November Was Just Great, and This Has Been a Great Financial Year. Let Me Give You the Highs and The Lows of the Month

From the Desk of Joe Rollins

Ava and Josh are all “spruced up” for the holidays!

It is hard to explain how good the month of November 2024 has been. Not only did the financial markets hit all-time highs, but there was also a new and better perception by the public that we are entering a growth cycle in the coming years as compared to the previous years. I have so many topics I would like to cover but will try to keep it limited to the most important ones.

I also want to do something particularly unusual for this posting. I want to give you the history of a 40-year client who recently passed away. I also want to discuss in detail DOGE (Department of Government Efficiency) and the importance that this agency will have for our future. I also want to get back to the explanation of wealth and the transfer of wealth to the next generation. And just to wrap up all those issues, I will have to discuss taxes, tariffs, and the difficult situation the current administration has left us.

Yes, I understand that this is a long laundry list of items, but there are things that I feel need to be said. Before I can get to those terribly interesting topics, I want to report on the excellent month of November. The Standard and Poor’s Index of 500 stocks had a great month during November, up 5.9%. This Index for the year is up 28.1% through November 30th, and its one-year return is an unbelievable 33.9%. The NASDAQ Composite was up 6.3% in November and is up 28.9% for the year 2024. Its one-year total return is 36.1%. The Dow Jones Industrial Average was up 7.7% in November and is up 21.2% for the year 2024 so far. The one-year return on this Index is 27.2%.

No Musciano-Howard tree decorating is complete
without the help of Muzzy and Jennie!

I always like to give you the Bond Index since it so vividly contrasts the return on equities. The Bloomberg Barclay’s Aggregate Index was up 1.1% for November and is up 3% for the year 2024. The one-year performance on this Index is 6.9%. Also, I want to point out that over the last 10 years, the Bond Index has had an average return of 1.5%. As you can see from above, the Equity Index is at or near 30% are greater for the one-year return, and the Bond Index is barely positive. Those who advised you that you should have a heavy concentration in bonds over the last decade have not provided you with a very positive service. Equity investing has been so much more profitable than bond indexing over the last decade, and we expect that trend to continue.

It was reported on Friday that the number of new jobs created by the U.S. economy was up 227,000 forthe month of November. This is a sharp rebound for the depressed numbers in the month of October, which was affected by the hurricanes and various strikes around the country. The only negative news in this otherwise positive report was that unemployment had slipped and had gone up from 4.1% previously to 4.2% now. The good news far exceeded the bad news in this report. Average hourly earnings were actually up 4% year over year from the previous year. For the first time, it is clear that earnings now are gaining faster than inflation. For many of the months in the previous year, inflation was running at 5% to 6% while the average earnings growth was only growing at 3%. Finally, that trend is starting to reverse, which allows the average family to enjoy greater discretionary cash flow.

JD, Josh, Carter and Ava ready to cheer on Atlanta.
Fly Falcons, Fly!

It does not look like the economy is slipping into a decline. The Federal Reserve of Atlanta is now forecasting the GDP growth in the fourth quarter of 2024 at 3.3%. Since we are already in the third month of the quarter, much of the information necessary to develop this forecast is now available. If, in fact, the economy does have this strong performance of 3.3%, it will indicate that the economy over the last few quarters has been growing, not declining.

With a new administration that is focused on growth, that is a good omen going into the year 2025. Also, we are seeing the broadening of investing away from the magnificent seven tech stocks into a broader return of a more balanced portfolio. As you can tell from the numbers above, the S&P 500 Index and the Dow Jones Industrial Index are now catching up with the tech-heavy NASDAQ Composite for the year. You cannot help but be excited about the potential for growth in 2025 and reflect on the excellent year we enjoyed in 2024.

If you think I am the only one who is positive about next year’s financial market performance, you would be incorrect. I looked up the projections of the major brokerage houses to see what they think 2025 would bring to the financial markets. JP Morgan Chase, Morgan Stanley, and Goldman Sachs project the S&P 500 will reach 6,500 by the end of next year. Today, that index is at 6,034, which would imply a gain of 7.7% over the next one-year period. However, it also does not include the dividend yield of almost 2%, making that total return in excess of 9%.

Reid and Caroline roasting on an open fire

Other banks have even higher expectations. Barclays recently increased their price target to 6,600, while Bank of America and Deutsch Bank expect the benchmark index to hit 6,666 and 7,000, respectively. If these major brokerage houses are even close to correct, then 2025 looks like an excellent year. I am on board with these projections, and I think the indexes will close 2025 at roughly 6,600, plus the dividend yield for a total gain of roughly 12%. I guess I am not that great of a forecaster since I have forecasted the 2024 year to be up 10%, and it looks like it will close the year closer to 30%. I am very thankful for my very poor call on the ’24 performance.

In many of the postings, I have indicated that something is going on with the invested public that has never occurred before. You are seeing a buildup of wealth and a transfer of wealth, unlike any time in the financial past of the U.S. The substantial buildup of wealth and the subsequent passing down of that wealth to the next generation will forever change how investing is done in the future. How could you really compare what took place a decade ago with the results of today? With such a large concentration of money invested, it would take a substantial economic event to actually affect the markets. Every day, more and more money flows into retirement accounts, building up a larger base that would be very difficult to move in a negative reversal.

Joe enjoying dinner with his favorite people - Dakota, Ava, Carter and Josh

You may think I made up this information, but it is based on hard facts. Fidelity Investments just recently announced that the average 401(k) that they manage was up 9.5% in the third quarter of 2024. Further, they indicated that they have 544,000 401(k) accounts that exceed $1 million out of the 24 million account balances they manage. It is assumed by most that there are roughly 100 million 401(k) balances currently active in the United States. If the Fidelity numbers are representative of the total, that means that there are currently over two million 401(k) accounts with balances over $1 million.

These numbers do not even come close to calculating the number of IRA balances exceeding $1 million. It is reported by Fidelity Investment that they have over 400,000 IRAs in excess of $1 million, and once again, assuming that they only have ¼ of all the assets, that is another 1.6 million IRAs with $1 million or greater in investments.

Evan and Alexis getting into the holiday spirit(s) at East Lake Golf Club!

I give you all these boring numbers to point out the fact that never in American finance have so many investors invested this much money in the future of the American economy. Most of this money will never be consumed by the current contributor but is likely to be passed down to the next generation or maybe even the third generation. Never before in American finance has there been such an extraordinary transfer of wealth like the one that will occur over the next decade. This transfer of wealth to the younger generation will change everything about consumer spending and retirement savings. I do not know how anyone could see this as a negative, as it creates a stable economic environment for generations to come.

As I pointed out in the last posting, all of us should be concerned about the huge deficits run up by the current administration. When you look at the numbers, it is hard to believe that since 2020, the amount of National debt in the United States has increased by $13 trillion. In 2020, the U.S. debt was $23 trillion, and now it is $36 trillion. It is hard to fathom that the government would spend $13 trillion in only a four-year period and increase the national debt by 56% over such a short period of time.

As I pointed out in that posting, all is not lost in making this deficit whole. It is true we cannot cut spending enough to reduce this deficit, but we certainly could grow out of it. If the economy continues to grow, by its very nature, taxes will increase and maybe this growth will allow the deficit to be reduced. Hopefully, we now have an administration that is willing to take on the debt, try to balance the budget and reverse the negative trend that has gone on for the last decade.

Carter and Josh looking Merry + Bright!

Frankly, I do not know how anyone could be anything other than excited about the new Department of Government Efficiency (DOGE). First off, you have two basic billionaires running this agency. It is their job to cut out expenses, and they have already identified over $500 billion of expenses that could be eliminated almost immediately. In addition, they will finally attack the ever-growing governmental employment and evaluate which employees need to stay and which need to go. It is even hard to believe that for the month of November, the government has hired over 30,000 new employees. It is time now for Federal employees to be ordered back to their offices, and those who are not contributing need to be eliminated. In my opinion, every American should encourage and desire the success of this brand-new governmental agency.

I read so much negative criticism about Elon Musk and I often wonder why people are so negative. I think we will one day look back on Elon and put him in the same category as Thomas Edison. Here is a man who invented essentially new industries that no one even considered. None of the major car manufacturers can make a profit on electric vehicles, but Tesla can. His companies have essentially put NASA completely out of business and have bankrupted the space division of Boeing. He is the wealthiest man in the world by a long shot, and how anyone questions his intellect is inconceivable to me. If he and Vivek Ramaswamy can make it anywhere close to the cost-cutting they are now projecting, they will have done a great service for Americans.

DeNay in Wonderland (Atlanta Botanical Gardens)

There are so many negative things that the current administration has left us with. One of the weirdest items is that the mandates on electric vehicles have forced the major car manufacturers to produce electric vehicles at staggering losses. It has also forced these companies to lay-off employees due to the lack of profitability in selling electric cars. Only Tesla has succeeded in being profitable in its production. However, the mandates coming out of Washington have affected the private sector by imposing limitations on the cars they built and, therefore, the number of employees they have.

As pointed out above, during the last five years the Federal deficit has soared by $13 trillion. This trend cannot continue, and it must be satisfied. The combination of a growth policy and constrained spending could get the current budget under control but would do little to satisfy the accumulated debt. For reasons unbeknownst to economists, much of this debt has been financed as short-term debts. As everyone knows, the inverted bond yield has produced much higher rates for short-term debt than long-term debt. However, most of this debt has been financed with short-term debt, which has the highest interest rates. Once again, it is a bad omen for the future in that the cost of carrying this debt will be at higher, not lower, rates.

Mia and family making fun memories at Lake Arrowhead in Waleska, GA

In addition, the current administration has drawn down the strategic petroleum reserve by roughly one-half. Part of this was designed to flood the U.S. market with oil and reduce the price of gasoline, affecting the cost of inflation. When the current administration took office in 2021, there were 638 million barrels of oil in the strategic petroleum reserve. Today, that number is 392 barrels. While the US now is the largest producer of oil in the world, this lack of a petroleum reserve could be important if a worldwide crisis were to occur, and we did not have the reserve to back up the war effort.

To the credit of the current administration, it has reduced undocumented immigration on the southern border substantially since the summer. For the month of October, there were 106,344 crossings. Contrast that with the previous October when there were 240,927 crossings. Why did they not do this three years ago? The number of crossings has gone down by one-half over that one-year period due to better supervision of the border crossings. I cannot imagine any American being satisfied with 106,000 crossings in only one month. If annualized, that means over 1.2 million undocumented crossings a year, and that must end in order to maintain any type of law and order in the United States.

I read so much about tariffs, and I wonder whether people view them just as vanilla increases in price. There is no question that tariffs increase prices since if you increase the cost of the product, the selling price to the public must go up. But there are many reasons why tariffs are imposed. The most important issue is the government's illegal subsidies for its products so that they are cheaper in the world market. There would be no question that China subsidizes their industries, making for an unfair advantage and a disadvantage for American workers and manufacturers. It would seem that no one should argue with tariffs on Chinese goods since they have been basically in place for the last seven years. Already the threat of tariffs to Mexico and Canada has resulted in a positive movement by these countries to improve immigration and the shipment of drugs. The question would be whether these tariffs ever go into existence or whether they are just a negotiating point. I think the latter.

Mal is making a list and chewing it twice…

One of the things that never seems to be in these articles regarding tariffs is whether, in fact, the offending countries might come to the United States and establish manufacturing in the United States to overcome the tariffs. That would be very much a positive factor for U.S. employment since it would increase jobs and taxes and bring international operations to the employment of the U.S. This would be very much a positive thing for the U.S. economy.

I guess all of us got a little bit tired of hearing about taxes in the election and paying our fair share. It seemed like every other word out of politicians' mouths was to make the rich pay their fair share, and everything in America would be good. Basically, what they were saying is to give the Federal government more money, and we will distribute that money to whomever we so elect without any oversight by the public while spending this money. In fact, do the rich not pay their fair share today? The IRS documentation proves they do.

For 2022, the top one percent of the population, defined as anyone who makes greater than $663,000, pays 40.4% of every tax dollar in America. Even the smaller taxpayers between the top 1% and 5% pay a substantial portion in income taxes. There were about 6.2 million returns above $262,000 but below $663,000 in adjusted gross income. These people had 15.9% of the total earnings on all tax returns filed, but they contributed 20.6% of all income tax revenue. Their average tax rate was 18.5% on the first dollar and not on the first incremental dollar.

Some special ornaments we’ve received over the years

All this sums up to the fact that the top 25% of all earners in the United States reported 69.9% of all income in 2022 but paid 87.2% of all income taxes. I am not sure what you define as being the fair share, but clearly the top 25% is paying virtually all the income taxes. It has been pointed out that if you confiscated every dollar earned by the top 25% of the highest-paid people in the U.S., it still would be an inadequate amount to fully fund the Federal deficit. Therefore, the solution to the deficit is not increasing tax rates but rather increasing the economy so tax revenues go up and reducing the substantial amount of wasted money that the Federal government now spends.

I want to give a short history about my client, Bill Battle. When I was playing basketball in Tennessee, the most important person in the state of Tennessee was the head football coach of the Tennessee Volunteers. Many say that he was much more influential than the Governor, which I would say was not even close. At the time when I went to college, the head football coach at Tennessee was Doug Dickey, but he resigned in 1970 to take the job at the University of Florida, and they promoted a little unknown assistant coach by the name of Bill Battle, who was 28 years old at the time. Bill has told me many times that his first salary as head coach at Tennessee was $37,000 annually which compares to current head coaches of major institutions making $10 million or more.

Two Greats - Paul “Bear” Bryant alongside Bill Battle

Obviously, I knew Bill's name and had run across him several times in the athletic dorm, but he neither knew me nor did I really know him. As you know, Bill had a successful career in coaching the Volunteers, but his career ended when Bobby Majors was hired to replace him in 1976. You may have heard the famous story of the moving vans being sent to Bill's house unbeknownst to him and his wife, to encourage him to leave town. In fact, he did shortly leave Knoxville and moved to Selma, Alabama, to work for a window manufacturer there.

The story goes that Coach Bear Bryant (who Bill played for in the 1960s) wanted Bill to help him with his licensing and to organize the licensing prospects at the University of Alabama. Bill quickly learned that no one in Alabama knew anything about licensing, and currently, no one had any legal documents to prevent people from infringing on the trademarks. Bill saw this as an opportunity and quickly moved into licensing for all major universities over the next decade. Basically, the major universities were receiving no royalty income prior to Bill Battle’s involvement, and today, that is a substantial portion of their athletic budget. Bill moved his operation for licensing to Atlanta in 1982, and I first met him in 1985. At that time, only he and the family were running the business, and it had little financial impact. Bill went on to grow that company and sell it for over $100 million (public information). If you thought he would retire and disappear into the sunset, you were wrong.

Bear and Bill sharing a laugh

When the athletic director of the University of Alabama suddenly died, they called on Bill to replace him – to which he obliged. He moved on to a remarkably successful career, winning multiple National Championships while he was there.

Bill recently passed away, and I look back on the 40-year relationship we had as a client and a friend. He was one of the most honest and respected businessmen you could ever run across. He recently finished his book before his death titled “The Master’s Plan.” Much of the book contains information regarding Tennessee football, but much of it is personal and important. I highly recommend it to those who have an interest in reading it. I guess we could all say that we are coming to the end of an era when clients have been around for 40 years. You could not have asked for a more enjoyable and impactful client than Bill Battle over the last four decades.

I keep reading in the paper all the negative implications of the appointee for the Department of Defense. Pete Hegseth. I had never heard of Mr. Hegseth until all this controversy came up. I read his resume, which indicated he had a lengthy military background and was a commentator on Fox News. I had never seen any of his Fox reports since they ran on Saturdays, and I really knew nothing about his military experience. So, when all the controversy came up, I decided to educate myself on the subject.

Client Steve Thompson came by to visit and hit the Buckhead Club with Joe

In the last several weeks, I have read three of his books. I am extraordinarily impressed with his insight and his intellectual ability. I also cannot believe how candid he is in these books, and with the information that is so readily pointed out, there is a need to cut this spending in defense. One of the items that got my attention was the extraordinarily high level of the military. As he pointed out today, there are 44 four-star generals in the United States with absolutely no wars going on. With only a standing army of roughly 1.7 million people, the number of four-star generals has never been this high. If you compared it to World War II, when almost 5 million Americans were in the war effort, there were only six four-star generals for the entire conflict. You have to ask yourself why we would have so many four-star generals in the military today when there is not even a current conflict ongoing. Time for them to move on.

As pointed out in his books, there are so many cost savings that could occur in the military. All of us have heard about the exorbitant cost of things in the military process. It is now time to attack the budget of the military, cut back the top-heavy personnel no longer needed and make the military once again efficient for the future. There had been a major drawdown of military armaments sent to Ukraine for the war effort. It is now viewed by many that the military is underequipped, undertrained, and with too many leaders and not enough followers.

The love of family is the true magic of Christmas!

I do not know how you feel about tackling the military and trying to bring efficiency to it, but the time is right. I am not sure he is the man for the job, but he is the only one that I have heard of who has expressed the interest, the desire, or shown the intellectual capacity to make this reduction. Now that we have an administration that is focused on growth, cutting expenses, and making the government more reflective of its people, Mr. Hegseth might just succeed, and I am going to give him a chance.

I recognize that this posting kind of rambles around on many subjects, and frankly, there are more topics I would like to cover, but due to its length, I will postpone those to a future posting. In summary, it has been a fabulous financial year, and I feel sorry for those investors who still have their money in cash. Also, I am aware that in January, virtually everyone could make an IRA or Roth contribution for that current year and should do so. 401(k) limits have gone up for 2025, and I fully expect to see Americans contributing more to their 401(k) and the wealth effect passing down from generation to generation. If you are not feeling good about how well your investments have performed over the last several years, then you just have not reviewed them recently. We highly encourage you to visit us and go over your investments and discuss your goals so that we can help you achieve those goals in the coming years.

As always, the foregoing includes my opinions, assumptions, and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins

All investments carry a risk of loss, including the possible loss of principal.  There is no assurance that any investment will be profitable.

This commentary contains forward-looking statements, which are provided to allow clients and potential clients the opportunity to understand our beliefs and opinions in respect of the future.  These statements are not guarantees, and undue reliance should not be placed on them.  Forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from our expectations.  There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.

“We have two kinds of forecasters: those who don’t know and those who don’t know they don’t know” – John Kenneth Galbraith

From the Desk of Joe Rollins

"The magic of pasta lies in its ability to bring people
together around the table."

I guess you could classify me as one of those forecasters above. I am not sure whether it is the former or the latter, but in either case, the end result is the same. There is an old saying that the reason economists have jobs is because they tend to make weather forecasters look good. In fact, neither one of them are fully accurate in their projections. Certainly, no one knows what the next four years will bring under the new presidency, but I have some thoughts I would like to pass along.

One of the major concerns regarding the U.S. nowadays is its Federal deficit. Currently, the national debt exceeds $31 trillion and has grown exponentially over the last few years. I get the sense from many people that they do not believe this number is controllable and that we could ever work our way out of this mess. There is a way it can be done, and certainly I do not think the debt is unmanageable. I hope to explain this further in this posting.

Rachel Keller’s adorable “Millie” Mouse.
“Remember, you’re the one who can fill the world with sunshine.”

I recently traveled to New York City, namely, to see new Broadway plays. My daughter and I have a long-term affection for Broadway musicals. We try to go to New York each year and catch whatever is new. My love of Broadway goes back to my childhood, which I would also like to discuss.

There has been a lot written about fracking in the current election. I would like to try and explain why fracking is so important and so valuable to the U.S. Those who want to eliminate fracking clearly do not understand the interaction between our ability to frack in this country and our 100% self-reliance on produced energy in the United States. Hopefully, I can illustrate how the elimination of fracking would be an economic disaster in the United States.

Game face on ✓ Let’s go, Ava!

With all the major market indexes hitting all-time highs in November, I received many calls regarding stock prices. I would be the first to tell you that stock prices are priced to perfection, but that does not mean they will not go higher. There is a great deal that you need to understand about future stock pricing and exactly why new highs are not necessarily bad.

The most important thing I want to emphasize in this posting is what we have learned over the last few years. If you study economics long enough, you realize that every year is a learning process. They may teach you long-term trends that have happened in the past, but none of that will mean anything if economic circumstances change. I have learned a lot over the last four years that has led to us having great financial results for our clients. But I have also learned that mainstream economists are more often wrong than they are correct. I find that if you follow these so-called experts on Wall Street, you almost assuredly have to evaluate their advice with a “grain of salt.” I think I can illustrate that in this posting.

Evan and Alexis looking stunning at a friend’s wedding in Huntsville

Before covering all those terribly interesting ideas, I need to report the performance for the month of October. I think it can clearly be said that October was a nothingburger. Virtually nothing was going on, and that is fully reasonable given the circumstances. Given that the election was on November 5th, right after the end of the month, you would expect the markets to be cautious. In addition, the Federal Reserve was due to meet on November 6th, so you had a double whammy that would affect the news that could affect the market dramatically. It appears that for the month of October, virtually everyone was sitting on their hands, waiting for the news to occur. However, we cannot ignore those results and need to report on them.

For the month of October, the Standard and Poor’s Index of 500 Stocks lost 0.9% and is up 21% for the year through October. As I would like to point out, the 10-year return for this Index is 13% per year. The NASDAQ Composite was down 0.5% for the month of October and is up 21.3% for the year-to-date through the end of October. The 10-year return for this Index is 15.7% annually. The Dow Jones Industrial Average was down 1.3% during the month of October and is up 12.5% for the year through October. The 10-year return on this Index is 11.7%.

Marti and Mitch celebrating Homecoming at LaGrange College.
These twins are “two”rrific!

For the month of October, the Bond Index was very volatile with the anticipation that the Federal Reserve might increase interest rates rather than cut them. As we now know, that did not happen, but that did not keep the bond index from reacting to those rumors. For the month of October, the Bloomberg Barclays Aggregate Bond Index was down 2.5%. For the year-to-date, that Index is up 1.9%, and the 10-year average of this Index was 1.5% annually. As I have pointed out endlessly in these postings, the major market indexes have had double-digit returns for the last 10 years. However, the Bond Index has had a dismal 1.5% annual rate over the last decade.

When I was very young, my father was required to attend a conference in Boston for one of the civic organizations for which he was President. You can imagine the excitement of packing up the family and driving from Tennessee all the way to Boston. Since it was winter and close to the Christmas season, we took the opportunity to stop in New York City to see the sights. My father had friends there who had bought Broadway tickets for us to see Mary Martin in the play South Pacific. I am not sure what the date was, sometime in the early 1950’s, but I was sold. I became a fan of Broadway musicals from that day forward and have seen or attended Broadway musicals around the world.

The cutest orange M&M and Harry Potter to hit the streets on Halloween!

We recently went to New York City to catch some new plays and see what was interesting. We could see five Broadway plays in three days by attending the matinees. Not only do I have a great interest in Broadway musicals, but my daughter enjoys the music and collects all the posters and cast recordings of those plays. However, one of the things that I have noticed by going to New York City on a regular basis is the deterioration of the city itself. Due to so many employees not going to their offices for work, the lunch business has almost evaporated in Manhattan.

The city seems dirtier than ever, and what has happened to Times Square is embarrassing. It is true that every night, Times Square receives thousands upon thousands of tourists, but the influx of people begging and seeking money for pictures is embarrassing. You cannot help but think the city would do more to clean itself up, but unfortunately, they are not interested in improvement. New York City is currently the center of great Broadway musicals. No other city rivals it, and we will continue to visit it as long as possible. It is just unfortunate that the city seems to be trending in a downward direction when it has so much greatness to offer.

This will be the last time Kasten asks Josh
to pick up spare ribs on the way home

I am often approached about what the U.S. could do about the huge deficit that the Federal government runs up every year. This year, it looks like the deficit will be somewhere around $1.8 trillion. The current debt now exceeds the GDP by roughly 15%. That certainly is a negative trend after 100 years of the national debt being less than the GDP. However, I am not as pessimistic as many when it comes to solving the deficit issue. One of the things that we have learned over the last four years is that the expansion of Federal and state government employees is no substitute for workers in the private sector. The government does not create innovation or expand the technology dominance in the United States. What it does is burden the U.S. citizens with extra taxes, and the inefficiencies of the government are legendary.

But I wonder if you realize how fast the government has grown during the last administration. From December 2020 to March 2024, which were all dominated by the current administration, the Environmental Protection Agency has grown by 9.4%. The agriculture department has grown by 9.6%, and the Department of Housing and Urban Development has grown up by 10.7%. I am not sure what exactly these agencies do, but I can assure you they probably just write rules and regulations that make our lives more complex. But these are not the only agencies that grew, as the Energy Department grew 14.8%, the State Department grew 18.4%, and the Health and Human Services grew 18.4%. It is hard for me to even venture a guess as to exactly what these agencies do and why the need to grow these agencies at such an alarming rate was required. Meanwhile, employment was down by 1.2% for the Department of Defense. As you can tell, employment throughout most of the government was up double digits but our security was down.

Reid and Caroline hanging out with the Hulk at the Baha Mar Casino in Nassau

There was great outrage when Elon Musk indicated that he would cut $2 trillion out of the Federal budget. Obviously, that would be virtually impossible, given that it would require cuts in Medicare and Social Security. However, as you can see from the growth of the government, there is room for the U.S. government to severely cut back employment. If you did nothing more than require Federal employees to come to the office five days a week, you would probably eliminate a good many. This issue could be resolved simply by freezing employment in the government. If you let natural retirements take place and do not replace those jobs, you would materially reduce the number of people on the Federal payroll over a four-year period. I think realistically if the new administration could cut Federal employees back to the level during 2020, that would make a major improvement on the cost of government. I understand that cutting 10% of the Federal workforce would save close to $4 billion a year, which should be meaningful to all who really care.

The one way that the Federal budget can be solved and balanced in the future is not only by cutting expenses but by increasing economic growth. Everyone I have talked to discusses the fact that all the major market indexes are at all-time highs and that, assuredly, we are due a pullback. With the market trading at roughly 22 times forward earnings, that would certainly seem to be above the long-term trend at 19 times. However, if you consider that earnings are expected to grow 15% in 2025 and 13% in 2026, the current evaluation does not seem to be as onerous. But I have higher expectations.

Whole Lotta Love! Michael and Aunt Mia in their matching tees.
Happy Birthday, Michael!

If you are not excited about the policies of the new administration, you just do not realize the benefits that the U.S. economy could have from a less administrative burden, lower taxes and a growth-oriented Federal government. I cannot speak to the social aspect or the faults of the current President, but I can tell you that with a smaller government and less administrative burden, the economy could expand even further than where it sits today. This is not just a promise, it is exactly what happened during his first term. Non-economists just do not understand the benefits of a lower corporate tax rate. Even though corporations are demonized during the election, corporations are the employers that keep the U.S. growing.

If you increase the corporate tax rate, foreign companies are not likely to want to move to the United States to employ our people. If you lower the tax rate below the rate of other countries, companies from around the world will seek opportunities in the U.S. to employ people. If you combine that with the less administrative burden and reduce the meddling that the Federal government has in private businesses, almost assuredly the GDP is going to pick up. I am optimistic that we are going to see an expanding U.S. economy which will produce higher profits, which in the end will create more tax dollars to fund the deficit.

It is a combination of lower spending and higher growth that will bring the deficit under control. For those that fear the national debt, that is misplaced. We are a country that can print money and as long as we can do so, debt is not a problem. However, currently the interest to carry the debt is now greater than the entire budget for the Defense Department. This continuing growth of debt and higher interest rates will be devastating to the economy in a decade or two. Now is the time to attack spending by the Federal government, reduce taxes which will increase earnings and employ more people in the private sector, which hopefully will raise more tax dollars to pay down the deficit. There is no question in my mind that this is the right move at the current time.

Throwback from the 80s when Joe used to take the staff to Mexico. Alas…

Many people were surprised at the election and its current winners. I luckily projected the winner because I read extensively on the consumer and the effect that wages have on consumer purchases or nonpurchases. There is one fact that defines the entire election. For the period from January 2017 through December 2020, the level of prices and wages grew nearly 7% during that time frame. That was the time frame of the first Trump presidency. During the Biden administration, average level of prices and wages went down 0.5% and during the height of the inflation, was downed as much as 3.8%. What you saw during the last four years was a decline in the ability of the average person to purchase groceries and, after inflation, saw their wages actually fall.

There were many foolish proposals during the election that were not attainable. Trump wanted to exclude tips from being taxable income. All I could think about was that we would quit charging clients for our services and request tips instead. A democratic candidate proposed reducing grocery costs by eliminating price gouging. Another absurd proposal that was not attainable. Anyway, many promises were made, but I doubt very seriously whether many of them will be sustainable.

What we have learned over the last four years is extremely important. You may recall that at the beginning of 2021 the new administration passed a $1.9 trillion special Bill to pass out money to the American public and a lot of political cronies. Much of this money was used to bail out inept pension funds that could not make money investing. A great deal of the money went back to cities that were inept at running their operations and suffered during Covid. The remainder of the money was given to the public, which we now know in many cases went in the hands of foreigners, scam organizers and people that just cheated the system. What we know implicitly about this incredible mistake by the Federal government, it created its extraordinarily high inflation that took years to tank.

Bill Bewley immersing himself in Italy’s culinary
traditions with a pasta making class

Realizing that this entire $1.9 trillion was manufactured money and an increased deficit, when you pour that much money into the economy over a short period of time, you are going to create shortfalls. All of us knew and heard about the supply chain shortages during late 2021 and 2022. What we did not realize was that it was not a supply shortage, but a demand acceleration created by these excess funds. What we learned emphatically is that governmental money funneled in the economy likely does more damage than it does good. The net effect of this change was extraordinarily high inflation that reached a 9% level in 2022. The Federal Reserve at the beginning indicated that the inflation was transitory and would not last. They were clearly wrong. What we learned is you cannot dump this amount of money into an economy, which at the time did not really need it, and not expect it to have adverse effects when it comes to increased inflation.

At the beginning of 2022, all the so-called experts on Wall Street indicated that due to the increase in interest rates by the Federal Reserve we clearly would have recession in 2022 and 2023. They indicated that with the inverse yield curve they had the strongest argument ever of upcoming recession. I argued in these postings that they were incorrect. The economy was weak, yet it was positive and there was certainly no indication it was going to flip over and be negative. However, the so-called experts convinced the public and the market went down dramatically in 2022, even though no recession ever appeared. I was right and they were wrong, but the markets did not believe me. Yes, 2022 was a difficult year for us all given the incorrect advice we received from Wall Street at the price action of stocks, which was nothing but negative.

In 2023 and now in 2024 the markets have been up substantially. It is likely that there will be a 40% gain after those two years if we end the year where we are today. When you consider that the market was down 20% in 2022 but maybe up 40% in the two intervening years, it tells you that the economy never actually contracted. I do not anticipate the economy contracting for the next several years, but you just never know.

“A lioness does not need to roar to keep the crowd in awe.” - South Africa 2023

Elon Musk made news recently when he indicated that there would be hard times coming. If in fact he follows through with his proposal to significantly reduce the size of government that means millions of Federal employees will be looking for jobs. Fortunately, these people are educated and are likely to quickly fill positions in the private sector. I do not think that will create economic disaster. I recently read an article that indicated that if the government removed undocumented migrants from the U.S., it would create a falling of $70-$80 billion in tax payments and as low as $30 billion payable to Social Security. Right now, tax revenues to the Treasury are close to $5 trillion. While these amounts are large and absolute numbers, as a percentage to the tax revenues of the Federal government, it hardly rates as a rounding error. The removal of undocumented immigrants, while maybe personally revolting, is lawfully required. Those that are in this country illegally need to be excluded and let them apply for legal entry, as with all non-U.S. citizens seeking residency in the United States.

The liberal media is now falling all over themselves, trying to explain the loss in the election and what everyone did wrong. The polls projecting a 50-50 election were not even close. The election swung to the former President winning all seven of the battleground states without much opposition. There is a mandate from the American population for a new President and a new financial model. Hopefully, it means less government, less administration and the ability of American entrepreneurship to grow corporate America, legally employ people from around the world, and to innovate and create future wealth for all U.S. citizens. I will look back a few years from now on this posting and give you an update as to where we are going with those political realities.

Food tastes better when you eat it with family (or even just in Italy, period). Ava, Savvy, Dakota, Josh and Carter

What we also learned is that inflation impacts so much of our life that we do not even realize. Even though we had the $1.9 trillion windfall from the government, the inflation that it created was devastating to the economy. To slow down the rate of inflation, the Federal Reserve had to dramatically increase interest rates. This increase in interest rates reduced the number of homes built and also placed havoc on the real estate market. Now we have a shortage of new homes because so many potential buyers can no longer afford the payments of the higher interest rates. It all goes back to the major mistake of assuming by the government that you could create economic expansion and wealth by giving governmental money to the average person. The fallacy in that argument was that it was not money created from the growth of the economy, but rather borrowed.

At some point that borrowed money must be repaid, and the cost of repaying it would be a reduction of the economy since you would be taking money out of the economy with higher taxes in order to pay off prior debt. My anticipation is that if you could grow the economy you could catch up with the deficits.

If you think that is a pipe dream, go back and review what happened under Bill Clinton's Presidency. Even though the country was in a deficit situation at the end of the Iraq conquest at the beginning of the 1990’s, over the short life of Bill Clinton's presidency, the Federal budget turned positive. It was not so much what the government did, but during that time frame the economy grew, and when the economy grew it created more taxes for the government. At one point in the Clinton administration, there was real concern in where the money would be spent if it created surpluses in the budget forever.

Cherish your yesterdays, dream your tomorrows and live your todays!
Randy and Kathy Wittman

The U.S. now is energy independent and that is positive. Things are about to get better under an administration that is anti-fossil fuels. For reasons nobody totally understands, the current President stopped exporting liquefied natural gas out of the Gulf coast. The sad part about that is parts of Asia and Europe depend on exports of this gas to keep them going during the wintertime. I fully expect a lifting of that Presidential order in the first week of the new presidency.

Also, there was much conversation during the election about not eliminating fracking. It is hard to conceive that educated people are even discussing this matter. It is now estimated by S&P Global that more than 70% of its oil and more than 80% of its natural gas in the United States is produced through fracking. If you eliminated fracking from this process, that would mean that we would have to import virtually all the oil and natural gases that we use in this country. What has been proven over the last couple of decades is that alternative energy sources are neither adequate nor dependable. We have found that wind cannot meet the demands of utilities for alternative fuels, and the only reliable one is solar, and it is just in infancy. It would not surprise me to see that all wind would be eliminated over the next decade, given its unreliability and cost to maintain being in excess of the revenue generated.

Our cute, no longer so little Ava catching a
Falcons game with big brother, Josh.

But the one thing that a lot of people were missing in this argument was the political effect importing oil to the United States would have in the world arena. Russia was completely wrong about what the effect of cutting off the oil supply to Europe would be. Russia thought that Europe would fall into line when all its natural resources would cut off, and they would have to come hand in hat back to Russia to buy the energy to keep them going. Fortunately, Norway and the United States jumped in to supply liquefied natural gas to Europe and subsequently to Asia to beat that demand. If we were unable to provide for our own natural resources, would we again have to depend upon Saudi Arabia and the terrorist countries of Russia and Iran. The fact is that we are energy independent due to fracking, and to have a discussion of eliminating that ability is irresponsible for anyone who knows the facts.

Even though all the major markets are at an all-time high, I expect that the market will continue to rise, but it will be volatile. The fundamentals are in place for a continuing increase, but a pullback is always possible. The one fact that you can depend on is we watch it closely and will anticipate movement if economic circumstances should change. If you have concerns or would like to discuss it in greater detail, please schedule a meeting or give us a call.

As always, the foregoing includes my opinions, assumptions, and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins

All investments carry a risk of loss, including the possible loss of principal.  There is no assurance that any investment will be profitable.

This commentary contains forward-looking statements, which are provided to allow clients and potential clients the opportunity to understand our beliefs and opinions in respect of the future.  These statements are not guarantees, and undue reliance should not be placed on them.  Forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from our expectations.  There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.