December 15th, 2024 | Upcoming Stock Market Correction, Oil Drilling Technology, Inflation, Charitable Gifts, The Cigna Group (CI), The Kroger Co. (KR), The PNC Financial Services Group, Inc. (PNC)..You should be prepared for the upcoming stock market correction!At Wilsey Asset Management we are prepared for an upcoming correction in the stock market. That doesn’t mean we or you should sell all your positions and go to cash. What it does mean is you should take a close look at your portfolio and see if you’re over concentrated in certain positions, especially those that are trading at lofty valuations based on earnings, sales, book value, and cash flow.Many investors think that their stock or stocks will never decline and will just keep increasing forever. This is because they have no history or way of valuing what they hold in their portfolio. They are just happy because it keeps going up, which is obviously unsustainable. It is important for investors to realize that roughly every 19 months or so stocks go through a correction of 10% or more. If you look back in history, the last correction we had was roughly 20 months ago in March 2023 because of the regional banking crisis. What will cause the next correction? It could be concerns on tariffs, it could be due to global unrest, or perhaps it will be something that no one even thought of. The average correction lasts 3 to 4 months, but investors should be prepared for a longer period because an average is simply the average, and it will not be the same for every correction. Mentally, investors should be prepared for corrections, and they should understand it is not a matter of if it will it happen, but when it will happen, and you should not be emotionally disappointed when it does happen. As an investor, you have to realize it does happen, but if you have a strong diversified portfolio with investments that you understand you can weather the storm. If most of your stocks in the portfolio pay dividends that might make you feel better and also the income helps offset a potential decline in your portfolio. Also think like famed investor Warren Buffett that when a correction happens many equities go on sale and that is time to start buying. Don’t, however, buy with the intention that you make money in the next month or two. Realize that you’re buying a small piece of large company on sale that should do well for you in years to come. Technology has changed and improved oil drilling Thanks to advancements in technology and artificial intelligence, the United States now out produces any other country in the world when it comes to oil. Much of the success has come from the Permian Basin which is 75,000 square miles located in Texas and New Mexico. The area produces almost 50% of US oil. There have been huge efficiency advantages in US oil production which have increased 60% or more a day while using 40% less workers. It used to take 18 months to find oil when drilling in the ocean with seismic imaging. Thanks to advances in technology, it now takes only 18 days. Companies like Chevron also claim they can drill 80% more feet in a day than they did five years ago. When you think of oil drilling, you may think of the new show Landman on Paramount+ and all the dirty oil. While that is still part of it, it is to a much smaller degree because now there are workstations with computers and 20 to 30 workers controlling thousands of pieces of equipment from many miles away. All this new efficiency will benefit the consumer as this will stabilize oil prices to some degree. I believe this will occur because the breakeven for oil in the Permian has dropped over 50% to $40 a barrel and could fall even further. What this means is more and stable profits for the oil companies. The consumer will benefit as well as oil companies cost decline and the price of gasoline at the pump could decline further. Should we start to question the progress on inflation? The November Consumer Price Index (CPI) came in at 2.7%, which was in line with expectations but higher than October’s reading of 2.6%. Core CPI, which excludes food and energy came in at 3.3%, which also matched expectations.Dec 14, 202455:40December 7th, 2024 | Job openings, labor markets, Holiday spending, 24 hours Trading, Tax Problems with Overconcentrated Portfolios, Intel Corporation (INTC), Target Corporation (TGT), The Gap, Inc...Job openings remain strong, what does that mean for our economy? The Job Openings and Labor Turnover Survey, also known as the JOLTs Report, showed job openings of 7.74 million in the month of October topped expectations of 7.5 million and increased from September’s reading of 7.4 million. While it was nice to see the increase, I wouldn’t be surprised to see job openings decline further from here. Openings peaked in March 2022 at over 12 million and have been on the decline since then. While that may sound problematic, these numbers were greatly distorted by the Covid shutdown and then the reopening that followed. We had never seen more than 8 million job openings pre Covid and at the peak there were more than two job openings for every available worker. We still have a very healthy labor market considering there are still 1.1 available positions for every unemployed worker. I would actually say the labor market is in an even healthier place at this point in time. With the excessive amount of openings, we saw a lot of employee turnover and quits which I believe led to elevated wage inflation. The labor market is much more balanced at this point in time, which should lead to less concerns over wage inflation. This should then be positive for the overall inflation rate which the Fed has been battling the last couple of years now. The labor market continues to produce strong results! November payrolls showed a very nice increase of 227,000, which topped the estimate of 214,000. The two prior months also saw positive revisions with October now showing gains of 36,000 versus 12,000 and September showing an impressive growth of 255,000 versus 223,000. While the November gain may look quite strong, it’s important to put this in perspective and pair it with the weak October report. October was challenged as it was held back by impacts from Hurricane Milton and the Boeing strike. This essentially reduced the jobs in the October report and added them to the November report. If we instead look at an average of October and November, we would then see growth of 131,500, which is still strong but not nearly as impressive as the November headline number. Areas of strength in the report included health care and social assistance which was up 72,300, leisure and hospitality which was up 53,000, and government which was up 33,000. While the government number includes state, local, and federal, I am curious to see what these numbers look like next year with Elon Musk and DOGE taking a closer look at government spending. Instead of consistent gains from this sector, we could potentially see a decline in payrolls. Utilities which saw a decline of 100 and retail trade which saw a decline of 28,000 were the only areas that produced a negative result in the month. I was surprised to see retail trade on the list considering the busy holiday season, but it is believed the later Thanksgiving holiday had a big impact. With the report largely in line, expectations for a Fed rate cut jumped to nearly 90% when they meet on December 17th and 18th. At this point, I would be very surprised if they didn’t do a quarter point cut at that meeting. I do believe after that cut though, there could be a pause until we see further data. Holiday spending is looking positive We have now been seeing predictions for what spending will look like for the holiday season. It’s no surprise to me those numbers are looking pretty good with estimates for spending to increase somewhere between 3.8 and 4%. These estimates should be confirmed or may even be a little light with the success of the post-Thanksgiving deals. Data from Mastercard showed Black Friday retail sales, excluding automotive, increased 3.4% compared to last year. This came with a huge increase of 14.69% for online shopping compared to an increase of just 0.7% for in-store sales. According to Adobe Analytics, Cyber Monday then set a record with $13.3 billion of sales. This was an increase of 7.3% coDec 07, 202455:40November 27, 2024 | Educational show where Brent and Chase Wilsey discuss fundamental analysis and how they use it to manage their $700M portfolioNov 27, 202455:40Jul 20, 2024 | Retail Sales, Oil Demand, Japan's Pension Fund and Spousal Social SecurityRetail sales beats expectations but shows consumer is still softening. June retail sales came in flat compared to the previous month, this topped the expectation for a 0.4% decline. Compared to last June, retail sales were up 2.3%. Areas of strength included non-store retailers (+8.9%), food services and drinking places (+4.4%), clothing and clothing accessories stores (+4.3%), and electronics and appliance stores (+2.7%). Both furniture and home furnishing stores (-4.0%) and building material and garden equipment and supplies dealers (0.9%) were done when looking year over year, but they have perhaps started to turn the corner as they both showed month over month gains. Gasoline stations were also a negative weight as it was down 3.0% compared to last month and 0.4% compared to last year. Overall, I believe this is a strong report that shows an economy that is slowing but remains in a healthy place. With this news and other comments from Fed chair Powell markets have now priced in a 100% chance of at least one rate cut by the September meeting. Will oil demand increase or decrease in years to come? I have been concerned about oil consumption and investing in oil related companies based on the increase in electric and hybrid vehicles. Unfortunately, there’s not much help in predicting oil demand from the experts. British petroleum, also known as BP, expects oil demand will plateau by 2025. They believe the subsequent decline will depend on how aggressive countries get with carbon omissions. BP believes by 2050 oil demand could drop down to 25 million to 30 million barrels a day if countries get serious about a “net zero” goal. This would be a major decline from today’s level of about 102 million barrels a day. But there’s others who disagree such as OPEC which sees demand growing by 4.1 million barrels a day from 2023 to 2025 and continuing to rise at least through 2045. The Paris-based International Energy Agency forecasts a peak in 2029 and the US Energy Information Administration is looking for peak between 2030 and 2040. It also looks like Warren Buffett does not believe a peak is coming soon as he has been investing heavily into Occidental Petroleum and has a sizeable stake in Chevron. With all the uncertainty, I believe if an investor is going to invest in an energy company, it should be a well-diversified. Japan’s $1.5 trillion pension fund could be a black Swan for our stock market. Japan has grown their pension fund to $1.5 trillion over the years and has continued to increase the amount of money they invest in the US. As of March 31st, about 50% of the fund was held in foreign stocks and bonds, most of which was in the United States. The problem they have is their currency, the yen vs the dollar has fallen to levels not seen since President Reagan was in office. The investments in foreign countries have led to some criticism as some say it amounts to a vote of no confidence by the Japanese government in its own currency. It is unknown what US equities they hold, but the fund was up 23% in its most recent fiscal year. My concerns are what if they want to reduce their exposure to US equities and bonds to 30%? That would be a reduction of around $300 billion. What if they hold in their pension the high-flying technology companies? How would those stocks perform if the fund sold $100 to maybe $200 billion worth of stock? No one knows for sure, but with that 23% gain there is a high likelihood that they had a portion perhaps a good portion of the investments in the US technology companies. A Major Mistake with Spousal Social Security When collecting Social Security on your own work history, you may collect between the ages of 62 and 70. Every month you wait, your benefit amount increases. In cases where one spouse did not work, or had a very limited earnings history, that spouse may qualify for a larger spousal benefit from Social Security. The maximum spousal benefit is one half of the higher earningJul 23, 202455:40July 6, 2024 | Largest US Banks, Jobs Report, Labor Market, Risky Investing and Reviewing Mid-Year IncomeLargest US Banks I continue to remain optimistic about investing in the large financials, specifically the money center banks. For the most part they trade at good valuations and the recent stress test shows they remain healthy. All 31 of the largest US banks passed the Federal Reserve’s annual stress test, which provided a hypothetical scenario where unemployment levels rose to 10%, commercial real estate values decreased by 40% and housing prices fell by 36%. Following the results, the banks released plans to buyback stock and increase dividends. JPMorgan increased its dividend 8.7% and authorized a new $30 B share repurchase program. Jamie Dimon noted the dividend increase marked the second this year for JPM. Citigroup raised its dividend 5.7% and said it would continue to assess share repurchases. Bank of America increased its dividend 8%, but made no mention of share repurchases. Wells Fargo increased its dividend 14% and said it has the capacity to buy back common stock over the four-quarter period starting Q3 2024 through Q2 2025. You likely won’t see these stocks double over the next 12 months, but I believe many of them over the next few years could produce sound returns of around 10% when including dividends. Jobs Report The labor market continues to soften, which should be a positive for Fed rate cuts. Nonfarm payrolls increased by 206,000 in the month of June, which was better than the 200,000 estimate but less than the downwardly revised gain of 218,000 in the month of May. Combined, nonfarm payrolls in April and May were reduced by 111,000. Looking under the hood, the report was even weaker than the headline number indicated considering government was the second largest contributor adding 70K jobs in the month. Health care and social assistance continued to lead the way as the sectors added 82.4K jobs and construction was strong as well as it added 27K jobs. Areas of weakness included manufacturing (-8K), retail trade (-8.5k), and professional and business services (-17K). Wage gains also continued to soften as average hourly earnings were up 3.9% year over year. This was below last month’s reading of 4.1% and is well below the high in 2022 of 5.9%. The unemployment rate climbed to 4.1%, which tied the highest level since October 2021. Part of the increase in the unemployment rate came from a 0.1 percentage point increase in the labor force participation rate to 62.6%. The so-called prime age rate, which focuses on those between ages 25 and 54, rose to 83.7%, its highest in more than 22 years. While a lot of this report may sound negative, it is important to remember that the labor market is softening from a very strong level. We also need to see the labor market soften to give the Fed more confidence in their ability to cut interest rates. I would say this report was very positive considering it achieved the goal of softening without being damaging. We should keep an eye on the reports moving forward to make sure the labor market doesn’t fall off a cliff, but as of right now I don’t see that happening. Labor Market In the recent JOLTs report, job openings showed the labor market continues to soften but to a healthy level. Openings stood at 8.1 million in the month of May, which was an increase from 7.9 million in April. While openings have fallen from a record of around 12 million in 2022, they are still above prepandemic levels when they were tracking at just under 7 million. The report showed the number of job openings for each employed worker remained at 1.2. This is below the peak of 2.0 in 2022, but it is right around prepandemic levels. I would not be surprised if we continue to see the labor market soften even a little further. I believe this would be healthy for the economy as it would create a more balanced labor market between employers and employees. Risky Investing I’m very concerned that the bar on risk taking in investing continues to rise. We are already dealing with crazinessJul 08, 202455:40June 15, 2024 | May CPI, May PPI, Private Investment Deals, Apple Stock and What should you do with your AnnuityMay CPI I would say I was very optimistic after the May Consumer Price Index (CPI) was released. Headline CPI increased 3.3% compared to last year, which was below the estimate and last month’s reading which both stood at 3.4%. Core CPI which excludes food and energy was up 3.4%, which was below the estimate of 3.5% and last month’s reading of 3.6%. This also marked the lowest reading since April 2021 when inflation concerns really began and the core CPI was at 3.0%. In March 2021 core CPI was at 1.6%. The shelter index continues to be the heavyweight moving core CPI as it was up 5.4% over last year and accounted for over two thirds of the annual increase. Many areas of the report have come back down to more normal inflation rates with areas like food at home increasing just 1% compared to last year. Food away from home was a little more challenged as that was up 4% compared to last year. I believe much of this can be attributed to the continued demand for bars and restaurants and the increased wage pressures. Although energy saw a 2% decline compared to the previous month, it was 3.7% higher than last year. This stems from the major fall in energy prices last year that I believe will make for difficult comparisons over the next few months. Two major areas that have remained problematic include admission to sporting events, which saw an increase of 21.7% compared to last year and motor vehicle insurance, which saw an increase of 20.3% compared to last year. It was positive to see a monthly decline in motor vehicle insurance of 0.1%. I believe this category will not be a problem in 2025 as much of the rate increases have now taken place. Overall, I believe this report should be supportive of a rate cut, but we will need to see more reports like this with further progress in the coming months for a cut to actually occur. May PPI After a positive Consumer Price Index (CPI), the Producer Price Index (PPI) delivered more welcome news on the inflation front. May headline PPI rose 2.2% compared to last year and when comparing against the month of April there was a decline of 0.2%. Estimates were looking for a 2.5% increase in the annual number and a 0.1% increase in the monthly figure. When looking at core PPI, which excludes food and energy, the report showed and increase of just 2.3% on annual basis which was below the expectation for a 2.5% increase. These numbers are right around the Fed’s 2% target and should be a positive indicator for CPI and PCE as we continue to move forward. Private Investment Deals Investors be aware that your local broker could start hitting you up for private investment deals to fund apartment complexes somewhere around the country. The problem is the banks are starting to clamp down on just loaning money for projects on apartments that may be losers. In 2023 almost 500,000 new apartments were opened which is the most since the 80s. That growth is expected to continue and it’s estimated to be around the same number in 2024. We have said before this will help bring down housing costs probably by 2025 as there are so many apartments on the market that the owners will give so many free incentives and reduce the rents just to get people in and provide the owners some cash flow. This will affect the housing market along with the CPI since shelter costs are a big part of that index and lower rents would help reduce the inflation numbers. Apple Stock I was surprised to see Apple move more than 7% higher a day after the developer conference on Monday and close at a record high. There was a lot of hype leading up to the event as the company was anticipated to detail more about its AI strategy. I’m not sure if I saw the same conference, but I was not overly impressed by the details. Apple launched Apple Intelligence which can proofread your writing, or even rewrite it in a friendly or professional tone. It can create custom emojis called “genmoji,” search through your iPhone for specific messages frJun 17, 202455:40June 1, 2024 | PCE, Quality Investments, Short-Term Investing and Reducing Auto Insurance PremiumsPCE The core personal consumption expenditures index (PCE), which is the Fed’s preferred measure for inflation did not show much progress in the month of April. Year over year core PCE was up 2.8% which matched the previous month’s reading. If you want to get really mathy with the numbers and move over one more decimal place there was actual a positive move in the number considering it came in at 2.75% vs slightly over 2.8% in the month of March. This would result in the smallest gain since March 2021. Headline PCE which includes food and energy was up 2.7% compared to last year, which also matched last month’s reading and the estimate. While I can’t say the numbers were overly impressive and point to enough evidence for a cut, I also don’t see any reason for the Federal Reserve to discuss rate hikes. My estimate at this point in time is for the Fed to cut once, maybe twice this year. Quality Investments At our firm, Wilsey Asset Management, we are currently getting out of our second largest holding, which we began investing in back around 2010. I want to explain the long-term history of this not to brag about how some of our clients got a very large return over that timeframe, but to help you understand, what happened over the years to get that type of return. The numbers I’m using while very close are not the real numbers and are for educational purposes only. In 2010 we began investing in this company at around $20 per share. Eight years later it traded as high as $120 per share, along with our clients we were very happy with the gains. Then in 2020 when Covid hit, we saw this equity drop more than 50% to around $50 per share. Fast forward to today and we are currently selling this position around $160 per share. The real lesson here is to explain why we continued to hold even when we were down over 50% in 2020. We always talk about the fundamentals and how in the short term they mean very little, but in the long term they can make a big difference. Each quarter we review the financials and listen to or read the conference calls to see what is going on with that company over the last quarter and find out what management sees going forward. Every Monday we go over all the ratios, growth rates, forward earnings and roughly a total of 25 other numbers to keep asking, is this a business we want to continue to hold? This discipline and strategy is what keeps us on course with good quality companies over the long term. I have said for many years we are not traders; we are long-term investors. I want to emphasize that does not mean we or you should ever hold any equity or any investment blindly long-term without following what that business is doing on a regular basis. Short-Term Investing If you’re like our firm, Wilsey Asset Management, you may be sitting on a lot of cash as we have made a couple sales this year and aren’t finding anything worthwhile to buy. The advantage this time is short term rates are high so we can invest that money in short-term instruments and receive a roughly 5% rate. Many other people are catching on. Back in 2022 retail investors only owned about $1 billion of treasury bills, at the last count that is now over $16 billion. Investors need to be cautious because there is what is known as reinvestment risk. Today you may be receiving 5%, but then 6 to 12 months from now that could be 3 to 4%. Keep in mind these should not be long-term investments, but rather a holding place until you can find a good long-term investment. Besides the short-term maturity of T-bills and their safety, they are also come with the benefit of being free from state income taxes. There are also short-term ETF’s and money markets that can invest in short term US government securities, but be aware they may not be investing 100% in tbills. Sometimes they invest in short term loans backed by US government securities or repurchase agreements, which are not free from state income taxes. So, enjoy the high yield on shorJun 03, 202455:40May 25, 2024 | AI Boom, Bond Allocation, Tariffs on Chinese Goods and Mortgage PaymentsAI Boom You may have missed the AI boom in NVIDIA, but for patient longer-term investors there could be a good investment opportunity in energy going forward. As more companies begin to use AI, the demand for energy will increase. Keep in mind that this is on top of expected growth in the electric vehicle market and if it continues on in future years, cryptocurrency is also a drain on electricity to mine all those silly tokens. To give you an example on the power needed for AI, a ChatGPT request takes roughly 10 times as much power compared to if one did a Google search. Based on some research from Bank of America, they estimate that the current demand for electricity from datacenters is currently one to two percent, but in the next seven years that could increase to eight percent. There will be some great opportunities for the investor who is looking out 3 to 5 years, if they invest in good fundamentally strong companies. The nice thing about many energy companies is they also pay a decent dividend while you wait for the investment to grow. Bond Allocation When we see potential clients come to our firm for a consultation and we see they have a 10% to maybe 30% allocation of bonds, I just scratch my head and wonder what the broker was thinking. Maybe they weren’t. Even the Bond King, Bill Gross, who managed the PIMCO Total Return Fund and who was largely responsible for bringing the investment firm PIMCO from assets under management of $12 million to around $2 trillion has said he now dislikes bonds and is investing money in other areas. He had some of the best returns of bond fund managers, but it came at time of declining interest rates from 1981 to 2020 that is now over. With long term interest rates at current levels, I believe the best return that investors could hope for is probably the coupon rate which on a 10-year treasury will be somewhere around 4.5%. This will not only hurt bonds; I believe it will also lead to disappointing returns in the old asset allocation model of 60% in equities and 40% in bonds over the next five to ten years. So, if your broker or advisor has part of your money in bonds, you may want to ask why. I would say be prepared for the weak answer of something to do with asset allocation or that it has worked in the past. In other words, they are taking the easy way out rather than doing some hard research for your portfolio going forward. Tariffs on Chinese Goods I was happy to see the Biden administration boost tariffs on Chinese goods from electric vehicles to steel and aluminum. Unfortunately, I’m worried about Newton’s law that for every action there’s an equal and opposite reaction. The Chinese government will probably counteract against these measures by targeting the imports that they receive from us and US businesses. Two that come to mind are Apple’s iPhones and Tesla’s cars. That would hurt these companies and I believe that’s what the Chinese want to do in response. The Chinese economy is suffering and they are producing far more than they can absorb domestically. As an example, they are now producing seven times the number of electrical vehicles they did in 2019 and consumers don’t have the money to buy them. They have also been a big producer of solar cells and they too are up 500% between 2018 and 2023. China has seen their global exports increase by 14%, but exports to the G7 countries now only count for 29% of those exports. This is far below the 48% it was in the year 2000. My guess would be that they are selling more to other third world countries. This means the prices will not be as high as they could get selling to the G7 countries. One area of concern with these tariffs is higher prices in the US and as we are fighting inflation these tariffs will increase the price of products not just from China, but here in the US we may produce some of those products at a higher cost, which makes reducing inflation more difficult. 2 Monthly Mortgage Payments Making a paymentMay 28, 202455:40May 18, 2024 | PPI, CPI, Private Credit, Meme Stocks and Best Withdrawal Rate for RetirementPPI Initially the Producer Price Index (PPI) looked problematic as it increased 0.5%, which easily topped the estimate of 0.3%. Looking further into the report though, the March reading was revised from an initially reported 0.2% gain to a decline of 0.1%, which more than accounted for this month’s beat. Looking on a year-over-year basis, PPI rose 2.2% and core PPI was 2.4%. While the core PPI increase was the biggest annual move since August 2023, I still don’t believe it’s at a problematic level considering the Fed’s 2% target. CPI The Consumer Price Index (CPI) brought some positive news as the index grew 3.4% in April which was in line with expectations and better than the previous month’s reading of 3.5%. Core CPI which excludes food and energy was up 3.6% and was below last month’s reading of 3.8%. This was the lowest reading for core CPI since April 2021. Shelter continues to be the major weight keeping prices elevated as it was up 5.5% over last year and accounted for over two thirds of the growth in core CPI. Energy which was a major positive for the CPI numbers for much of last year has now brought some pressure to the headline CPI number as it was up 2.6% compared to last year. The easy comparisons from last year have disappeared and now I believe we will continue to see year over year gains in the energy component moving forward. Other areas that remained problematic included motor vehicle insurance (+22.6%), admission to sporting events (+15.4%), and motor vehicle repair (+9.8%). While there are some remaining negatives in the inflation fight, overall, I believe this report shows we are continuing to head in the right direction. Private Credit I have seen investors become more interested in the private credit space, but personally I have not invested any money in it, nor would I recommend my clients do so. Private credit is where nonbank financial institutions, like private-equity firms, make loans to businesses. It was essentially created to serve companies that were too big or risky for banks or too small for the bond market. The funds are generally illiquid, which means you could be stuck in an investment and if it goes south, you may have no other choice than to ride it out and hope it comes back. Also, since they rarely trade you don’t really know what the loans are worth and have to rely on pricing from quarterly accounting estimates. The fees are quite high as they are in the range of 1.25%, which I would consider high for essentially a fixed income alternative. Unknown risks could also be developing in the space due to less regulations and limited oversight. The International Monetary Fund (IMF) recently released a report that stated with the recent increase in yields, more than a third of borrowers have interest costs that exceed their earnings. Pull all the info together and I’m comfortable not being in this investment. Meme Stocks Meme stocks are back in the news with companies like GameStop (GME) and AMC Entertainment (AMC) surging! AMC was actually quite smart and took advantage of the move to do a $250 million stock sale to raise capital. Like I said back in 2021, these moves are occurring for no fundamental reason. The fact that these are occurring because a guy that goes by the name “Roaring Kitty” posted an image of a man in chair leaning forward is just crazy. If you want to gamble on this stock just know that’s all it is, there is no fundamental reason for the company’s stock to be trading at these levels. It’s also important to remember that last time the hype occurred the stock reached an intra-day split adjusted high of $120.75 per share and has been in free fall before this recent move as it touched a three year low of $9.95 per share. I believe the story will end the same way for many of these traders and for those that think they are sticking it to Wall Street, unfortunately it will not have as big of an impact as they think. Financial Planning: Best Withdrawal Rate for RetiMay 20, 202455:40May 4, 2024 | Labor Market Payrolls, Job Openings, Microsoft and AI and StarbucksLabor Market payrolls Nonfarm payrolls increased by 175,000 in the month of April. While this was well below the estimate of 240,000, this may actually be a big positive. Having that type of growth still shows the labor market is on good footing, but to combat the Fed’s inflation concerns it’s nice to see a labor market that is not too hot. Previous revisions also weren’t major considering March was revised up by 12,000 to a gain of 315,000 and February was revised lower by 34,000 to a gain of 236,000. Areas of strength included health care and social assistance (+87K), transportation and warehousing (+20.1K), and retail trade (+20.1K). Some areas actually saw minor losses including mining and logging (-3K), professional and business services (-4K), and information (-8K). With wage inflation being a major concern, I’d say the biggest data point was average hourly earnings growth of 3.9% missed the expectation of 4.0%. This was a decline from March’s reading of 4.1% and actually marked the lowest reading since the Fed starting hiking interest rates in 2022. Overall, I was quite pleased with the job numbers as I believe it shows a cooling labor market that remains healthy. Job Openings At the end of March job openings totaled 8.5 million. This missed the estimate of 8.7 million and was lower compared to the previous month’s reading of 8.8 million. Compared to last year, job openings were down 1.1 million. While this all sounds like bad news, I believe this is a positive. To start, pre-covid we had never seen a reading of over 8 million job openings, which means there is still plenty of available work for those that are looking. Also, when there were too many available jobs it created more competition for workers, which many times leads to wage pressures and in theory puts pressure on inflation. The labor market has remained resilient, but I believe we need to continue to see some softening to assist with inflationary concerns. This report came after the employment cost index spooked markets as it rose 1.2% in the first three months of the year versus an expectation of 1%. Compared to last year’s first quarter, wages and benefits rose 4.2%, which matched Q4’s reading and is off the multidecade high of 5.1% in 2022. Wages make up about 70% of employment costs and they increased 4.3% compared to last year, while benefit costs increased 3.7%. One other note to consider is that union workers saw a larger increase than non-union employees in the quarter. As we lap the impact from the union negotiations that concluded late last year, we will likely see a smaller increase from union jobs in the report. Microsoft and OpenAI I’m very curious to see how lawsuits against Microsoft and OpenAI over copyright infringement play out. Late last year the New York Times announced a lawsuit and now eight newspaper publishers in California, Colorado, Illinois, Florida, Minnesota, and New York have claimed Microsoft and OpenAI used millions of their articles without payment or permission. All eight publishers fall under the ownership of hedge fund Alden Global Capital and include names like the Denver Post, Chicago Tribune, and the New York Daily News. “The current GPT-4 LLM will output near-verbatim copies of significant portions of the publishers’ works when prompted to do so,” the complaint said. It also showed several examples of ChatGPT and the Copilot allegedly doing so. If these companies are able to win, I worry it could open the floodgates and other content providers could then claim the same infractions. ChatGPT also received more bad news with competitor Anthropic announcing its first enterprise offering and a free iPhone app. Anthropic was founded by ex-OpenAI research executives and has backers that include Amazon, Google, and Salesforce. Its Claude 3 model can reportedly summarize up to about 150,000 words and convert the large data sets into summaries in the form of a memo, letter or story. For comparison, ChatGPT can haMay 06, 202455:40March 30, 2024 | EV Sales, History of Hype Investing, PCE, Roth IRA 5-Year RulesElectric Vehicle Sales Electric vehicle sales have really not kept up with expectations and I’m concerned for the smaller companies such as Lucid, Fisker and Rivian, which besides Tesla may be the only other exclusive electric vehicle company that may survive. Digging deeper into the numbers for Lucid, since 2021 they’ve only built 10,495 cars and the most recent quarterly loss per vehicle was $145,824. When the company first went public back in 2021, they had $4.8 billion in cash, but as of the end of 2023 the company is down to cash of $1.4 billion. In 2023 the company burned through $3.4 billion in cash. The only thing that could save this company would be another billion-dollar investment from the Saudi Arabia Public Investment Fund as they did back in 2018 when they invested $1 billion. I really like the look of the Lucid Air, but do not see how this company will survive. I would speculate that by 2025 this company will be in bankruptcy. The sad part is for people buying the cars today because of the great deals they may be receiving, think ahead a few years about who will be around to service these cars and they may be stuck in your garage with no way to get them serviced. I would encourage people if you’re going to buy an electric vehicle, buy it from a well-known brand like Ford or General Motors who will be around for years to come to service that vehicle. History of Hype Investing Are people so smart that they really don’t need to look at what happened in history? We have said many times we stay away from the hype investments like Nvidia and cryptocurrencies and back this up with reality. Let’s go back and learn from the late 90s about a company called CMGI, which helped fund internet startups. It was claimed to be one of the hottest investments in history and the CEO, David Wetherell, was deemed to be a hero and a genius. Keep in mind this was 24 years ago and when the company hit a $34 billion market cap, it was larger than Alcoa or Texaco. All the financial talk shows could not talk enough about CMGI and why the stock would continue to go up and what a great investment it was. Anyone on the other side who warned about this was considered a fool, or an idiot. They were told they didn’t understand enough about the company. In 1999, the stock rose 940% and everybody wanted a piece of it. Starting to sound familiar yet? However, the next year when the curtain came down, the stock fell 96%. That was the end of the story for many investors! PCE No real exciting news from the personal consumption expenditures price index (PCE) as it was right in line with expectations. The headline number showed an annual increase of 2.5%, which matched the forecast. This was however above the January reading of 2.4%. This increase was likely a result of energy prices as they climbed 2.3% in the month. Core PCE, which excludes food and energy also matched expectations with a 2.8% rise compared to last year. This was slightly lower than last month’s reading of 2.9% and marked the smallest gain since March 2021. Roth IRA 5-Year Rules There is often confusion around the nuances of the 5-year Roth IRA rules. There are two separate 5-year rules that apply depending on whether a contribution or a conversion is made. In a nutshell, the rule for contributions dictates how long you must wait to access the earnings without taxes or penalties, while the rule for conversions dictates how long you must wait to access the conversion principal. When making a contribution to a Roth IRA, you can always withdraw the contribution principal no matter your age. This is because contributions are made with after-tax funds. To access the earnings, the account must have been funded at least 5 tax years ago, and you must be at least age 59.5. Being age 59.5 alone is not enough to access those earnings. A contribution of any size will start this 5-year clock and after those 5 years it will no longer be relevant. After making a Roth Conversion, thereApr 01, 202455:40
