips to Europe reached a record 24 million in 2025. While some Europeans certainly aren’t thrilled with the influx of American tourists, those visitors are having a major economic impact. Americans accounted for roughly 15% of luxury sales across Europe. Of course, not everyone is happy about the crowds. Barcelona, which sees roughly nine times as many visitors as it has residents, has seen protests against tourism, including protesters spraying tourists with water. I guess on a hot day, that might not be the worst thing. The change in travel habits is pretty remarkable. As recently as 1990, only about 5% of Americans had a passport. Today, that figure is around 50%, giving Americans far more ability to travel internationally. So who is doing all this traveling? Women 55 and older account for roughly 24% of travelers to Europe and other international destinations. I don’t know about you, but that doesn’t surprise me. What does this mean going forward? If this trend continues, it could have a meaningful impact on the economy. Airlines, hotels, restaurants, and other businesses tied to travel should continue to benefit from Americans prioritizing experiences. I do believe we’ll eventually see an increase from the historically low levels of spending on home remodeling and repairs. But I also wonder if that trend could eventually be constrained as people choose to spend $10,000 on a trip to Europe rather than $10,000 on a kitchen remodel. And with all these Americans traveling around the world, I have to wonder how many have taken the time to see the incredible places we have right here in the United States. I’m talking about the Grand Canyon, Yellowstone, the giant redwoods of Northern California, or our nation’s capital in Washington, D.C. We may be traveling more than ever but maybe we should remember that there’s still plenty to explore right here at home. Do you have any healthcare stocks in your portfolio? You may be thinking, “What a boring investment.” And it’s true, healthcare stocks have performed poorly over the last few years. But if your portfolio is heavily concentrated in high-risk areas like AI and technology, you may want to consider adding a couple of healthcare stocks. I know that could mean giving up some performance as tech stocks skyrocket… or, I should say, if they continue to skyrocket. But healthcare as a portfolio diversifier could be a good option for people that don’t want to sell all their tech winners. Look at the recent history as it seems when tech stocks rallied, healthcare struggled, but on the other side of the coin, from late June to late July, as the AI rally cooled, healthcare outperformed technology by roughly 30 percentage points. Part of the reason is that semiconductors are highly cyclical businesses, while healthcare is much less cyclical. We need healthcare in good times and bad. We saw another great example in 2022. Inflation was rising, interest rates were climbing, and the market sold off, with the Nasdaq falling more than 30%. Yet healthcare outperformed by roughly 30 percentage points. This is why when we build portfolios for our clients, we don’t just look at the individual companies. We look at how those companies correlate with one another and how they could react under different market conditions. It’s also why we don’t want to be overly concentrated in any one industry. You should take a look at your portfolio and ask yourself: Is it balanced, or is everything likely to fall at the same time when the next downturn comes? Sometimes the most “boring” investment in your portfolio can be one of the most important. The Treasury just doubled its bond buybacks. But how much does it really change? The Treasury announced this week that it will at least double the maximum size of its long-term bond buybacks from $2 billion to at least $4 billion per operation, beginning in September. The move is designed to improve liquidity in the longer-dated Treasury market after long-term yields surged. The market reaction on Wednesday was significant, but I think it’s important to put the size of this move into perspective. The U.S. national debt has now topped $40 trillion. So while going from $2 billion to $4 billion sounds substantial, $4 billion is just 0.01% of $40 trillion. This isn't debt reduction. The Treasury is essentially buying back certain longer-term securities and managing the composition and liquidity of the debt. It doesn't address the underlying fiscal problem. And this is where I think the bigger issue gets interesting. The government has increasingly leaned toward issuing more shorter-duration debt. That can make sense when short-term borrowing costs are lower, but it also means a larger portion of the debt needs to be refinanced more frequently. That creates interest-rate risk. If rates remain elevated, the Treasury has to continually roll over maturing debt at higher rates. The government may save money today by borrowing shorter, but it potentially increases its exposure to what happens to interest rates tomorrow. It's similar to choosing a short-term adjustable loan over locking in a long-term rate. You might get a lower rate initially, but you have to refinance much more often. We have already seen how the refinancing risk impacts the government as the average interest rate on government debt climbed from 2.23% in 2016 to 3.45% in 2026. During the craziness of Covid in 2021, the average interest rate was 1.61%. These higher interest costs and larger debt balance have pushed interest expenses above $1.2 T and servicing the debt is now more costly than major categories like defense and Medicare. At that level it is the second-largest federal expense behind only Social Security. The big problem is there doesn’t appear to be an end in sight as the government, which includes both political parties, continues to spend money and low-interest rate debt will continue to mature. As of Q3 of Fiscal Year 2026, close to 33% of US publicly held debt was set to mature within 12 months and the average maturity as of June 2026 was 71 months. The Treasury has plenty of tools to manage the debt market, and this buyback could certainly help liquidity and temporarily reduce pressure on long-term yields. But there is a big difference between managing the debt and solving the debt problem. At $40+ trillion, the numbers are simply too large for a $4 billion-per-operation buyback program to materially change the underlying fiscal picture. The real solution isn't finding a better way to refinance $40 trillion. It's eventually getting the growth of the debt and deficits under control. Financial Planning: Do You Have the Right Home Insurance Deductible? Homeowners insurance across California has been an ongoing issue, with premiums rising sharply and some policies being canceled or not renewed by insurers. If your goal is to reduce the cost of homeowners insurance, one strategy worth considering is choosing a higher deductible and paying for smaller losses out of pocket. Homeowners insurance is generally most valuable for protecting against low-probability, high-impact events, such as a major fire or severe property loss, rather than functioning as a reimbursement program for routine repairs and relatively small claims. Filing a small claim may provide an immediate financial benefit, but it also becomes part of your insurance history and can affect future premiums or your ability to obtain coverage. In other words, the reimbursement from a small claim may ultimately be offset, at least in part, by higher future insurance costs or the difficulty of finding affordable coverage. For homeowners who have sufficient savings to absorb smaller losses, accepting a higher deductible can therefore be a sensible way to lower annual premiums while preserving insurance for the truly catastrophic losses that could otherwise threaten their financial security. Companies: Peloton Interactive, Inc. (Ticker: PTON)

August 14, 2026Episode 41855 min

August 14th, 2026 | Earnings Optimism, AI Financing, SpaceX Patience, Retail Rebound, Inflation Cooling, Crypto Selling, Mortgage Choices & More

Second Quarter Earnings Give Me Some Optimism I call all my clients on their yearly anniversary with our firm to have a discussion about their past performance and where I see their portfolio going over the next six to 12 months. I’m very pleased to report that I expected a more subdued performance in 2026 than what we’re experiencing so far. However, stronger-than-expected returns can also make projecting what comes next a little more difficult. Even with the nice year-to-date returns we’ve seen, I’m still telling my clients that I believe we can add a little bit more to their portfolios by December 31 of this year. So, what is giving me this optimism? For one, many of the companies in our portfolios have not become overpriced. On top of that, second-quarter earnings have come in rather strong, and the guidance from many of the stocks we own has also been positive going forward. When looking at the overall market, some people may think it’s simply AI and technology companies that are doing well. That is not the case. Recent numbers show that during the second-quarter earnings season, 86% of companies have beaten their earnings estimates. That is well above the recent average of 78%. Historically, when good times seem to last too long, analysts often begin cutting their earnings estimates. But that doesn’t appear to be happening right now. In fact, earnings estimates for the next quarter have actually risen by 0.3%. There are certainly some concerns. The consumer has been dipping into savings to keep spending going, and the recent jobs market has been somewhat lackluster. However, the vast majority of people still have jobs, and at this point, there doesn’t appear to be any sign of widespread layoffs in the near future. With all that said, I think the green light is still on for investors to continue putting money to work. But, as always, I believe investors need to be very cautious about overpaying for public companies that are being bought based more on emotion and excitement than strong financial fundamentals. For me, that remains one of the most important things to watch as we move through the rest of 2026. Strong earnings are encouraging, but valuation still matters. The AI boom is getting increasingly dependent on financing There is no question that AI is creating enormous demand for computing power, data centers and semiconductors. But the latest move from Nvidia and Wall Street raises an important question: How much of this growth is being driven by genuine economic demand, and how much is being enabled by increasingly creative financing? Jensen Huang has been pushing the idea that AI data centers are essentially a new class of infrastructure or what Nvidia calls “AI factories.” Now Nvidia has partnered with some of the biggest names on Wall Street, including Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR, to create financing platforms that could provide more than $500 billion of capital for AI infrastructure. On the surface, this makes a lot of sense. AI companies need enormous amounts of capital to build data centers and purchase Nvidia's chips, while investors are looking for ways to participate in the AI boom. But there is a risk that deserves much more attention: circular financing. If Nvidia helps finance the companies that buy Nvidia's products, and those purchases generate revenue for Nvidia, which in turn increases Nvidia's valuation and ability to support additional financing, the system can begin to reinforce itself. That doesn't automatically make the investments bad. But it does make it more difficult to determine how much of the demand is truly coming from customers who can generate sufficient returns on the infrastructure they are building. And that leads to the bigger question: Can the economy actually absorb this level of investment? We are talking about hundreds of billions of dollars going toward data centers, power generation, networking equipment and AI chips. The capital is available, but ultimately the infrastructure has to generate enough economic output and cash flow to justify the investment. That is where I become more cautious. Another concern is details were extremely light as we don’t know who the borrowers will be, what the rates will look like, where facilities will be built, and when this is supposed to start. Intel's announcement is another interesting piece of the puzzle. Intel originally announced a $15 billion stock offering, but quickly increased it to approximately $20 billion, selling shares at $95 each. The proceeds are earmarked for general corporate purposes, including capital expenditures and working capital. There is also an interesting irony here. We are increasingly financing AI infrastructure as though these assets will have long, productive lives. But AI technology is improving incredibly quickly. Today's most advanced GPU, server or data center configuration can become obsolete much faster than traditional infrastructure. A power plant or building might remain useful for decades. A generation of AI computing equipment may have a much shorter economic life. That creates a unique risk. What happens if we finance billions of dollars of AI infrastructure over 10 or 15 years, but the technology improves so rapidly that the equipment becomes economically obsolete much sooner? The financing doesn't disappear just because the technology does. I am not saying that the technology isn't transformative. I believe AI could absolutely create enormous economic value, but economic value and investment returns are two very different things. The biggest question for investors over the next several years may not be whether AI works. It may be whether the amount of capital being committed to AI infrastructure can ultimately earn an adequate return. When companies, investors and lenders all believe they need to keep spending because everyone else is spending, that is when I start paying very close attention to the financing structure. The technology may be revolutionary, but the financial engineering surrounding it deserves just as much scrutiny. Will Investors Really Be Patient Holding Their SpaceX Stock? The common advice I hear when it comes to SpaceX is simple: “Don’t worry about it. Just hold the shares, don’t look at them, and you’ll be glad you did 10 years from now.” It’s certainly possible that this advice will prove to be correct. But I question whether human emotions can really handle that kind of long-term commitment when it comes to an investment as volatile and intangible as a stock like this. Think about everything that can happen over the next 10 years. There will be negative news, disappointing developments, changing expectations and plenty of commentary that investors simply won’t be able to ignore. And there’s another issue: a significant amount of additional stock could become available over the coming months. Even after the recent unlock of just over 911 million shares on August 6, which was greater than the 639 million shares sold in the IPO, there is still a substantial amount of potential supply coming to the market. On August 20, another 319 million shares could become available, followed by roughly 700 million shares in September and another 700 million or so in October. In November, an additional 28% of shares will become available, and by December, all remaining shares held by standard pre-IPO investors and employees will be eligible for release. The final major unlock comes from Elon Musk’s stake in June 2027. That is a tremendous amount of potential supply entering the market in a relatively short period of time, and it raises an important question: Will investors have enough conviction to keep holding if the increased supply puts significant pressure on the stock? The idea of investing alongside Elon Musk is certainly attractive, especially when you consider his ambitious vision for SpaceX from building data centers in space to eventually manufacturing on Mars. But ambitious visions don’t necessarily make it easy to hold a stock through extreme volatility. We’re already seeing what can happen. Some investors appear to have panicked and sold shares for as little as $105 after the stock had climbed as high as $225. It’s easy to say you’ll stay the course when the stock is going up. It’s a completely different experience when you watch it fall every day and start asking yourself: What if this isn’t going to work? What if SpaceX doesn’t look nearly as attractive 10 years from now? I believe the investors who have already sold may be a preview of what we could see over the next nine months. I’m not convinced there are enough investors willing to look 10 years into the future and maintain that level of conviction while hundreds of millions of additional shares are released. So, here’s the question: Can you honestly say you would hold SpaceX no matter what, even if the stock fell to $60 or $70 a share and stayed there for an extended period? I’d love to hear what you think. How much patience do you really have with an investment like SpaceX? Retail sales look better than the headline suggests The headlines are focused on the 0.6% month-over-month decline in retail sales in July, the first monthly decline in nine months and the largest drop since May 2025. That sounds concerning, but there are some important factors behind the monthly decline that deserve attention. One of the biggest was nonstore retailers, which fell 2.2% from June. That category is heavily influenced by online shopping, and the decline appears to be largely a timing issue related to Amazon Prime Day. Amazon moved Prime Day from July into June this year, creating a significant boost to June online sales and, consequently, a tougher comparison for July. U.S. consumers increased spending 9.3% year over year to roughly $26.4 billion online during the June 23–26 Prime Day period, and other retailers such as Walmart and Target also moved their promotional events earlier to compete. So, some of the July weakness is really a shift in spending between two months, rather than consumers suddenly deciding to stop spending. Gas stations were another contributor. Now look beyond the monthly number. Retail sales were still up 5.0% year over year in July. Even excluding gas stations which saw a 16.2% increase due to higher gas prices, sales were up approximately 4.2% year over year. That's a very different picture from the one you get by simply looking at the -0.6% headline. There are also some areas showing impressive strength. Food services and drinking places saw sales climb 5% and even with the monthly decline in nonstore retailers, the annual increase was still quite impressive at 7.7%. Building material and garden equipment & supplies dealers are particularly interesting. This category remains strong, suggesting consumers are continuing to spend money improving and maintaining their homes. This led to an annual increase of 6.7%. There could be more room for the category to grow based on a recent UBS housing survey, which found that 34% of respondents intend to buy a home during the next 12 months, compared with a historical average of 30%. Even more interestingly, 61% expect to begin a repair or remodeling project, slightly above the historical average of 59%. That's important because the housing market doesn't only generate economic activity when someone buys a house. Existing homeowners spending money on renovations, repairs, landscaping and other improvements can also provide a meaningful economic boost. Ultimately, sales growth was spread throughout the report and furniture and home furnishing stores were the only major category that produced an annual decline as the group saw sales fall 1.2%. So, while I wouldn't dismiss the July retail report and the decline in the control group does suggest some moderation, I also don't think it's accurate to look at -0.6% and conclude that the consumer is suddenly falling apart. The consumer may be slowing, but the data doesn't yet suggest the consumer has stopped spending. Inflation Is Cooling, But Energy Is Muddying the Picture The CPI report was better than the headline number might suggest, and I don't believe it gives the Federal Reserve a compelling reason to raise interest rates. Headline CPI increased 3.4% year over year in July, down from 3.5% in June. More importantly, core CPI increased just 2.5% year over year, down from 2.6% in June. The biggest contributor to the elevated headline number continues to be energy. Energy prices are up 14.7% from a year ago, including a massive 24.6% increase in gasoline prices. That's a significant increase and is keeping headline inflation well above the Fed's 2% target. But here's the problem I have with using higher interest rates to combat this inflation: higher rates aren't going to produce more oil or lower gasoline prices. If anything, rate hikes could create demand destruction. Higher borrowing costs make it more expensive for consumers to buy homes and cars and for businesses to invest and expand. At a time when there are already concerns about economic growth and the labor market, I don't think weakening demand is the right prescription for an inflation problem being driven heavily by energy prices. I'm also encouraged by what we're seeing in shelter inflation. Shelter increased 3.2% year over year, continuing its gradual improvement. However, because shelter is such a large component of CPI, 3.2% inflation is still putting meaningful upward pressure on core CPI. One of the most interesting numbers in the report is airline fares, which were up 25.5% from a year ago. There is an important connection here to energy. Airlines are highly sensitive to fuel costs, so when energy prices rise dramatically, some of those costs eventually get passed along to consumers. There are certainly other factors influencing airfare, but it's another example of how higher energy prices can ripple through the economy. The bottom line for me is pretty simple: 2.5% core inflation doesn't scare me. It's above the Fed's 2% target, but it's moving in the right direction. Meanwhile, some of the biggest sources of inflation are areas where monetary policy has limited ability to help. I would rather see the Fed remain patient and allow the economy to absorb these price pressures than raise rates and potentially create unnecessary demand destruction. Not every inflation problem can be solved by raising interest rates and I think this is becoming an increasingly important distinction for the Fed. A new tax requirement could create another source of selling pressure for Crypto There was an important change in the way the IRS tracks cryptocurrency transactions, and I think investors should pay attention to the potential impact on the crypto market. Beginning with the 2025 tax year, crypto brokers are required to issue Form 1099-DA, which reports digital asset sales and exchanges directly to the IRS. For 2026 transactions, the reporting becomes even more detailed, including cost-basis information for covered assets. The significance is that crypto is increasingly being treated more like traditional investments from a tax-reporting standpoint. The IRS will have much more information to compare against what investors report on their tax returns. But there is another potential consequence that I don't think gets enough attention: the tax bill itself could create additional selling pressure. Remember, you can owe taxes on a crypto gain even if you haven't converted all of your holdings into cash. Selling Bitcoin for dollars is taxable, but so can be exchanging one cryptocurrency for another. That creates an interesting situation. Imagine someone bought Bitcoin several years ago at a much lower price and now has a large unrealized gain. If they realize gains during the year and don't have enough cash set aside to pay the resulting tax bill, they may be forced to sell additional crypto simply to raise the money needed to pay their taxes. That selling creates another taxable event and potentially another tax liability. I'm not suggesting this will cause a major crypto selloff by itself. But it is another factor investors should consider when thinking about the supply and demand dynamics of the market. It’s especially important to consider this information because it has been estimated that just 32% to 56% of U.S. taxpayers with crypto holdings report their transactions to the federal government and data suggests that a large number of taxpayers may be out of compliance. While accounting for crypto transactions in the past can be complicated, the IRS doesn’t count confusion as a reason for not paying taxes. With the increased reporting standards, we could see more back taxes, penalties and interest for people that intentionally or even unintentionally failed to file the crypto transactions properly. Crypto investors have spent years benefiting from significant price appreciation. Now, as the tax-reporting system becomes more sophisticated, the IRS is going to have a much clearer view of those gains and investors are going to have to figure out how to pay the bill. That could mean more selling pressure than many investors realize, particularly around tax-payment periods. Financial Planning: 15- or 30-year mortgages? A 30-year mortgage is often the better financial choice for a disciplined investor because the lower monthly payment frees up more money to invest. Although a 15-year mortgage typically has a lower interest rate and saves more interest over the life of the loan, the higher payments mean more money is tied up in home equity rather than invested. The financial benefit of those higher payments is the additional principal being paid down, providing a return equal to the after-tax cost of the mortgage interest. For a 6% mortgage, the after-tax cost could be approximately 4%. With a 30-year mortgage, if the extra cash flow can be invested to earn a higher long-term return than the mortgage rate, the investment growth can more than offset the additional mortgage interest. This can be even more attractive when investing in tax-advantaged retirement accounts. A 15-year mortgage becomes more compelling when interest rates are extremely high, making it difficult for investment returns to beat the mortgage rate. Ultimately, for someone who can comfortably afford the payment and consistently invests the difference, the 30-year mortgage generally provides greater flexibility and potentially greater long-term wealth. Companies: Workday, Inc. (WDAY)

August 7, 2026Episode 41755 min

August 7th, 2026 | Robotaxis Park Badly, Higher Rates Ahead, Luxury Stock Decisions, Paramount Deal Drama, Automakers Need Diversification? Weak Jobs Report, Understanding NUA Benefits & More

Apparently, self-driving cars don’t know where they shouldn’t park Self-driving cars are proving to be remarkably safe on the road and, so far, have demonstrated a better safety record than human drivers in many situations. However, like all technology, they still lack common sense. They may be able to navigate traffic, but they don't always understand where they can and more importantly, cannot park. Over the past year and a half or so in Austin, Texas, Waymo's fleet of roughly 300 robotaxis has accumulated nearly $10,000 in parking tickets. While autonomous vehicles are doing well when it comes to following maps and traffic laws, they can become confused in situations that require human judgment. Reports indicate they sometimes struggle to follow directions from first responders, stop in places that block traffic, park in handicap spaces, or fail to recognize tow-away zones. One notable incident in 2025 involved a Waymo vehicle that stopped on the side of a road in northern Austin while blocking an active railroad crossing. Police reportedly weren't sure how to move the vehicle, so they called a tow truck to remove it. There have also been reports of Waymo vehicles stopping in front of parking garage entrances and parking lot access points for no obvious reason, preventing other drivers from entering or exiting. These issues will likely be resolved as the technology improves. Still, they highlight an important limitation. These robotaxis can process enormous amounts of data and make incredibly complex driving decisions, but it doesn't possess the instinctive common sense that people rely on everyday. For now, that's one area where humans still have an advantage over machines. Why Interest Rates Could Stay Higher Than Many Expect One of the biggest debates in financial markets today is where interest rates are heading. While recessions can temporarily push yields lower, there are several long-term structural reasons why interest rates may remain elevated compared to what investors became accustomed to after the 2008 financial crisis. The first and perhaps most important issue is the federal government's fiscal position. U.S. federal debt has climbed to roughly $40 trillion which is about 120% of GDP, a level that is historically very high outside of major wars or national emergencies. For much of the post-World War II period, debt-to-GDP remained well below current levels before accelerating sharply after the financial crisis and again during the pandemic. Just as concerning is the federal deficit. The government continues to run annual deficits exceeding 5% of GDP, meaning debt is growing faster than the economy itself. As long as Washington continues borrowing at a pace that exceeds economic growth, the debt burden becomes increasingly difficult to stabilize. More Treasury issuance means investors must absorb a growing supply of government bonds, which can place upward pressure on yields unless demand keeps pace. Another factor is the Federal Reserve's balance sheet. During the financial crisis and the pandemic, the Fed became one of the largest buyers of Treasury and mortgage-backed securities, helping suppress long-term interest rates through quantitative easing. While the Fed has begun reducing its holdings, its balance sheet remains enormous by historical standards. Federal Reserve assets of about $6.7 trillion are currently equal to roughly 21% of U.S. GDP. Before the2008-09 financial crisis, the Fed's balance sheet averaged only about 6% of GDP, meaning it remains more than three times larger than its pre-crisis norm. Although assets have declined from the April 2022 peak of approximately $9 trillion, or roughly 35% of GDP, the balance sheet is still exceptionally large compared to history. Another comparison that is troubling is Fed holdings currently amount to about 26.5% of all assets held by U.S. commercial banks versus the norm of about 10% before the financial crisis. Continuing to shrink the balance sheet would allow private markets to play a larger role in determining interest rates while reducing the Federal Reserve's extraordinary footprint in financial markets. A return toward more normal market functioning would likely mean less artificial downward pressure on long-term yields. History also provides perspective on where Treasury yields could ultimately settle. Since 1958, the 10-year Treasury yield has averaged roughly 1.92 percentage points above inflation. That is simply a long-run average and there have been periods when the spread exceeded 5 percentage points and others when it turned negative, but it does give some guidance on a normalized level for the 10-year treasury. When it comes to mortgage rates, they are closely tied to Treasury yields as well. Historically, the spread between the 30-year fixed mortgage rate and the 10-year Treasury yield has generally averaged about 1.5%to 2%, reflecting credit risk, servicing costs, and other factors. Post Covid, this spread did spike to over 3%, but that 1.5% to 2% range seems to be pretty consistent going back to 1990. If Treasury yields remain structurally higher because of persistent deficits, elevated debt levels, and a still-large Federal Reserve balance sheet, mortgage rates could also remain above the exceptionally low levels many homeowners became accustomed to. None of this means rates cannot decline during economic slowdowns or recessions. They almost certainly will at times. But investors expecting a permanent return to near-zero interest rates may be overlooking the structural forces now shaping the bond market. High government debt, persistent fiscal deficits, continued Treasury issuance, and a Federal Reserve balance sheet that remains well above historical norms all suggest that the era of ultra-cheap money may prove to be the exception rather than the rule. Should You Buy or Sell That Luxury Brand Stock? Luxury brand stocks that sell high-end handbags, jewelry, and other luxury goods have been in a bear market for the past couple of years. After aggressively raising prices during and immediately following the pandemic, it appears the buying frenzy for luxury products has faded. There may be one bright spot beginning to emerge, particularly in the jewelry category. Richemont, the parent company of Cartier, Van Cleef & Arpels, and Buccellati, reported a 24% year-over-year increase in jewelry sales in its most recent quarter. If you don't recognize those brands, don't worry, the important takeaway is that they sell some of the world's most expensive jewelry, and demand in that segment has remained surprisingly resilient. Luxury giants, including Kering, the parent company of Gucci, as well as LVMH and Hermès have suffered steep declines over the past few years. LVMH has fallen from more than $900 per share to around $500, while Kering has dropped from over $900 to roughly $300 as Gucci's sales have struggled. During the pandemic, some consumers even purchased luxury handbags with the expectation that they would appreciate in value. While a handful of extremely rare bags have done just that, those cases are the exception rather than the rule. If you're buying a luxury handbag, buy it because you genuinely enjoy it not because you expect it to become a profitable investment. The same caution applies to the stocks. My view is that the surge in luxury spending during and immediately after COVID was fueled by an extraordinary amount of stimulus money and excess savings, creating an artificial spike in demand. As those conditions have faded, so has the appetite for expensive discretionary purchases. While there may be periods of recovery, especially in categories like jewelry, I don't expect the luxury sector to return to the pandemic-era buying frenzy anytime soon. That makes me cautious on both the products themselves as investments and the stocks that depend on that level of consumer spending. The Paramount deal just can't stay out of the news Next month will mark one year since Paramount began its pursuit of Warner Bros. What started as an unsolicited bid eventually turned into an agreement for Paramount to acquire Warner Bros. in an $81 billion deal. However, the transaction continues to face significant legal hurdles. Several state attorneys general have raised antitrust concerns, forcing the deal into the court system. In the meantime, Paramount has agreed to pay a $650 million per quarter "ticking fee" if the deal is not completed by September 30. On top of that, the company's legal bill has already reached roughly $160 million, and the case hasn't even gone to trial yet. The costs only increase from here. If the merger is ultimately blocked or isn't completed by June 2027, Paramount would owe Warner Bros. a staggering $7 billion breakup fee. Paramount is pushing to begin the trial by November 4, but the attorneys general seeking to block the deal want to delay proceedings until next April. Paramount does have some leverage, as it has major operations and thousands of employees in states such as California, New York, and New Jersey. Even California Governor Gavin Newsom has encouraged the state's attorney general to find an out-of-court resolution. For investors, this has been an extremely nerve-racking situation. Paramount shares are currently trading around $8, down roughly 41% year to date after starting the year near $13.40 per share. Every delay adds more uncertainty, more legal expenses, and more ticking fees. There are also strong incentives for the companies involved to get the deal across the finish line. Warner Bros. CEO David Zaslav could reportedly receive compensation worth more than $800 million if the transaction is completed, giving him a significant financial incentive to see the merger succeed. This will likely continue to test shareholders' patience. As the legal battle drags on, the legal bills and ticking fees continue to pile up. It makes me wonder: Is this deal really worth it for David Ellison and Paramount? Should U.S. Car Makers Like Ford and General Motors Diversify Their Businesses? It's no secret that the auto industry is highly cyclical, with periods of strong demand followed by inevitable slowdowns. Right now, both Ford and General Motors are generating significant cash flow and posting solid earnings despite paying billions of dollars in tariff costs and writing off substantial losses from their electric vehicle investments. But the question investors should be asking is: when does the party end? One concern is affordability. New vehicle prices continue to rise, making it increasingly difficult for many consumers, especially younger buyers, to purchase a car. At the same time, younger generations simply don't seem as excited about getting behind the wheel as previous generations were. The numbers are striking. Today, only about 25% of 16-year-olds have a driver's license, roughly half the percentage from 1980, when about 50% were licensed. Even among 18-year-olds, only around 60% have a driver's license today, compared with roughly 80% nearly five decades ago. Ride-sharing services such as Uber and Lyft have made it easier for young adults to pay for transportation rather than own a vehicle themselves. I also can't help but wonder how that's changed the dating scene compared with past generations. The auto industry has faced this type of challenge before. During the 1980s, both Ford and General Motors spent billions of dollars diversifying into financial services and defense businesses. Meanwhile, Toyota stayed focused on building reliable, high-quality vehicles that consumers wanted to buy. While Detroit was chasing diversification, Toyota was steadily gaining market share with better products. I hope today's management teams remember that lesson. Auto manufacturing will always be cyclical, and no business grows every single year. The best long-term strategy may be to focus on building vehicles that customers genuinely want rather than chasing growth in unrelated industries. That said, there are signs that history could be repeating itself. Ford recently announced Ford Energy, a grid-scale battery storage business, while General Motors continues expanding its military vehicle business and is working with Lockheed Martin on defense-related technologies. These ventures could prove successful, but investors should hope management doesn't lose sight of its core business. History has shown that the companies producing the best vehicles over the long run are usually the ones that create the most value for shareholders. A Weak Jobs Report, But There Were a Few Bright Spots There is no sugarcoating it, today's jobs report was weaker than expected and adds to the evidence that the labor market is continuing to cool. Total nonfarm payroll employment fell by 23,000 jobs in the month and May and June saw a combined negative revision of 103,000 jobs. May was revised from 129,000 to 66,000 and June was revised from 57,000 to 20,000. Even though the report was softer than anticipated, the headline payroll number doesn't tell the entire story. A meaningful portion of the weakness came from government employment as it fell by 53,000 jobs in the month. Local government education jobs were particularly weak with a decline of 50,000 jobs as they can be volatile during the summer because of seasonal adjustments. There also appear to be temporary distortions related to the FIFA World Cup, which likely shifted hiring patterns. Leisure and hospitality showed a decline of 40,000 jobs and retail trade declined by 19,000 jobs. Those factors don't erase the weakness, but they do suggest the private sector wasn't quite as soft as the headline number implies. There were still several areas of strength in the report worth highlighting. Healthcare remained a key driver of payroll growth, adding 22,000 jobs. While that was below its 12-month average of 36,000, it continues to be one of the strongest and most consistent sources of job creation. Construction also posted a solid gain, with payrolls increasing by 22,000, suggesting that demand in the sector remains resilient despite elevated interest rates and ongoing affordability challenges. The unemployment rate remained one of the stronger aspects of the report, falling to 4.1%. By historical standards, that still reflects a relatively healthy labor market. However, there is an important caveat. The labor force participation rate declined again, meaning fewer Americans were either working or actively looking for work. The participation rate fell to 61.4%, its lowest level in more than five years and, excluding the Covid pandemic, the lowest reading in roughly 50 years. Likewise, the employment-to-population ratio slipped to 58.9%, its lowest level since May 2014. A declining participation rate can make the unemployment rate appear stronger than it actually is because people who stop looking for work are no longer counted as unemployed. One positive development was wage inflation. Average hourly earnings continued to moderate, with annual wage growth slowing to roughly 3.2%. That's much closer to a pace consistent with the Federal Reserve's inflation target and suggests wage pressures are continuing to ease without collapsing. Slower wage growth should help reduce inflationary pressures while still allowing workers to see income gains. The next few monthly reports will be important. If private-sector hiring continues to weaken and participation keeps falling, concerns about the broader economy will likely increase. But if today's weakness proves to be exaggerated by temporary factors, the labor market may still be on track for a gradual slowdown rather than a sharp deterioration. Financial Planning: Understanding Net Unrealized Appreciation (NUA) Employees who have built up significant company stock inside their 401(k) may have a valuable tax planning opportunity called Net Unrealized Appreciation (NUA). NUA allows retirees to move company stock from their retirement plan into a brokerage account and receive long-term capital gains treatment on the stock’s growth instead of paying higher ordinary income tax rates. The benefit of NUA can be significant for employees who purchased company stock at a low cost and saw it grow substantially over time. However, the decision involves a tradeoff: the stock’s original cost basis becomes taxable as ordinary income in the year of distribution in exchange for the benefit of receiving long-term capital gains treatment on the appreciation when shares are eventually sold. If the cost basis is too large, the upfront tax liability may outweigh the potential tax savings, and keeping the stock inside a retirement account and paying ordinary income taxes on future withdrawals may be the better strategy. Companies: Chipotle Mexican Grill, Inc. (Ticker: CMG)

July 31, 2026Episode 41655 min

July 31st, 2026 | Chip Deals May Not Be Secure, Why Index Investing Disappoints, The Economy Is Stronger Than You Think, Leverage Risks, Here Come the Robots & More

Those Long-Term Chip Deals May Not Be as Secure as Investors Are Led to Believe When you listen to memory chip companies like Samsung Electronics, SK Hynix, and Micron Technology discuss their businesses, they often make it sound like customer contracts—some extending as long as five years—are essentially set in stone. Unfortunately, that's not entirely true. Yes, these companies have long-term agreements in place, but contracts in this industry are often renegotiated when market conditions change. If demand for memory chips weakens significantly, chip manufacturers have a strong incentive to work with their customers rather than strictly enforce every contractual commitment. The reason is simple: preserving long-term customer relationships is often far more valuable than maximizing short-term revenue. Imagine a customer that suddenly doesn't need as many chips because its own sales have slowed. If a supplier forces that customer to accept unwanted inventory, those chips may simply sit in a warehouse until demand recovers. By the time the customer needs additional chips, it may choose to reduce future orders or move business to a competitor that proved to be more flexible during difficult times. Competitors are always looking for opportunities to gain market share. If one supplier refuses to work with its customers, another is usually willing to offer better pricing or more favorable terms. Losing a major customer over a rigid interpretation of a contract can cost far more in future profits than making temporary concessions during a downturn. This isn't just theory and it has happened before. During the COVID-era, many long-term agreements were adjusted as demand shifted. Rather than forcing customers to take products they no longer needed, suppliers often renegotiated delivery schedules and purchasing commitments to preserve long-term partnerships. The same principle applies across many industries. Companies frequently modify or delay large commercial agreements when business conditions change. While contracts provide a framework, successful businesses understand that maintaining trust with key customers is often more important than enforcing every clause to the letter. Investors should remember that a signed contract does not necessarily guarantee future revenue will be recognized exactly as originally planned. Management teams often emphasize the value of their long-term agreements during earnings calls, but those agreements can evolve if market conditions deteriorate. At the end of the day, great businesses understand that customer relationships are built over years but can be damaged in a matter of weeks. In many cases, giving a customer flexibility during a downturn is a much better investment than insisting on strict contract enforcement. That's why investors should view long-term chip contracts as valuable, but not invincible. Why Index Investing Could Leave You Disappointed Long Term I often hear people say, "Just buy the S&P 500 and forget about it. You'll be fine." While that sounds simple, investing is rarely that easy. Many investors don't fully understand how an index works or why it has performed so well in recent years. The S&P 500 has been driven largely by a handful of technology and AI companies. By blindly investing in the index, many people are simply participating in a momentum strategy without realizing it. Very little thought is given to what those 500 companies are actually worth. There is no effort to trim positions that have become extremely expensive or overly concentrated. As valuations climb, the index simply gives those companies an even larger weighting, leaving investors with greater exposure to the stocks that have already gone up the most. Some people respond by saying, "I won't put everything in the S&P 500. I'll diversify into other index funds." But once you go down that road, investing becomes much more complicated and you’ll likely underperform the S&P 500. Should you own an international index? A European index? A bond index? A growth index? A value index? Small-cap funds? REITs? There are hundreds of ETFs and mutual funds to choose from. Now you have another challenge: deciding how much to allocate to each one. When your portfolio declines will you understand why? More importantly, will you know what to do next? Many investors don't, and that uncertainty often leads to emotional decisions at exactly the wrong time. This is why I prefer managing a portfolio of individual value-oriented stocks, combined with money market funds and selected real estate investment trusts (REITs). That approach still provides diversification, but I understand what each investment is worth and why I own it. In my view, that's a much better foundation than owning five or ten different index funds without truly understanding what's inside them or how they're valued. Another common argument for index investing is lower fees. While fees certainly matter, they shouldn't be the only factor. The number that ultimately matters is your total return after all fees and expenses. A lower fee doesn't automatically translate into better long-term performance. If you own index funds, take some time to look under the hood. Do you really understand what you own? Do you know which sectors dominate your portfolio, which companies make up the largest holdings, and how expensive those businesses are today? If the answer is no, don't assume you'll be comfortable when the market experiences its next major decline. Investors who don't understand what they own are often the first to panic, and that confusion can lead to costly investment mistakes. The U.S. economy is still in much better shape than many people think. This week brought three major events for investors: GDP, PCE inflation, and the Federal Reserve meeting. While the headlines may have sounded mixed, the underlying data still paints a healthy consumer. Second-quarter GDP grew at a 1.5% annualized rate, below economists' expectations. At first glance, that may seem disappointing. But when you look under the hood, the economy continues to show resilience. Consumer spending, which accounts for nearly 70% of U.S. GDP, increased 3.2% after a weak first quarter where it only climbed 0.5%. That tells me the American consumer is still in good shape, and that's one of the biggest reasons the economy continues to avoid the recession that so many have been predicting. Major drags on the headline GDP figure included government spending, which reduced growth by 0.14 percentage points, as well as the more volatile components of trade and the change in private inventories, which subtracted 1.01 and 0.67 percentage points, respectively. Inflation remains the biggest challenge. The Fed's preferred inflation measure, core PCE, increased 3.3% over the past year. While that's an improvement from where we've been, it's still well above the Federal Reserve's 2% target. I continue to believe inflation will remain sticky until energy prices become more stable. Energy impacts transportation, manufacturing, and virtually every supply chain, so it's difficult to see inflation falling sustainably while energy costs remain volatile. The Fed, as expected, left interest rates unchanged. What stood out wasn't the decision, it was the growing disagreement among policymakers. The 3 dissents that voted for a 25-basis point increase highlight just how uncertain the economic outlook remains. When inflation is still elevated but the economy continues to grow, there isn't an easy policy answer. One thing I do like so far is Kevin Warsh’s changes at the Fed. I like the simplified statement, the encouragement of differing viewpoints, and rather than projecting absolute confidence in economic forecasts, he has acknowledged the uncertainty surrounding them. That's a refreshing change. Economic forecasting has never been an exact science, and I would rather have a Fed Chair who recognizes the limitations of those projections than one who pretends they are precise. What's surprising is how quickly some of the talking heads have claimed Warsh already has a credibility problem. I don't see it that way. Credibility isn't about making bold predictions that later need to be revised. It's about being honest about what we know, what we don't know, and allowing incoming data to guide policy. The takeaway for investors is simple: don't let one headline drive your investment decisions. The economy continues to expand, consumers are still spending, inflation remains stubborn, and the Fed is navigating a difficult policy environment. Looking beneath the surface is often where you'll find the real story. Leverage Is Fuel... Until It Becomes the Fire The last few weeks have been a reminder that leverage looks like a wonderful tool on the way up... but it’s a devastating one on the way down. FINRA's new margin rules have effectively replaced the 25-year-old Pattern Day Trader rule, allowing traders with as little as $2,000 to make unlimited day trades using intraday margin. While this opens the door for more retail participation, it also means more investors have access to leverage, something that has historically magnified both gains and losses. This is a big problem considering FINRA margin debt climbed 49% year over year to another record in June of roughly $1.5 trillion. This comes as investor net credit balances have fallen to a record negative $1.06 trillion. In other words, investors collectively owe more on margin than they have sitting in cash accounts. For comparison’s sake, in March 2000 this measure stood at a negative $0.13 trillion. That's an aggressive setup if volatility returns. We also saw this past week the spectacular collapse of Leopold Aschenbrenner's AI-focused hedge fund, Situational Awareness, which shows what can happen when conviction is paired with excessive leverage. The near 25-year-old Aschenbrenner was painted as a genius with strong credentials like being Columbia University’s valedictorian at age 19. His fund was launched in July 2024 and he had no experience managing money before that. Before this month’s decline the fund had gains of more than 1,000% since inception. The fund used tons of leverage with some saying as much as 400% to build massive positions in AI and semiconductor stocks while shorting stocks in the software space like Adobe. The problem is when names like Coreweave, Nebius, and Sandisk fell more than 50% from their highs and the software stocks rallied, margin calls forced the liquidation of most of its public equity portfolio. The result was staggering considering the fund peaked at above $45 billion in assets and with the selloff they plunged to around $10 billion. This forced a fire sale of assets at a discount to Ken Griffin’s Citadel. Some speculate that the forced selling may have helped create the bottom. Once one of the market's largest leveraged sellers had finished liquidating, the selling pressure eased and many AI stocks staged a sharp rebound. Others believe the selling is not over as Michael Burry reportedly used Thursday's powerful rally as an opportunity to increase several of his bearish positions in Micron, Nvidia and the VanEck Semiconductor ETF. Whether he's ultimately right or wrong remains to be seen, but it's a reminder that some experienced investors still believe AI-related valuations and leverage remain stretched. Here Come the Robots! Robots have been making their way into manufacturing for decades. The first industrial robotic arm, called Unimate, was installed in 1961 on the assembly line at a General Motors plant in Trenton, New Jersey. But today's robots are very different. They're no longer just stationary robotic arms bolted to the factory floor, they're starting to look and move like humans. That reality is beginning to make workers uneasy. At a Hyundai Motor plant in South Korea, employees have gone on a partial strike, with concerns over automation playing a role. Hyundai recently unveiled its humanoid robot, Atlas, which stands 6'2", weighs about 200 pounds, can lift up to 110 pounds, and can continuously carry nearly 70 pounds. It's easy to understand why workers are wondering what these machines could mean for their jobs. South Korea is already the world leader in industrial robot adoption, with approximately 1,220 industrial robots for every 10,000 manufacturing employees. By comparison, the United States has around 307 robots per 10,000 workers. One statistic that surprised me was China, which currently has only about 166 industrial robots per 10,000 manufacturing workers. If Elon Musk has anything to say about it, those numbers could change dramatically over the next several years. Tesla is aggressively developing its humanoid robot, Optimus, with the goal of having it help build vehicles in its factories before long. If that vision becomes reality, other manufacturers will almost certainly follow. The idea of humanoid robots can be unsettling, but the transition is likely to be slower than many people expect. Industry forecasts suggest that global annual production of humanoid robots could reach roughly 1.2 million units by 2030. While that sounds like a large number, it's still a tiny fraction of the global workforce. So, we're probably still a few years away from living like The Jetsons. If you're not familiar with the cartoon, it debuted in September 1962 and imagined a future filled with flying cars and household robots. I guess I will have to wait a few more years to get a maid like the Jetsons had named Rosie the robot. Financial Planning: Tax Relief Coming for Older Home Sellers? The federal home sale capital gain exclusion has remained unchanged since 1997, allowing homeowners to exclude up to $250,000 of gain if single or $500,000 if married filing jointly when selling a primary residence. With home values rising significantly over the past three decades, particularly in high-cost areas like California, many long-time homeowners now face substantial capital gains taxes when downsizing. A new proposal, the Nest Egg Protection Act, would increase the exclusion to $1 million for homeowners age 65 and older who have owned and lived in their home for at least 25 years. This would allow more seniors to keep the equity they've built over a lifetime. In addition to providing tax relief, the proposal could encourage more older homeowners to sell, increasing housing inventory and making homeownership more attainable for first-time buyers. While the legislation has not yet been enacted and homeowners should continue planning under current law, the proposal reflects a growing recognition that the existing exclusion no longer aligns with today's housing market. Companies Discussed: International Business Machines Corporation (Ticker: IBM)

July 24, 2026Episode 41555 min

July 24th, 2026 | Netflix Losing Its Edge, U.S. Oil Running Low, Bank Stocks Worth Buying? Cheaper New Homes, Trading Frenzy Continues, Investment Scam Warning, Conservation Easements & More

Netflix Is Struggling to Stay on Top…. and the Stock Reflects It For years, Netflix has been the dominant force in streaming, consistently taking market share from its competitors. However, recent data suggests the competition is beginning to chip away at that lead. Netflix reported earnings last week, and the results showed a company that is executing well. Profits continue to grow, customer cancellations remain among the lowest in the industry, and the company is still producing blockbuster franchises like Bridgerton and Stranger Things that attract millions of viewers. The concern in the report wasn't profitability, it was engagement. Viewer engagement measures how much time subscribers spend watching content and how often they complete a movie or series. The more engaged customers are, the less likely they are to cancel their subscription in favor of another streaming service. That's why this metric is so important. Netflix still accounted for 7.8% of total TV viewing in April, making it the largest subscription streaming platform. However, that was its lowest share since May 2025, suggesting competitors are gradually gaining ground. The stock has reflected those concerns, declining roughly 40% over the past year despite continued earnings growth. I've always liked what Netflix co-founder Reed Hastings had to say as he frequently emphasized the importance of staying focused and keeping the business simple. That's a philosophy that has served our investment firm well over the years. Now, with increasing competition from Disney, HBO Max, YouTube, and others, Netflix is reportedly exploring additional subscription offerings similar to what Amazon and Apple provide. Personally, I think that would be a mistake. At this year's Emmy Awards, Netflix earned 111 nominations. Instead of expanding into new subscription services, why not invest even more heavily in creating award-winning shows and movies? If they produced enough quality content to earn 120 or even 130 Emmy nominations next year, subscriber engagement would likely take care of itself. Sometimes the best strategy isn't to do more, it's to do one thing exceptionally well. What do you think? Have you canceled or considered canceling your Netflix subscription? Or do you still believe Netflix offers the best streaming service? U.S. oil supplies are falling to concerning levels U.S. oil inventories have fallen to levels that should be a concern. The current U.S. oil stockpile is just under 410 million barrels. On a seasonal basis, we have not seen inventories this low since 2018. The seasonal comparison is important because summer is one of the highest-consumption periods of the year. The U.S. consumes about 20.6 million barrels of oil per day, produces approximately 13.9 million barrels per day, and relies on imports for roughly 7 million barrels per day. At the same time, the United States exports about 4 million barrels of oil per day, likely because companies can receive higher prices for that oil in international markets. If we somehow stopped producing and importing oil entirely, the current commercial stockpile would last roughly 20 days. The Strategic Petroleum Reserve, which has been reduced to approximately 317 million barrels, is also at its lowest level since 1983. At current consumption rates, that reserve would represent roughly 15 days of consumption. Replenishing U.S. oil inventories to higher levels could take many months or even years. Now with WTI oil around $90 a barrel that higher price could actually be a good thing. You may be wondering why I would say that, especially since higher oil prices often mean higher gas prices at the pump, but higher gas prices may encourage consumers and businesses to reduce their energy consumption. A lower consumption rate could help slow the decline in inventories and give the U.S. a chance to rebuild its oil supplies. Over the last six months, have you found yourself reducing your energy usage? And do you plan to reduce your consumption going forward? Banks Had a Great Quarter, Is It Time to Invest? Last week, the banks reported financial results that topped estimates for both earnings and revenue. They also showed improved efficiency as expenses declined as a percentage of revenue. After such a strong quarter, you might think the coast is clear and it’s time to invest in the banking sector. For the cautious investor, however, it’s important to look at the other side of the coin. I’m not expecting the banks to fall dramatically but returns going forward could be more muted because of several factors. First, there is net interest margin, which measures the difference between what a bank earns on its assets and what it pays depositors and debt holders to borrow money. Banks now have very large balance sheets, so even if net interest margins decline, the dollar amount of profits can remain substantial. However, further pressure on margins could still become a headwind for future earnings growth. There are also other risks for conservative investors to consider. The ongoing situation with Iran could create additional uncertainty. The AI boom could experience a rough patch, and while the economy and labor markets appear strong right now, investors cannot ignore the possibility of an economic slowdown. Rising interest rates could also prove difficult for banks if rates move significantly higher from current levels, potentially putting pressure on their profit margins. The good news is that bank valuations are not excessively high, which could help limit the downside risk in the event of a market pullback. To be clear, we are not anticipating a major decline in the banks we hold in our portfolio. However, investors should make sure the banks they own have very strong balance sheets. Strong capital positions and manageable debt can help reduce downside risk if the economic environment becomes more challenging. A strong quarter is certainly a positive sign for the banks, but investors should remember that great earnings today do not always guarantee great returns tomorrow. Valuation, balance-sheet strength, and the economic environment will all play an important role in determining future returns. Are new homes actually a better deal than existing homes? There is an interesting trend developing in the housing market: the median price of a newly built home is now lower than the median price of an existing home. Historically there has been about a 20% premium for new homes. At first, that sounds surprising. New homes are typically more expensive, so how can they now be cheaper? One major reason is that the type of new homes being built and sold has changed. Builders are increasingly focusing on smaller homes, townhomes, and more affordable developments. Townhouses now account for about one in five new single-family homes, which is the highest share since the National Association of Home Builders began tracking the data in 1985. In many cases developers are focusing on attainable homes for the middle-class which means the homes are roughly 1,200 to 2,000 square feet on smaller lots. As a result, the median price of a new home can look lower than the median price of an existing home, even though that doesn't necessarily always mean buyers are getting more house for their money. In other words, the comparison isn't always apples to apples. A new townhome or smaller home may have a lower price than an older, larger single-family home. That can make new construction appear to be a better deal, but buyers need to carefully consider what they are actually comparing. There are some real advantages to buying new. Builders are offering incentives such as mortgage-rate buydowns and assistance with closing costs. These lower rates make the monthly payment lower and more achievable than a comparable existing home. New homes typically require less maintenance, come with modern finishes and new appliances, are more energy efficient, and often come with warranties. But there are risks and a big one many people may not consider is lower resale value. Many of these new home developments only provide a handful of floorplans and they are built on a smaller parcel of land, which leads to less distinctive homes. If you go to sell your home within a few years, you may also be competing against the homebuilder if new homes are still being built in the community. The bottom line: new homes may offer some of the best deals in the housing market right now, but buyers need to look beyond the headline numbers. Compare the size, location, price per square foot, HOA fees, upgrades, and the total monthly cost. A new home may be a better deal than an existing home, but make sure you understand exactly what you are getting for your money. Stock Trading Is Off the Charts! There is a frenzy happening in the stock market right now. With individuals buying and selling stocks, along with institutional investors constantly trading, Wall Street is generating enormous trading fees. But one has to ask the question: Does all of this activity make sense? U.S. average daily trading volume in equities and options hit a record in the second quarter, with 73 million options contracts and 20 billion shares traded. Think about that number for a minute: 20 billion shares of stock changing hands over just three months. Let that sink in. We have not seen this much activity in individual stocks since the end of the dot-com bubble, and we all know how that turned out. The good news is that, with this frenzy of stock trading, more people are beginning to seek professional help managing their portfolios. The bad news is that many brokers are really just salespeople who may not have a strong investment philosophy or truly understand what they are doing. They will simply ride the wave until the crash comes, just as happened at the end of the tech bust. Back then, even a year after the market had collapsed, some brokers were still telling their clients to stay invested because the market would eventually come back. I remember an old saying I learned when I first entered the industry: “The broker knows the price of everything and the value of nothing.” It took the Nasdaq more than 15 years to get back to breakeven after the dot-com bubble burst when it fell close to 80% from top to bottom. That is why it is so important, when seeking financial advice, to understand the investment philosophy of the broker or investment adviser you are working with. Does their philosophy make sense to you? Does it align with your goals? And, most importantly, does it make sense for your portfolio? When markets are rising and everyone is making money, almost any strategy can look brilliant. The real test is what happens when the frenzy ends. If it sounds too good to be true, it probably is! A recent story in Barron’s highlights a warning that applies to everyone, not just professional athletes. Several current and former professional athletes reportedly invested in an online business opportunity that sounded too good to be true. Three former NFL players were interviewed by Barron’s and collectively they said they lost more than $1 million. The pitch was simple: invest at least $50,000 in an online store and they’ll handle everything from social-media marketing to manufacturing store inventory. Investors were told they would get their original investment back within six months, and then receive 80% of the profits. Sounds like a great deal, right? Unfortunately, according to the investigation, it appears the sales weren’t real. The stores were built using Shopify and appeared to be generating significant revenue. But investigators reportedly found questionable orders, including one $5,000 order for 100 desktop humidifiers and 120 USB-powered cup warmers. The person at the shipping address said they never placed the order and “Who needs 100 humidifiers and 120 cup warmers?” There were also other red flags including one e-commerce site, Dailyprodtrend, doesn’t appear in Google search results and the web address is just a random string of numbers and letters. The scheme is run by a 24-year-old entrepreneur named Mohamed Coulibaly and to gain credibility he used celebrity connections citing the names of about two dozen current and former pro athletes and other public figures as clients in a pitch deck. He also has created an image of wealth and success with one athlete saying he saw what appeared to be $25 million in a business account that Coulibaly showed him on a cellphone screen. It’s important to remember that no matter how successful someone appears or how many famous people they know you still need to do your own due diligence. A big problem is the websites were just the beginning of what appears to be a longer con. Once investors had their Shopify login credentials, they were given the impression the business was healthy due to these “fake” orders and then were presented with an even bigger bet that involved the Dubai investment firm Middle East Venture Partners. Unfortunately, this appears to have led to more red flags and still no return on investment. Before investing, you should independently verify the revenue, customers, expenses, bank statements, contracts, and the actual business itself. Don't simply rely on an online dashboard or someone else's claims about how much money is being made. The bottom line: If it sounds too good to be true, it probably is. And the more exciting and guaranteed the opportunity sounds, the more skeptical you should become. Financial Planning: Conservation Easements: Valuable Planning Tool or Tax Trap? Conservation easements are a tax planning strategy that allows a landowner to permanently donate certain development rights to a qualified conservation organization in exchange for a charitable income tax deduction equal to the reduction in the property's value. When used as Congress intended, they can provide meaningful tax benefits while preserving land for future generations. For example, a family that owns a 1,000-acre ranch valued at $10 million may have no intention of developing the property and want to ensure it remains open space permanently. By donating a conservation easement that limits future development, the property value may decline to $6 million, creating a $4 million charitable deduction while allowing the family to continue owning and using the land. This type of transaction aligns with the purpose of the law because the conservation benefit is the primary goal and the tax deduction is an incentive. However, taxpayers should be cautious of strategies that appear too good to be true. In recent years, the IRS has aggressively challenged syndicated conservation easement transactions that were marketed primarily as tax shelters. In these arrangements, investors often contributed a relatively small amount of capital to a partnership that acquired land, and promoters claimed the donation of a conservation easement created deductions several times larger than the investors’ original contribution. For example, an investor might contribute $250,000 and be promised a $1 million charitable deduction based on an aggressive property valuation. Many of these transactions relied on inflated appraisals and lacked a genuine conservation purpose, resulting in significant IRS scrutiny, disallowed deductions, penalties, and litigation. While conservation easements can be used in specific situations, they should be approached with caution and used only when there is a legitimate conservation objective. As with many tax strategies, a benefit that appears disproportionately large compared to the underlying economic activity is often a warning sign that additional due diligence is needed. Are Porsche Cars Losing Their Excitement? Porsche cars have long been known for their high-end, exciting sports cars. But lately, the company has been losing sales compared with last year. Porsche faces plenty of competition, but its global deliveries were down 16% during the first six months of 2026 compared with the same period in 2025. Last year, the company benefited from strong demand for the electric Macan, while it also ended production of the gasoline-powered 718. The company was also hurt by the loss of U.S. tax incentives for electric vehicles, which contributed to the decline in sales. Porsche sold 37,712 vehicles in North America, a 13% decline from last year. China, which accounts for roughly 10% of Porsche's sales, saw an even larger drop, with sales falling 32% to 14,501 vehicles. The price of a Porsche starts at around $65,000, but the average transaction price is closer to $125,000. And if you know anything about these cars, you also know that the maintenance and upkeep can put significant pressure on your wallet. You would think that if you're spending $125,000 on a car, you shouldn't have to spend a fortune maintaining it. But that can be part of the trade-off when owning a high-performance luxury vehicle. So, are Porsche cars losing some of their excitement? Would you be willing to spend $125,000 on a new Porsche, or would you rather purchase a less expensive American car? Time to Say Goodbye to EV Car Maker Polestar? I would occasionally see Polestar vehicles on the road, and I believe the company even has a dealership at UTC Mall. However, I didn’t know much about the company and was surprised to learn just how complicated its ownership structure is. Polestar is closely tied to Volvo, which is 79% owned by the Chinese company Zhejiang Geely Holding Group. The automotive world has become incredibly complicated over the years. I always thought of Volvo as a Swedish company, but that is no longer technically the case. The ownership change began in March 1999, when Ford Motor Company paid $6.5 billion to acquire Volvo. However, Ford later sold 79% of Volvo to Geely in August 2010 for approximately $1.8 billion. The remaining 21% is publicly owned through stock ownership. In other words, Ford appears to have taken a significant loss on its investment. Now, Polestar is facing serious challenges in the United States. The U.S. government is concerned about the company's connection to China and the possibility that data collected by the vehicles could be accessed by the Chinese government. As a result, new Polestar vehicles are no longer expected to be sold in the U.S. What is strange, however, is that Volvo vehicles are still being sold in the United States, even though Volvo is also majority-owned by Geely. The situation shows just how complicated the relationship between the U.S. auto market and Chinese ownership has become. There are currently reports of fire-sale discounts on Polestar vehicles, with some discounts reportedly reaching as much as $25,000 just to move the cars. These vehicles originally sold for roughly $55,000 to $75,000 when new. I’m not sure who would want to purchase one at this point. The biggest concern may not even be the vehicle itself, but what happens to service and support for existing owners. It is possible that Volvo will continue servicing Polestar vehicles, but I would be skeptical about whether maintaining a separate service infrastructure for the brand will be worth the company's time. After all, relations between the United States and China are currently far from ideal. For Polestar owners, that could create some serious questions about the future of their vehicles. The New Tobacco Companies The three remaining major players in the tobacco industry are Philip Morris International, British American Tobacco, and Altria Group. It should come as no surprise that the number of cigarettes sold in North America has dropped by about 33% since 2020, while the number of tobacco smokers continues to decline rapidly. But don’t be fooled: Tobacco companies have developed smoke-free products that are gaining popularity, but that does not mean they are healthy. The two primary alternatives tobacco companies are now selling are vaping products and something called an oral nicotine pouch. It is easy to see when someone is vaping because of the large clouds of vapor produced. Nicotine pouches, however, are much less noticeable. They are placed between the front of your teeth and your lip, similar to chewing tobacco. The difference is that you don't need to spit out saliva every few minutes because the nicotine is slowly released into your system. Currently, in North America, about 7% of the population vapes, up from 3.7% in 2020. Nicotine pouches are also growing rapidly, although you can't see who is using them. In 2024, approximately 23 billion nicotine pouches were sold worldwide, a 50% increase from 2023. Make no mistake: Both of these products contain nicotine, which is highly addictive and keeps people coming back for more. Some may believe that nicotine pouches are simply a way to move away from cigarettes, but that isn't necessarily the case. The pouch itself can become addictive as well. Tobacco stocks have performed well, with some nearly doubling over the last few years. More institutional investors who previously dumped these stocks for ethical reasons are now returning because of the growth of smoke-free products. It all sounds like smoke and mirrors to me. There are simply too many issues surrounding nicotine and the addictive nature of these smokeless products for me to feel comfortable investing in the tobacco industry. Companies Discussed: Fiserv, Inc. (Ticker: FISV)

July 17, 2026Episode 41455 min

July 17th, 2026 | META's Stock: Hidden Risks, Spring Home Sales Disappoint, AI's Steel Demand, Inflation Isn't Finished, Consumers Ignore Higher Gas, Social Security Changes Ahead & More

META's stock surged last week, but investors shouldn't ignore the risks. Meta shares climbed last week as Wall Street became increasingly optimistic about the company's AI strategy. The stock was up about15% for the week and erased the year-to-date losses. Investors are betting that Meta's enormous spending on AI infrastructure, custom chips, top engineering talent, and next-generation models will lead to faster revenue growth, stronger advertising tools, and new revenue streams over the next several years. The market clearly believes Meta has positioned itself as one of the leaders in the AI race. But while investors were celebrating, Europe reminded everyone that even great companies face meaningful risks. The European Commission announced preliminary findings that Facebook and Instagram may violate the Digital Services Act because of what regulators call "addictive design" features, including infinite scrolling, autoplay videos, and recommendation algorithms that encourage users to stay engaged for longer periods. If the findings become final and Meta does not make sufficient changes, the company could face fines of up to 6% of its global annual revenue, along with potential changes to how its platforms operate across Europe. Meta has disputed the findings and says it has already implemented significant protections for younger users. This could amount to a fine of around $12 B, but the bigger problem I see is a potential hit to ad revenue if they must change their business practices. Europe is an important part of their business considering it accounts for about 23% of overall company sales. We also can't forget the legal liability Meta is facing in the United States, which could ultimately total as much as $1.4 trillion. That number may sound shocking, but it stems from multiple lawsuits brought by numerous states and plaintiffs. The first major cases are scheduled to go to trial in August, with California, Colorado, New Jersey, and Kentucky leading the way. The lawsuits allege deceptive business practices, and potential penalties range from $2,000 to $20,000 per violation. Given Meta's massive user base, those fines could accumulate rapidly if the courts rule against the company. Beyond civil penalties, the states are also seeking disgorgement of profits, which would require Meta to surrender profits earned from the alleged misconduct during the relevant period. If Meta performs poorly in these initial cases, another 25 states have similar lawsuits waiting in the wings, significantly increasing the company's legal exposure. There are already signs that these legal challenges carry real financial risk. New Mexico recently won a $375 million judgment against Meta, and a separate federal trial is scheduled to begin early next year. The AI opportunity is also far from guaranteed. Today, investors are rewarding companies that appear to be winning the AI race, but the competitive landscape is becoming more crowded every quarter. OpenAI, Anthropic, Google, Microsoft, xAI, and others are investing billions of dollars to develop better models and attract developers. Meta has responded aggressively by spending heavily on infrastructure and recruiting top AI researchers, but there is no guarantee those investments will generate returns that justify the enormous capital being deployed. A big problem is today's leader in AI can quickly become tomorrow's follower if innovation slows. I also believe that all of these companies will not succeed in this space, which will mean enormous amounts of wasted capital for the losers. Wall Street seemed to be focused almost entirely on Meta's AI upside last week, and that optimism may continue to drive the stock higher. But investors should remember that valuation is increasingly dependent on AI execution while regulatory scrutiny remains elevated. If AI spending fails to produce the expected returns or regulators force changes that weaken engagement, today's bullish narrative could change quickly. Meta remains one of the strongest companies in technology, but even great businesses are not risk-free. As investors, it's important to weigh both the opportunities and the risks, not just the headlines driving the stock higher today. The spring home sales season disappointed in June The spring home-selling season ended on a disappointing note. Through May, existing home sales had been showing signs of improvement, and many real estate professionals were becoming more optimistic about the housing market. However, June's data told a different story. The conflict involving Iran contributed to higher inflation expectations and pushed mortgage rates higher, weighing on buyer demand. Existing home sales fell 2.4% in June to a seasonally adjusted annual rate of 4.09 million homes, well below economists' expectations for a 0.7% increase. Despite the monthly decline, the longer-term trend remains somewhat more encouraging. Existing home sales were still up 2.8% compared with a year ago, suggesting that underlying demand has not disappeared. There continues to be pent-up demand from prospective buyers, but many seem unwilling to make such a large financial commitment while borrowing costs remain elevated, even as housing inventory continues to improve According to Freddie Mac, the average 30-year fixed mortgage rate was 6.43% last week. If mortgage rates remain near these levels, many prospective homebuyers may continue to delay their purchases, preventing a stronger recovery in the housing market. Another Hidden Cost of AI: Steel Most people know that the AI buildout has driven up demand for advanced computer chips, contributing to higher prices for smartphones, laptops, and other electronics. They also know that AI data centers require enormous amounts of electricity, putting upward pressure on utility rates as more power is diverted to support AI infrastructure. But there's another cost that receives far less attention: steel. Steel is a critical component of every data center. Industry estimates suggest that new data centers will consume roughly 1 million tons of steel annually, representing approximately $1.4 billion in demand. Steel is used throughout these facilities from the structural columns, roof joists, and roof decking to the server racks that house thousands of AI processors. This growing demand has ripple effects throughout the economy. Higher steel demand can contribute to increased costs for automobiles, household appliances, commercial buildings, bridges, and countless other products that rely on steel. The impact doesn't stop there. Steel production is one of the most energy-intensive manufacturing processes. A single electric furnace steel mill can consume anywhere from around 50 to 200 megawatts of electricity per day, competing for the same power resources as AI data centers. As both industries demand more electricity, utilities face increasing pressure to expand generating capacity. Ultimately, who pays for that increased demand? The answer is often the consumer. Higher electricity demand can translate into higher utility bills for households and businesses as utilities invest in additional generation and transmission infrastructure. In regions where electricity supply is already tight, the competition for power is becoming even more apparent. For example, PJM Interconnection, the nation's largest regional transmission organization, plans to begin conducting supplemental power auctions with electricity generators in September to help secure additional supply. Auctions reward the highest bidders, meaning electricity increasingly flows to those willing to pay the most. As large industrial users and AI data centers bid aggressively for power, consumers could face higher electricity prices if supply fails to keep pace with demand. AI will likely bring enormous productivity gains and economic benefits over the long run. However, it is also creating secondary inflationary pressures that extend well beyond semiconductors. Steel, electricity, construction materials, and other critical inputs are all experiencing increased demand, and those costs eventually work their way through the economy. As the AI revolution accelerates, these indirect costs are likely to become an increasingly important part of the inflation story. Inflation Is Cooling... But Don't Pop the Champagne Yet The latest CPI report was another encouraging sign that inflation is moving in the right direction. Headline CPI declined 0.4% in June, marking the largest monthly drop since 2020, while the annual inflation rate slowed to 3.5% from 4.2% in May. Core inflation, which excludes food and energy, was flat on the month and eased to 2.6% year over year. Much of the improvement was driven by a sharp decline in gasoline and broader energy prices. While this is welcome news, I'd caution against declaring victory over inflation. One of the biggest challenges with inflation is that it doesn't always show up in the headline numbers immediately. It often works its way through the economy in waves, especially when it comes to energy. A good example is my own pool service. My pool guy recently raised his prices, likely for two reasons: higher chemical costs and the increased cost of driving from house to house. Those are both directly tied to energy markets. Even if gasoline prices temporarily fall and help bring down CPI for a month, businesses often adjust prices more slowly because they have to account for prior cost increases and the uncertainty of where energy prices are headed next. That's why I think investors should remain cautious. The recent improvement in inflation was helped significantly by lower oil and gasoline prices following a temporary easing in geopolitical tensions. But with conflict in the Middle East once again threatening energy supplies and oil prices recently moving higher, that relief could prove short-lived. The trend is encouraging, and the Federal Reserve will certainly welcome softer inflation data. But as long as energy prices remain vulnerable to geopolitical events, inflation is likely to remain unpredictable. Businesses from manufacturers to small local service providers will likely continue to pass along higher input costs whenever they have to. One softer CPI report is good news. But sustained price stability will likely require a concrete outcome in the Middle East and more stability in the energy market. While again we welcome the positive news in this CPI report, the conversation around in inflation and what to do with interest rates will continue with the ongoing developments in Iran. Higher Gas Prices Aren’t Stopping the American Consumer If you were looking for evidence that higher gas prices are slowing down the American consumer, the latest retail sales report doesn’t provide much support. The headline number was relatively modest, with retail and food services sales increasing 0.2% from May. But the year-over-year numbers tell a much stronger story. Total retail and food services sales were up 6.7% from June of last year. Even if you exclude gas stations, which saw an increase of 19.8%, retail sales still grew at an impressive rate of 5.7%. More importantly, when you look across the major spending categories, not a single major category declined year over year. Furniture and home furnishing stores was the only major category that was flat compared to last year, but again it wasn’t negative! Some of the strongest performers included non-store retailers, which primarily includes online shopping, increased 14.2%. Electronics and appliance stores were up 8.6%, while clothing and clothing accessories increased by 4.8%. Building materials and garden equipment stores were up 3.5% One of the more interesting data points is that Americans are still spending money at restaurants and bars. Food services and drinking places were up 3.8% year over year, showing that consumers continue to spend on experiences and dining out despite higher costs and concerns about the economy. The big takeaway is that the consumer remains remarkably resilient. Yes, higher gas prices can eventually put pressure on household budgets. But so far, consumers have continued to spend across virtually every major category. The year-over-year numbers show broad-based growth, not just spending concentrated in one or two areas. The consumer may be under pressure, but they are clearly not out of the game yet. Financial Planning: What’s Next for Social Security The Social Security Trustees’ most recent solvency report highlights the need for Congress to address the program’s long-term funding shortfall. Under current projections, the retirement trust fund is expected to be depleted in 2032, at which point ongoing payroll tax revenue would be sufficient to pay only about 78% of scheduled benefits unless legislative changes are made. Importantly, this does not mean Social Security will become insolvent or stop paying benefits, it means benefits would be reduced if Congress takes no action. While no specific legislation has emerged, many policy experts expect Congress to adopt a combination of gradual reforms rather than a single sweeping change. Potential solutions include increasing the Social Security payroll tax rate from 6.2%, raising or eliminating the taxable wage cap from $184,500, increasing the full retirement age from 67 for younger workers, and slowing future benefit growth for higher-income retirees. Historically, when Congress has made changes to Social Security, it has phased them in over many years, and most proposals would leave current retirees and those approaching retirement largely unaffected. As a result, individuals already receiving benefits or those within roughly the next decade of retirement are generally expected to experience little or no change, with the majority of reforms likely to apply to younger generations who have more time to prepare. Companies Discussed: Nike, Inc. (Ticker: NKE)

July 11, 2026Episode 41355 min

July 10th, 2026 | People Missed Dot-Com, Data Centers Next Door, Crypto’s Power Threat , Why Flights Stay Expensive, Deflating the Portfolio Balloon, AI Boom or Bust, Simple vs. Compound Loans & More

Did you ever wonder why so many people didn't get out before the dot-com crash? It's an important question to ask yourself, especially if you believe you'll know exactly when to get out before any potential correction in today's AI and semiconductor stocks. The reality is that the dot-com bubble burst only 25 years ago. Human nature hasn't changed since then. Investors today are no smarter than investors were back then, and the same emotions that drove the bubble are showing up again. There were four major reasons so many people lost money during the tech bust. The first was that investors stopped focusing on earnings and price-to-earnings ratios. Instead, they justified sky-high valuations by looking at metrics like website traffic, page views, click-through rates, and the number of "eyeballs" on a screen. The assumption was that if revenue kept growing, profits would eventually follow. Many ignored the reality that businesses also have expenses, competition, and execution risk. The second reason was FOMO or the fear of missing out. Between 1995 and 2000, the Nasdaq surged roughly 400%. As people watched friends, coworkers, and investors make fortunes on tech stocks and IPOs, more and more money poured into the market. Institutional investors and retail investors alike stopped worrying about valuations. They simply saw stocks going up and didn't want to miss the ride. The third reason was the belief that "this time is different." You heard it everywhere: "You just don't get it. This is the new economy." Investors argued that traditional valuation metrics no longer mattered because the only thing that counted was gaining market share. Profitability could always come later. The fourth reason was the assumption that capital would never dry up. Few investors paid attention to where companies were getting their money. Many businesses were surviving on venture capital rather than sustainable profits. When funding slowed and investors became more selective, those companies had no profitable business model to fall back on. Many quickly went bankrupt. At the peak of the bubble, investors stopped asking basic questions. What am I paying for this company's earnings? What am I paying for its cash flow? In many cases, there weren't any. Yet investors convinced themselves the speculative frenzy would continue indefinitely. The biggest lesson is a humbling one. We like to believe we'll recognize the top and get out before everyone else. But investors in 2000 believed the same thing. Human psychology hasn't changed, which is why bubbles continue to repeat throughout history. Don’t Build That Data Center in My Backyard The race to build AI infrastructure is running into an obstacle that many investors probably didn't see coming: local communities. Across the country, residents are protesting and filing lawsuits to stop new AI data centers from being built in their neighborhoods. One of the biggest concerns is something most people never think about, the constant noise. Data centers operate around the clock, with cooling fans, chillers, and backup generators creating a continuous hum 24 hours a day. That may not sound like a major issue until you have to live next to it. New York has become one of the focal points of this debate. While the state has plenty of available land for development, many communities are pushing back. Governor Kathy Hochul is even considering legislation that would place a moratorium on the construction of large data centers in certain areas. Public opinion reflects that growing resistance. According to recent polling, 44% of Americans oppose additional data center construction, while only 21% support it. When the question becomes more personal and whether people would support a data center being built in their own community, opposition jumps to 57%, while support falls to just 14%. Residents also question the long-term economic benefits. Building a data center may create thousands of construction jobs, but once the facility is complete, permanent employment may fall to just 100 to 200 workers. At the same time, these facilities consume enormous amounts of electricity. In some regions served by smaller utilities, a single data center could account for as much as 25% of total power demand, raising concerns about higher electricity costs and increased strain on the grid. The political landscape is becoming more challenging. Lawmakers in states including Arizona, Illinois, and Ohio have restricted or eliminated tax incentives that were previously used to attract data center investment. Even the companies building this infrastructure recognize the growing risk. The hyperscalers are expected to spend nearly $1 trillion on AI infrastructure this year, but increasing public opposition could slow those plans. Nebius Group, for example, warned in its 2025 annual report that rising resistance to data center projects in certain communities could become a headwind for future expansion. Investors have spent a great deal of time focusing on AI demand, chips, and software. However, another risk is emerging that deserves attention: if communities continue saying, "Not in my backyard," the pace of AI infrastructure growth may not be as smooth as many expect. Is Crypto Weakening One of America's Most Powerful Weapons? One of the United States' greatest geopolitical advantages isn't its military, it's the U.S. dollar. Roughly 90% of global foreign exchange transactions involve the U.S. dollar. That dominance gives the United States enormous leverage. When the U.S. imposes financial sanctions and cuts countries off from the dollar-based financial system, it becomes far more difficult for them to conduct international trade, finance military operations, or access global markets. That advantage is beginning to erode. Countries that have long opposed the United States such as Russia, Iran, and North Korea are increasingly turning to cryptocurrencies to bypass traditional financial channels. According to reports, their use of virtual currencies for cross-border transactions surged from roughly $12.5 billion in 2024 to more than $100 billion in 2025. Crypto gives sanctioned nations another way to move money. It can be used to purchase drones, weapons, military components, and fuel, while also helping finance operations such as smuggling oil and paying suppliers outside the traditional banking system. North Korea has become one of the world's most aggressive crypto thieves, using hacking and other cybercrimes to steal digital assets that can then be converted into funding for its military and weapons programs. Part of the challenge is that cryptocurrency wallets are identified by long strings of letters and numbers rather than names. While blockchain transactions are publicly visible, identifying the person or organization controlling a wallet can be extremely difficult without additional intelligence. That makes enforcement of financial sanctions much harder. Even terrorist organizations such as Hamas have, at times, solicited donations in cryptocurrency, illustrating how digital assets can be used to circumvent traditional financial controls. This is why I believe cryptocurrency has become more than just an investment story, it has become a national security issue. If Bitcoin and other cryptocurrencies were to experience a significant decline in value, it would reduce the purchasing power of those holding large crypto reserves, including sanctioned actors that rely on digital assets. While it would not eliminate their ability to use crypto, it could make this alternative financial system less effective and increase the relative importance of the dollar-based financial system. The stronger the role of the U.S. dollar in global commerce, the more effective financial sanctions remain as a non-military tool of foreign policy. With cryptocurrencies becoming more widely adopted, policymakers will need to consider the risk of weakening one of America's most effective forms of economic leverage. Even with oil off its recent peak, you still may not see cheaper airline tickets. You might assume that with the decline in oil prices, jet fuel costs are also declining, and airlines will pass those savings on to travelers through lower ticket prices. Oil and jet fuel prices have indeed come down, but don't expect airlines to slash fares anytime soon. The reason is simple: demand remains strong. Even after airlines raised fares eight times since the start of the conflict in the Middle East, analysts say the average round-trip domestic ticket climbed roughly 19% to about $638 yet demand barely changed. In other words, consumers have shown they are willing to pay higher prices to travel. If people keep buying tickets, airlines have little incentive to lower fares and give up those higher profit margins. Supply is also likely to remain constrained. Airlines aren't rushing to add flights because keeping capacity tight helps support higher ticket prices. The bankruptcy and downsizing of low-cost carriers such as Spirit Airlines has also reduced competition on many routes, making it easier for the remaining airlines to maintain pricing power. To be fair, airline pricing should be viewed over a longer time horizon. From 2019 through 2025, overall consumer prices rose about 26%, while average airfares actually declined roughly 3.5%. So, despite the recent increases, airline tickets are still relatively inexpensive compared with the broader rise in inflation over the past six years. The bottom line is that lower fuel costs alone don't guarantee lower ticket prices. As long as travel demand remains healthy and airlines keep capacity in check, consumers may not see much relief at the checkout screen. Letting Air Out of the Investment Portfolio Balloon Before It Pops At one point or another, we've all seen a balloon inflated until it finally bursts. The same thing can happen to an investment portfolio. Watching your portfolio grow is exciting, but every investor knows that markets don't go up forever. The challenge is that no one knows exactly when a portfolio has become too inflated. One of the biggest reasons investors refuse to sell is simple: they hate paying taxes. Believe me, I dislike paying taxes just as much as anyone else. But you should never let the tax bill dictate your investment decisions. Sometimes the smartest move is to relieve some of the pressure in your portfolio before the market does it for you. There are two simple ways to accomplish this: trim oversized positions and sell investments that have become significantly overvalued. The first strategy is reducing concentration risk. If you review your portfolio and discover that a single stock has grown to 10% or 12% of your total assets, it may be time to trim that position back to 7% or 8%. Yes, you'll likely owe capital gains taxes, but you'll also be reducing the risk that one investment can have an outsized impact on your portfolio if it suddenly declines. The second strategy is selling investments that have exceeded your target price and can no longer be justified based on their fundamentals. If the valuation has become stretched and the company's earnings outlook no longer supports the stock price, it may be time to take profits. Again, you'll probably owe taxes on the gain, but remember that capital gains are generally taxed at favorable rates. More importantly, paying a 20% or 25% tax on your profit is often far less painful than watching the entire investment lose 20% or more in value. That 20% decline occurs on the entire position rather than just the gain. No strategy is perfect. You may trim a position only to watch it continue climbing for another year or two. That's part of investing. Risk management isn't about perfectly timing the top, it's about ensuring that no single investment or sector can seriously damage your long-term financial plan. Consistently following a disciplined, conservative approach won't always maximize returns during bull markets, but it can significantly reduce risk over a full market cycle. When the next major correction inevitably arrives, your portfolio should be positioned to withstand it. That makes it far easier to stay invested, avoid emotional decisions, and continue building wealth instead of panic-selling after the damage has already been done. Successful investing isn't just about finding great investments. It's also about knowing when to reduce risk. Sometimes, letting a little air out of the balloon today is the best way to keep it from popping tomorrow. Is AI creating the next memory boom... or setting up the next bust? SK Hynix just pulled off the largest foreign ADR listing in U.S. history, pricing its American depositary receipts at $149 and raising $26.5 billion. That isn't just a fundraising event, it is fuel for one of the most aggressive semiconductor expansion plans the industry has ever seen. The company is pouring money into new factories, equipment, and advanced packaging capacity around the world. In the United States, SK Hynix is building its first manufacturing facility, a $4 billion advanced packaging plant in West Lafayette, Indiana, expected to be completed in 2028. Back home in South Korea, the spending is even more staggering. SK Hynix plans to invest up to $720 billion expanding memory production, including a $390 billion semiconductor cluster in Yongin. The company has also committed roughly $7.8 billion by the end of 2027 for additional extreme ultraviolet (EUV) lithography machines, the highly specialized tools needed to manufacture cutting-edge HBM chips. These machines cost as much as $400 million each, are in extremely limited supply, and are only produced by ASML. The company is even accelerating its expansion timeline by more than a decade, with four new fabrication plants now expected to be completed by 2033. The question investors should be asking isn't whether AI demand is real. It clearly is. The real question is whether the industry is repeating a familiar pattern. Memory has always been one of the most cyclical businesses in technology. Every major technology revolution from the dot-com boom, to smartphones, to cloud computing created a surge in demand for memory chips. Manufacturers responded by rapidly expanding production. Eventually supply caught up, prices collapsed, profits disappeared, and investors who arrived late learned just how brutal the memory cycle can be. Today feels different... but that is often what every cycle feels like while it is happening. SK Hynix's market value has increased more than sevenfold over the past year as AI infrastructure spending has created a shortage of HBM. Revenue nearly tripled between 2023 and 2025 to roughly $65 billion, and Wall Street expects sales to surge again to approximately $235 billion in 2026. Those are incredible numbers. But when major memory producers start announcing massive capacity expansions, history suggests investors should at least consider what happens when today's shortage eventually becomes tomorrow's surplus. AI may create years of strong demand for memory, but the semiconductor industry has a long history of building too much capacity just as demand begins to normalize. The opportunity is enormous, but so is the risk if history repeats itself. Financial Planning: Simple vs Compounding Interest Loans Many people assume that choosing a simple interest loan over a compound interest loan will dramatically reduce the amount of interest they pay, but in most real-world lending situations, the difference is minimal. The reason is that the power of compounding only becomes significant when a balance grows over time because interest is being added to the principal. With most consumer loans, borrowers either make interest-only payments that keep the principal balance unchanged or make payments that reduce the principal over time. In either case, the interest charged during each payment period is based on the outstanding loan balance at that time, not on an ever-growing balance. Since the loan balance is remaining the same or steadily declining rather than increasing, there is little opportunity for “interest on interest” to accumulate. While compounding can become important if unpaid interest is capitalized and added to the loan balance, that is the exception rather than the rule. For most mortgages, HELOCs, auto loans, personal loans, and similar debt, borrowers should focus far more on the interest rate than on whether the loan is described as using simple or compound interest. Too Many People Are Using Target Date Funds in Their 401(k) For years, we've discussed the drawbacks of target date funds, including their higher fees and one-size-fits-all approach. Despite those concerns, they remain incredibly popular because they are simple and require very little effort from the investor. According to Vanguard, 61% of 401(k) participants invest in target date funds. On the surface, they sound like the perfect solution. If you plan to retire around 2045, you simply choose the 2045 Target Date Fund and let it manage your investments. The fund automatically adjusts your portfolio over time, gradually reducing your exposure to stocks and increasing your allocation to bonds as you approach retirement. Many investors don't realize how significant that shift can be. By the target retirement date, a target date fund may hold around 50% of its assets in bonds. The adjustments don't stop there. Reaching the target year doesn't mean the fund is liquidated or that you receive your money. Instead, the fund continues along its glide path and could increase its bond allocation to 70% or even 80% over the following years. That approach may have made sense decades ago, but retirement looks very different today. Many people will spend 20 years or more in retirement. Over that length of time, maintaining enough exposure to stocks can be critical to helping your portfolio grow and keep pace with inflation. A portfolio that becomes too conservative too quickly may struggle to provide the long-term growth many retirees need. Another limitation is that target date funds only manage the assets inside your 401(k). They don't take into account your IRAs, brokerage accounts, pensions, real estate, or other investments. As a result, your overall portfolio allocation could end up being far different than what is appropriate for your financial goals. The convenience of target date funds is appealing, but convenience shouldn't replace planning. A successful retirement requires understanding how your money is invested, estimating what your portfolio could be worth when you retire, and developing a strategy for how those assets will be invested throughout retirement, not just until you reach it. Is That Really Your Son or Daughter Calling You? You know your children's voices. You talk to them regularly. Then one day you get a frantic phone call from your son or daughter. They tell you they've just been in a serious accident. They need $15,000 immediately or they're going to jail. They tell you exactly how to send the money. Without hesitation, you wire the funds because you want to help your child. Unfortunately, you have just been scammed by AI. AI-powered scams are exploding. Reports show AI-related fraud surged more than 1,200% in 2025, and at the current pace, losses from AI scams in the United States could reach $40 billion annually by 2027. Another study found that one in four adults has already experienced an AI voice scam. Your first reaction may be, "That could never happen to me. I don't post anything on social media." But the problem may not be your online presence. It's your children. Many people regularly post videos on social media, and today's AI only needs about three seconds of someone's voice to create a convincing clone. Once scammers have that sample, they can make it sound like your son or daughter is saying almost anything. So how do you protect yourself? If you receive an emergency call asking for money, don't panic. Before sending anything, ask a question that only you and your child would know the answer to. Make it something that has never been shared publicly. For example, ask about a funny childhood memory that only the two of you remember. Don't use information like birthdays, graduation dates, wedding dates, or other facts that could be found online or in public records. Remember with all these data centers there is so much information that is being obtained and saved but used for the wrong purposes. Even better, establish a family safe word or passphrase today. Choose something simple that everyone can remember but that would never appear online. If you ever receive one of these calls, ask for the safe word. If they can't provide it, assume it's a scam until you can verify the situation by calling your child directly or contacting another trusted family member. As AI continues to improve, these scams will only become more convincing. The same technology powering innovation is also giving criminals new tools to exploit unsuspecting families. Stay alert. Verify before you trust. A few extra minutes could save you thousands of dollars and a great deal of heartache. Is It Boom or Bust for Micron? It is hard to argue with Micron's incredible stock performance. Through July 2, the shares were up 242% year to date and an astonishing 701% over the previous 12 months. Even after recently falling about 22% from their peak, investors are still debating whether the company has much more room to run. The good news is that Micron has locked in 15 new customers under long-term supply agreements, with some contracts extending as long as five years. Many of these agreements include customer deposits, giving the company excellent revenue visibility and reducing uncertainty over future sales. For investors, that is exactly the kind of stability they like to see. But every smart investor should also ask: What is the downside? While those contracts provide a strong foundation, they do not guarantee that demand will remain as strong over the long term. Unless a customer goes bankrupt, the contracts are largely locked in, but technology changes quickly. High prices and limited supply often encourage innovation, and the AI memory market is no exception. Several companies are developing new architectures that reduce or even eliminate the need for high-bandwidth memory (HBM), which has been one of Micron's biggest growth drivers. As companies search for lower-cost and more efficient alternatives, demand for HBM could eventually soften. Nvidia also signaled in June that it is redesigning portions of its upcoming Vera Rubin AI platform to use memory more efficiently. While Nvidia remains a major customer for HBM, improvements in memory efficiency could reduce the amount of HBM required per AI system over time. Meanwhile, newly public chipmaker Cerebras has taken an entirely different approach. CEO Andrew Feldman has said the company's wafer-scale AI chips do not use HBM at all, arguing that it is too expensive and supply constrained. If other AI hardware companies pursue similar designs, it could create additional competition for HBM. None of this means Micron's growth story is over. The company's long-term contracts provide meaningful protection, and AI demand remains exceptionally strong today. However, investors should remember that today's shortages and premium pricing often inspire tomorrow's technological breakthroughs. The question for Micron investors is whether HBM remains the industry standard for years to come or whether innovation eventually reduces the need for it. If demand for HBM begins to slow, Micron's remarkable growth could also begin to moderate. Companies Discussed: Caterpillar Inc. (Ticker: CAT)

July 2, 2026Episode 41255 min

July 2nd, 2026 | AI Profit Pressure, Private Equity in Youth Sports, Strategy Bitcoin Trouble, Upper-Middle-Class Financial Worries, Jobs Report, AI Investment Bubble Concerns, Trump Accounts & More

Competition for AI Is Coming From a Surprise Source That Could Pressure U.S. Companies' Prices and Profits We tend to focus on the major AI companies in the United States and assume they will be the long-term winners. However, one competitor that cannot be ignored is China. Chinese companies are making rapid progress in artificial intelligence, and they could become a serious challenge to U.S. firms. Don’t forget that China is a communist country and the government can put in a lot of capital to win the AI race. That ability to heavily fund AI development could help Chinese companies narrow the gap with, or even surpass, some American competitors in certain areas. According to Artificial Analysis, which evaluates the capabilities of large language models, China's Z.ai ranked among the top three globally with its latest model release. Another concern is cost. Z.ai is reportedly offering models at less than half the price of many American rivals. Lower prices could make it easier for the company to gain market share while putting pressure on the pricing and profit margins of U.S. AI companies. I certainly don't want to see American companies lose ground to Chinese competitors. However, as investors, we have to evaluate the competitive landscape objectively. U.S. AI companies have already committed hundreds of billions of dollars to infrastructure and development. If competition forces prices lower, it may take much longer for these companies to generate the profits needed to justify today's lofty stock prices and valuations. The Business of Kids' Sports Is Changing and it May Not Be for the Better Private equity has made its way into nearly every corner of the economy, and now it's becoming a major force in youth sports. The Aspen Institute has estimated that youth sports are now a $40 billion industry in the U.S, which is likely why private equity is now targeting the space. That's raising serious concerns about what happens when maximizing investor returns becomes more important than giving kids affordable opportunities to play. As private equity firms buy up leagues, tournaments, training facilities, and sports complexes, critics argue the result is less competition, higher registration fees, and fewer affordable options for families. The average cost of youth sports has increased dramatically in recent years, leaving many children priced out of participating simply because their families can't afford it. One thing that stands out is that this has become one of the rare issues drawing concern from both Republicans and Democrats in Congress. Burgess Owens, a Republican from Utah and former professional football player, pointed out “Investment is important, but it’s when the mission is our kids, not investors. We’re seeing too much of this. We’re going to lose the soul of our nation if we don’t get this right.” He also acknowledged that while some investors are doing it the right way, bad actors need to be kept out. While there are differences over how to address the problem, there appears to be broad bipartisan agreement that rising costs and reduced consumer choice deserve closer scrutiny. Youth sports should be about developing character, teamwork, friendships, and healthy competition, not creating another industry where financial engineering determines who gets to participate. If the trend toward consolidation continues unchecked, more families may find themselves priced out of opportunities that should be available to every child, regardless of income. Bitcoin Company Strategy Is in Trouble Strategy, formerly known as MicroStrategy, changed its name after the company essentially became a leveraged bet on Bitcoin rather than a software business. As management shifted its focus almost entirely to buying Bitcoin, it dropped the "Micro" from its name to reflect that new identity. CEO Michael Saylor spent years promoting Bitcoin and telling investors that owning Strategy stock was one of the best ways to benefit from its rise. To finance those Bitcoin purchases, the company repeatedly issued low-interest convertible bonds. The next major maturity comes on September 15, 2027, when approximately $1 billion of convertible notes become due. If you're unfamiliar with convertible bonds, they allow a company to borrow money at lower interest rates because investors have the option to convert the bonds into stock instead of receiving cash repayment. For that to happen, however, the stock price must trade well above the conversion price. In this case, the conversion price is about $183 per share, about double the current stock price of roughly $90. Unless the stock stages a dramatic recovery, those bonds are unlikely to be converted into shares, meaning Strategy would need to repay the $1 billion in cash. The stock has fallen nearly 79% over the past year, and Bitcoin's decline has only magnified the losses. Bitcoin itself has dropped roughly 50% from its peak, falling below $60,000 depending on the day. When Bitcoin was making new highs, investor excitement seemed endless. Now that prices have been cut roughly in half, much of that enthusiasm has disappeared. Michael Saylor has also been noticeably absent from major interviews in recent months. Whether that is because demand for his appearances has faded or because the company's performance has made those appearances more difficult is open to interpretation. Strategy stock reached a high of around $473 in late 2024 and now trades near $90. We've discussed this company many times before. The concern has always been that Strategy is not creating meaningful operating growth as it is primarily just borrowing money to buy Bitcoin. Unlike a traditional operating company, it is not relying on expanding products or services to drive future earnings. At the moment, there does not appear to be a clear catalyst that would significantly lift either Bitcoin or Strategy's stock price. If the shares remain well below the conversion price as the 2027 maturity approaches, investors are likely to become increasingly concerned about how the company will repay its debt. That uncertainty could continue to put pressure on the stock. Upper-middle-class Americans may not be as financially secure as they would like Upper-middle-class Americans, generally defined as households earning between $150,000 and $250,000 per year, may be in a stronger financial position than most, but many are becoming increasingly pessimistic about the future. You may be surprised to learn that 86% of upper-middle-class Americans do not believe their children will have a better life than they have. Just seven years ago, in 2019, that figure was only 64%. Many upper-middle-class households are also losing confidence in the economic system and the government. They increasingly feel that the odds are stacked against them, making it harder to continue moving ahead financially. In the most recent Wall Street Journal survey, 65% of affluent Americans said they believe the system is rigged against them, more than double the 29% who felt that way in 2017. The news isn't much better for the middle class, generally defined as households earning between $65,000 and $235,000 annually. Only 25% said they have been able to save beyond an emergency fund. Roughly one in four also reported carrying credit card debt that they are unable to pay off in full each month. Despite these concerns, there has still been significant upward mobility. About 75% of people in today's upper-income group said they now belong to a higher economic class than the one they grew up in. Among middle-class Americans, roughly half said they also grew up in a lower economic class than where they are today. Views on higher education are changing as well. About one-third of middle-class Americans no longer believe a four-year college degree is the best path to financial success. Rising tuition costs, growing student debt, and the availability of alternative career paths have caused many to rethink the traditional college route. No matter which income group people belong to, there is often a desire to improve their financial situation and move up economically. That ambition is a healthy part of human nature and is often what drives people to work harder, save more, and invest for the future. While constantly striving for more can sometimes make it difficult to feel fully satisfied, the pursuit of improvement can also provide a strong sense of purpose and accomplishment. Did The Recent Jobs Report Tell the Whole Story? At first glance, this weeks jobs report looked fairly uneventful. The U.S. economy added 57,000 nonfarm payroll jobs in June, and the unemployment rate fell to 4.2%. This was below the estimate of 115k, but it does follow three strong months of payroll growth. After looking through the report, there are several numbers that raise some important questions. The first is the labor force. About 720,000 people left the labor force in June, pushing the labor force participation rate down to 61.5%, the lowest since March 2021. Even more troubling is that if we exclude the Covid-era, it was the lowest labor force participation rate in exactly 50 years. When people stop looking for work, they are no longer counted as unemployed, which can make the unemployment rate appear stronger than it otherwise would. Another surprising number was leisure and hospitality, which lost 61,000 jobs. June is typically one of the strongest hiring months of the year for hotels, restaurants, entertainment, and travel-related businesses. The Bureau of Labor Statistics attributed much of the decline to weaker-than-normal seasonal hiring, but it's still worth asking whether this reflects a temporary statistical issue or an early sign that consumer spending is beginning to soften. It is especially strange given the popularity of the World Cup and many speculated this would be a strong sector in the report. Goldman Sachs in particular estimated a gain of 40k in leisure and hospitality before the report was released. Then there is the latest JOLTS report. Job openings stood at 7.6 million in May, showing employers are still looking for workers, but the question is if people are actually leaving the workforce can these jobs actually get filled? One report never tells the entire story, but these numbers deserve a closer look. Was June simply an odd month because of seasonal adjustments? Or are we beginning to see a labor market that is slowing more quickly than the headline unemployment rate suggests? The next few months of data should help answer that question. The biggest risk in AI may not be the technology, it may be the economics. This week, Bradley Tusk and Ed Zitron raised important questions that investors shouldn't ignore. Bradley Tusk (founder and CEO of Tusk Ventures and a venture capitalist) made an interesting observation: investors are treating frontier AI models the same. But China's AI companies are proving that powerful models can be developed much more cheaply and improve much faster than many expected. If lower-cost models continue to narrow the performance gap, AI models could become increasingly commoditized, making it much harder for companies spending hundreds of billions of dollars on infrastructure to earn attractive returns. Ed Zitron (author, podcaster and tech industry critic) echoed a similar concern from a different angle. He argues that AI companies are engaged in an expensive arms race, pouring enormous amounts of capital into chips, data centers, and model development without proving that the economics will justify the investment. As he has said, companies are "burning money at an astonishing rate" while investors continue to assume future profits will eventually catch up. This also ties into a warning from co-funder and CEO of Palantir Technologies, Alex Karp . He has criticized what he calls "token maxxing"—the idea that success in AI is simply about generating more tokens, building bigger models, and spending more on compute. Karp's point is that producing more AI output doesn't automatically create more business value. The companies that ultimately win will be the ones that solve real customer problems and generate durable profits, not necessarily those that consume the most GPUs or produce the most tokens. History shows that revolutionary technologies don't always produce the best investments. The internet transformed the world, but many of the biggest companies of the dot-com era disappeared because expectations got too far ahead of profits. AI will almost certainly reshape the economy. The bigger question for investors is whether the companies making the largest investments will ultimately earn the returns the market is expecting—or whether AI models become increasingly commoditized, leaving the biggest winners to be the businesses that successfully apply AI rather than simply build larger models. Financial Planning: Trump Account Investment Options Released Ahead of $1,000 Seed Funding Trump Accounts are expected to receive $1,000 of government seed money as soon as the 4th of July. If you have a child born in 2025 through 2028, you can apply online now at trumpaccounts.gov. This is basically a retirement account with a caveat, contributions can be made on behalf of children even if they don’t have earned income. However extra contributions are made on an after-tax non-Roth basis so no upfront tax deduction and no tax-free growth. Instead contributions establish cost basis and investment earnings grow tax-deferred, but are ultimately taxed upon withdrawal at ordinary income rates. In practice, this tax deferral benefit is overstated. This week the Treasury Department released 5 investment options: SPYM, IVV, VTI, ITOT, and SPTM. These are virtually all the same investment, a low fee fund that is heavily weighted toward the largest US companies. This means there is no reason to sell or rebalance, so the only real option is to buy and hold. Buying and holding can also be done in a regular brokerage account with tax deferred until sale, but at the lower, potentially 0%, long-term capital gains rates rather than the higher ordinary income rates. Some planning strategies involve funding the Trump account and later converting it to a Roth. However, those conversions would still trigger tax at ordinary income rates and potentially trigger the kiddie tax, pulling the income into the parent’s tax bracket. Since in every possible situation, the long-term capital gain tax rate is always less than the ordinary income tax rate, a better strategy may be to fund a brokerage account and use the future proceeds to make contributions to Roth accounts which likely could be done tax-free rather than funding a Trump account and eventually making Roth conversions at a higher rate. For this reason, while the $1,000 government seed contribution is worth it, additional voluntary contributions may be less attractive compared to already available alternatives. Companies Discussed: Meta Platforms, Inc. (Ticker: META)