“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.

The end of a great quarter and the best Estate planning plan ever…

From the Desk of Joe Rollins

Rollins & Associates “working 9-5” back in the Fall of 1988

No two ways about it - the third quarter of 2024 was an excellent quarter. As was the year ended September 30th, when all major indexes enjoyed double digit returns. Given all the strife currently in the world, it is hard to believe that the U.S. economy continues to remain resilient.

I have many items to discuss in this posting, including the progress in the U.S. economy and where we stand today. Also, I have written often about generational wealth, but it seems to be misunderstood by some people, so I want to further explain what I mean by it. I want to also explain why the markets are more stable than before due to increased participation and the amount of money flowing into it both daily and weekly. It would not be a normal posting if I did not discuss the inefficiencies of the government, and I will give you two examples of such. When discussing the government, I often mention President Ronald Reagan and his famous quote, “The most terrifying words in the English language are I’m from the government, and I’m here to help.”

Say Cheese! Long-time friends and clients
Fred and Janet Bland came by the office to visit!

Before commenting on those interesting items, I must discuss the excellent quarter we just ended. The Standard and Poor’s Index of 500 stocks was up 2.1% in September and was up 5.9% in the third quarter of 2024. Year-to-date, that Index is up 22.1%. The NASDAQ Composite was up 2.7% during September and up 2.7% for the quarter ended September 30th. For the year 2024, that Index is up 21.8% at the end of the quarter. The Dow Jones Industrial Average was up 2% in September and up 8.7% for the third quarter of 2024. That Index is up 13.9% for the year 2024 so far. It is clear from reading these Indexes that the market rally is broadening away from tech into more of the traditional blue chip type stocks. The fact that the Dow Jones Industrial Average outperformed all other major Indices except the small-cap index in the third quarter is telling. I do not believe for a minute that the rally in tech is over, but it is certainly welcoming to see other stocks participate.

Due to falling interest rates, the Bloomberg Barclays Aggregate Bond Index was up 1.4% in September, and up 5.2% for the quarter that ended on September 30th. Year-to-date, in 2024, that Index is up 4.6%, a significant turnaround for performance in bonds. It is remarkable that for the one-year period, the Bond Index is up 11.5%, which is an excellent return, but pales in comparison to the S&P 500 Index, which for the one-year period is up 36.4%. Just so you are not disillusioned and misled by the Bond Index's strong performance, the 15-year return on the Bond Index is 1.4% over the last 15 years compared to the S&P 500 Index, which has returned 14.1%. Therefore, it could easily be said that the S&P 500 Index has performed ten times better than the S&P 500 Bond Index over the last 15 years.

Barb + Mia celebrating their 25th on a Royal Caribbean Cruise

There is new evidence that the “Goldilocks” economy continues to flourish in the United States. Last Friday, the Labor Department announced that there were 254,000 new jobs created during September. That far exceeded any estimate by so-called economists for the month. Even more importantly, they reported 72,000 more jobs than previously reported in July and August, making those months very similar in employment to the strong month of September. Also, they announced that the unemployment rate had dropped to 4.1% at the end of September. All of this is very important since the economy is very dependent on people working, and the fact that employment picked up in September is a very positive sign.

We continue to be in a strange time when it comes to unemployment. As of last Friday, it was announced that there were 8 million jobs available and, in the U.S., there are 6.8 million unemployed. You may recall in my postings that I have previously pointed out that there are two jobs for every other unemployed person in the U.S. That is falling to just over one job but is still extraordinarily strong. Employment in the U.S. could be next to zero if people really wanted a job and were willing to relocate.

Guess who Reid and Caroline are rooting for?

As the news on the economy continues to be lackluster, which is a good thing, it was finally announced that the second quarter of 2024 had a GDP growth of 3%, which is excellent. Not too strong, not too cool. The Atlanta Federal Reserve has forecasted that the GDP growth in the fourth quarter of 2024 will be 2.5%. I need to emphasize again that these are the types of numbers we want. We do not want GDP growth to be too low or too high. It needs to be somewhere in the 2.5% range to not create economic imbalances. We want growth, but we want controlled growth. We do not want to make the same mistakes we made previously when trying to create growth by printing money and creating inflation.

There has been a lot of conversation in the financial media about why the U.S. went through such high inflation growth in 2022. You may recall that during COVID, the administration put through numerous spending plans to stimulate the economy. One of those plans was to dump $1.9 trillion into the economy through payments to individuals and favorite political supporters. The only way the government could have created this $1.9 trillion in aid was to print that money. When you print money, basically, you are creating dollars from nothing.

Barb, Marti and Mia ready to cheer on “the A!”
Better luck next year, Braves!

That means more dollars are in circulation seeking the same goods and services. There is no question that this one act contributed mainly to the advent of inflation in 2022 and 2023. No actions by the government are immune to creating problems in the overall economy. If you think inflation has not set in for the long term, just look at this fact. The average price of a new vehicle in the U.S. in September was down 3% from 2023, which is certainly good news. However, the average price of a new vehicle in the United States is up a mind-blowing 29% from 2019. This is a good example for those who think inflation has not impacted on almost anything we purchase.

While the U.S. is enjoying a nice economy at the current time, the rest of the world has not been so lucky. It is particularly true that Europe is slow and has many problems keeping their economy above negative. Also, as we all know, China has suffered serious economic declines and recently provided huge stimulus to jump-start its economy again. View this fact if you want to know exactly how far China has gone to stimulate its economy and use public works to support it. It is estimated that there are 90 million unused but finished empty housing units in China at the current time. As you know, China has built entire cities to keep people busy and not unemployed. However, they have no one who can occupy these units or afford them. It is estimated that these 90 million unused housing units in China could house 270 million people. If you do not believe that China’s problems are severe, you truly do not understand the economics of the government creating jobs for people to create certain products and services that are not needed.

For DeNay, no road trip is complete without a stop at Buc-ee’s

Almost daily, I get the question of what happens when China invades Taiwan against the U.S.’s desire. Roughly 70% of China’s exports make their way to the U.S. one way or another. If China were to invade Taiwan, which is a staunch supporter of the United States, the U.S. would create sanctions on Chinese exports that would essentially destroy their economy. I do not believe for a second that China would be so stupid as to create this self-inflicted wound over the small island of Taiwan.

For the last several postings, I have talked about the flowing down of wealth to future generations. I explained how this is currently occurring in a way unlike anything we’ve ever experienced before. We are seeing daily the transfer of wealth passed down from our generation to the younger generation, which will significantly change how the new generation consumes and retires. As I have pointed out, this is a very good thing if it is controlled, and the younger generation gets good advice. However, I did have some clients raise objections and want to know if I was asking them to do without so that the younger generation could inherit more. Basically, must I suffer so that my children benefit? That is not what I am proposing.

Megan feeling at one with the gaming community at
DreamHack Atlanta (Georgia World Congress Center)

I suggest that if properly invested, almost everyone can create wealth beyond their spending ability. I had one client say to me the other day, “I have been frugal for 50 years of my life; I cannot just change overnight.” And I agree with that philosophy, but you should also spend your money. I am suggesting that there is plenty for you to enjoy retirement and yet pass money along to the next generation. You cannot imagine the benefits of starting a young couple off with a nest egg that they never would have had if not given to them by you.

There are many changes regarding retirement. I see it in our business now, where young people come in and sign up for the 401(k) plan immediately. If there is any resistance to the 401(k) plan, it is by the older generation, not the younger one. They understand that if you begin saving early, you can accumulate wealth for retirement, and even a small contribution today saved for 40 years would be substantial in the future.

One happy grandchild – Jim + Patty Radney’s
pride + joy made it on Braves Vision!

You would be surprised how often I hear middle-aged clients complain about how much they contribute to their 401(k). The standard answer I get is they either contribute 4% or 5% based on whatever level their employer matches. It is hard for me to imagine that people could be so naïve. The beauty of a 401(k) is that you can contribute money on a tax-deferred basis, yet you still get to keep the money. Of course, that money is taxable in the future, but it is taxable at the tax rates in the future, which may or may not be as high as the ones today. If you do a time value analysis of those future taxes, you will see that they are minor compared to not contributing to the 401(k) plan and paying the taxes now.

Parents also miss the golden opportunity to create Roth accounts for their children. Creating a Roth account for them is the way to go if you have a child who earns a few thousand dollars in a summer position. Think about the growth that would happen if you contributed $3,000 for an 18-year-old, and they do not touch that money until retirement at age 65. The growth would be exponential, as compared to the initial investment. Parents can teach them the value of investing by starting them early and helping them learn the benefits of future growth.

Mia and Sophia the Sloth in Roatán, Honduras – never letting go!

I see the issue related to 529 educational accounts almost daily. President Obama wanted to curb 529 accounts and focus on the American Opportunity Credit because 529 accounts primarily benefitted those higher on the income scale. I counter to indicate that 529s should be used by everyone, not just the rich. The benefit of accumulating money for future education on a tax-exempt basis is just too good to pass up. Both parents and grandparents should begin contributing to a 529 educational plan at the baby's birth. If you allow money to build up for 18 years tax-exempt, maybe you can alleviate the extraordinarily outrageous cost of college.

The point I am trying to make here is that there are billions of dollars flowing into investments on a daily and weekly basis from all these sources. People are contributing to their 401(k) plans, IRAs, and 529 accounts on a weekly or monthly basis. These billions of dollars flowing into the marketplace increase the opportunity for those stocks. Never in the history of American finance has such a flow of money been available for future appreciation of stocks and bonds.

I thought I would give you a history of investing to illustrate my point. I was around when the first IRA was put into effect in 1974. Virtually everyone viewed it as a skeptical device because many people believed that it was just a scheme by the government to confiscate money from you. It took many years before a significant number of people actually used the IRA.

Watch out East Atlanta, Harper got her learner’s permit!!
Happy belated 15th!

If you do not believe that IRAs have become successful, all you have to do is look at the amount of money invested in our IRAs today. At the end of the second quarter of 2024, it is estimated that $14.5 trillion was currently invested in IRA accounts. It is also estimated that total retirement assets today are roughly $40 trillion. When you think about the future generation, generational wealth passed down to them is $40 trillion, which will flow down for generations to come. It is not a one-year or two-year flow down. This $40 trillion will be felt for the next decade and passed down to multiple generations in the future. This has never happened in U.S. finance, and it will change everything we know about generational wealth going forward. Do you realize that $6 trillion of cash is now in money market accounts waiting to be invested?

The biggest change in investing and retirement came in 1981 when the IRS proposed the formal rule for a 401(k) plan. I was practicing then, and the skepticism and the adoption of the 401(k) plan was slow. Once again, people did not view it as a viable retirement plan. Prior to that time, the standard retirement vehicle was a Defined Benefit Plan. In a Defined Benefit Plan, money is paid to you in retirement for your lifetime and maybe for the lifetime of your spouse. But when your spouse dies, all that money evaporates. There was no money to pass along to your heirs.

The 401(k) changed that concept. The 401(k) would allow you to contribute to the plan during your lifetime and draw on it in your retirement. But if you died prematurely, this entire amount would flow to the second generation, being your children or grandchildren. So, as the 401(k) plans became popular in 1983, 7.1 million employees participated in a 401(k) plan. But that number grew to 38.9 million in 1993. Suppose you want to know the buying power of 401(k) plans today, in 2019. In that case, it is estimated that 80 million people, or basically one out of every two employed people in the United States, benefit from a 401(k). Currently, $5.7 trillion in assets are contained in those 401(k) plans. As you can see, the growth of these plans has substantially made available new money daily, buying stocks and bonds and supporting the market.

Mia and Barb enjoying a beautiful beach in Cozumel – rough life, ladies!

I get many questions about the new election's effect on the U.S. stock market. My answer generally is that it will have little or no long-term impact on the market. You may get a whiplash sell-off or a buy-in opportunity at the election, but it will be short-lived. As illustrated above, the flow of money into the market will stabilize, and over time, this election will have absolutely no effect on long-term results. It is true that the two competing partners for the presidency represent entirely different ideologies and different economic goals. They could not be any further from each other. However, the effect of the market will be minimal and will last only a short period of time before it stabilizes. The thought of trying to cash out before the election and buy back afterward would be deemed to be “market timing,” and we all know that market timing is impossible.

As mentioned, regardless of the outcome I do not anticipate any major long-lasting effect on the market, although both candidates have floated tax trade and spending ideas that I find populist and sometimes bordering on the ridiculous. Both candidates propose cutting taxes, which is alarming, given the huge deficits that the government is running today. There was substantial support for running up deficits during the pandemic a few years ago, but there is no economic justification for deficits today.

Interestingly, neither candidate has even broached the subject of less spending by the government. I would be a true advocate for any candidate who would reduce the size of government and reduce spending. We do not need higher taxes. The deficit this year is $1.8 Trillion. What I think we need is a smaller government. Suppose you can even imagine that the number of people on the government payroll has reached over 23 million Americans now. Roughly 15% of every employee in the United States is employed by the U.S. government. I am sure those numbers go up exponentially for people not employed by the government but supported by the government. I cannot even imagine what 23 million people do that is beneficial for the country.

Freddie Falcon found some adorable sports fans at
Lymphoma + Leukemia Society’s Light the Night

The federal government just finished its fiscal year, which ended September 30, 2024, and financially it was a total disaster. The deficit for this fiscal year ended at $1.83 trillion. Believe it or not, that is 13% larger deficit than the previous Biden year. What is baffling to virtually everyone is that a considerable amount of this deficit was created when there was no pandemic, financial crisis, or major war involving large U.S. forces. This is an excellent example of the government running amok.

You would be wrong if you think this deficit was due to a lack of tax revenue. Tax revenue actually increased by 11% this fiscal year to $479 billion in virtually every tax category. Individual income taxes were up 11%, and corporate income taxes were up a stunning 26%. But even though tax revenue was up close to half a trillion dollars, the government figured out a way to spend that money and substantially more. The total tally of expenditures by the U.S. government went up 11% from the previous year. Therefore, they spent $699 billion more than the last year for total spending this fiscal year of $6.75 trillion. The sad part of the previous two paragraphs is that neither candidate running for the current office of president has offered any solution to government spending, which is quite unfortunate for us all.

I would love a President who would go in and say it is time to balance the budget; therefore, we must reduce the size of employment in the government. Some of you were not even around when government budgets were in a surplus condition. As recently as President Bill Clinton's administration, there was actually a surplus in the budget. Unlike the multiple trillion-dollar deficits we have today, the government budget was actually in balance. Do I believe that governmental deficits are a long-term harm to the economy? Of course I do. Do I think it is devastating? No, that would not be the case.

Any time you have a government that can print its own money, deficits will never be of concern. However, when printing your own money, you will, by nature, create inflation, and inflation is a hidden tax on us all. While I find the upcoming election interesting, I think the effect on the stock market, whoever wins, will be minimal and I think the government will continue to govern even against our wishes in the future.

Some cute Marti + Mom time at the
Melissa Etheridge + Jewel concert (Sweetland Amphitheatre)

However, at some point, some governments are going to have to figure out a way to spend only the money they earn and create less government rather than more. At a deficit of $1.8 trillion this year, I feel as though they are not even trying.

I thought I would give you a couple examples of the inefficiencies of government and how destructive their inefficiencies can be. You may remember that in 2021, the Biden administration passed an infrastructure law for $42.5 billion to expand broadband to underserved, mostly rural communities. Who could have disagreed with this policy? The idea of providing broadband internet to underserved communities can be a tremendous benefit for young kids and for businesses. It could create new jobs, educate children, and accelerate the abilities of these communities to expand and grow. What a wonderful concept that virtually everyone could have supported.

Here we are three years later, in 2024, and you know how many contracts have been made regarding this wonderful service. As of this time, not a single project is underway. It seems that once the government got involved, they put into the contracts a lot of administrative garbage that kept the project from being built. It had to follow Federal labor and employment laws, and many other types of restrictions. This kept people from wanting to work on these projects. Further, they insisted upon this rollout being in fiber broadband cable. As you know from looking at your own community, running fiber cable is expensive and inefficient. Running it to rural areas is almost impossible and very expensive. For less than one-third of the allocated budget, they could have installed Starlink and other wireless carriers that could expand the coverage at a lower cost. Basically, for less than $15 billion, the entire United States could be covered by satellites providing internet access, but three years later, the government plan did not provide any access.

You’re never too old to learn something new! Cameron joined the football team post mid-season of his senior year – good luck, kid!

But, if you want a further example, think about the famous 2021 program to build an electric vehicle charging network throughout the United States. In 2021, the government passed a law that would allow EV charging networks to be built throughout the United States at a cost of $7.5 billion. Certainly, if you were going to mandate further EV promotional ideas, you would need more charging stations. Basically, the inability to charge has slowed the growth of EV cars. Only Tesla has a nationwide charging network. Even major car companies now rely on Tesla charging stations to create charging opportunities.

However, everyone rejoiced when the government decided to provide funding to build charging stations throughout the United States in 2021. Here we are three years later, and exactly eight stations have been constructed in six states. The reason more stations have not been built is due to the government's interference in building these stations and the restrictions they put upon them. If, instead of directly overseeing the construction of these charging stations, they turned the money over to private industry to build them, most of the network would be finished by now. These are just two examples of the inefficiencies and everything the government does. The private sector could do all these projects cheaper, faster, and without governmental interference in their completion. In my opinion, the only thing this government does well is the military, and that is only because there is no private sector.

In conclusion, I want to give you the best estate planning advice of all time. Estate planning is going to become particularly important over the next few years. Currently, the estate exclusion is roughly $13.6 million per person. Therefore, a married couple could exclude estate problems worth $27.2 million. After 2025 this exclusion is scheduled to expire and be reduced to $7 million. Therefore, a couple could exclude only $14 million compared to $27 million, a major reduction if Congress doesn’t act.

Nadine + Steve Hooks enjoying retirement! Fun fact, Nadine is a former Rollins’ employee and is pictured along with Joe at the top of the blog

Everyone should consider estate issues regarding the growth of their assets. Over the last few years, the value of real estate has increased significantly, and of course, the value of your financial assets continues to grow. Many people are now having estate issues that were never there before. If you are not doing gifts of 529 accounts and funding the Roth IRAs of your children, you should be. If you wait to deal with your estate issues in the last years of your life, you may find out there are not enough years left to satisfy and get you below the exemption.

I talk to clients every day about gifting money now to their children. Please reference my comments on generational wealth and helping your heirs today rather than waiting until you die. Make their life a little easier and not affect your own. It seems so simple to me, yet getting clients to give up assets to children is so hard. While it may be hard, I am going to keep trying.

Often, I am asked for the best estate planning. The simple answer is a quite simple plan of action by you. On the day you die, you write a check for the exact amount of all the assets you have left… and it bounces!

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.

The Best Months of The Stock Market Are Coming – Get Ready For Gains!

From the Desk of Joe Rollins

A big CONGRATULATIONS to Lily Holmes –
recent graduate of American University Washington College of Law!

In the first part of August, I received many phone calls from clients who believed the world was surely coming to an end. I reassured them that the sell-off in early August was based on incomplete information and the work of professional traders. As I wrote in the last posting, I did not anticipate that there would be a major sell-off during August, and fortunately, I was correct. The month of August actually ended higher, despite all the concerns of investors.

I have found many topics I would like to discuss in this month’s posting. I think I will finally make reference to gold and Bitcoin and my thoughts on why we do not invest in them. Also, after two long years, the yield curve is no longer inverted. This is a major economic event, and I need to explain why this has suddenly become such a controversial topic.

Eddie scoring major points with daughter Lucy at
Olivia Rodrigo’s GUTS World Tour!

It would not be a political season if I did not give you some insight into the politics of the tax proposals by the new candidates. Some of them are ridiculous, and some are beyond ridiculous, but I will explain. Interestingly, it seems that the U.S. is running out of energy. Nuclear energy may be the only solution for us in the future. It is amazing that the environmental lobby is so against nuclear, even though it may be our only alternative clean energy in the future.

I have always been interested in Cuba and became even more interested in their local economy and politics after I visited there a few years ago. It appears that anyone who can get a job elsewhere is now leaving the island and mainly heading to the U.S. It is especially important that we discuss the economy and why Cuba has failed and will likely not recover without additional help.

Yeehaw! Cameron ready for Western night
at the high school football game!

Over the last several years, job openings have doubled the number of unemployed people in the U.S. Finally, now, the number of job postings is almost equal to the number of people unemployed, and therefore, the economy sits poised to turn either higher or lower. I will explain.

Before I get into those exciting topics, I do need to report on August, which was an excellent month for the financial markets. Even though the anticipation was something extremely dreadful, the exact opposite actually occurred. Once again, the quick turnaround in the financial markets during the month of August emphasizes how important it is to be invested at all times. At the point where things look bleakest, that is the time when you need to be invested.

Evan and Alexis cruising along’ in Nassau, Bahamas

For the month of August, The Standard and Poor’s Index of 500 stocks was up a very satisfying 2.4%. For the year 2024, that Index is up 19.5%, and the one-year total return for that Index is 27.1%. The Dow Jones Industrial Average was up 2% for the month of August and is up 11.7% for the year 2024. The one-year return on that index is 22.1%. The NASDAQ Composite was up 0.7% for August, and for 2024, it was up 18.6%. The one-year return on that Index is 27.2%. As you can see, the three major indexes are all up in excess of 20% for the one-year period. Given the dour prospects for the economy from the so-called experts, the markets have returned excellent results for the last one year.

Just to give you some basis for comparison, the Bloomberg Barkley Aggregate Bond Index was up 1.4% for the month of August and is up 3.1% year-to-date. For the one-year period, that Index is up 7.2%. With interest rates most likely to fall in the next few months, it is possible that the bond index should show better results; however, as you compare it to the three major Indexes of stocks, it is a very dismal performance. Many people believe that you should have at least 40% of your assets in bonds. If you base that on returns, you can see that a 40% allocation to bonds would have been a serious mistake over the last 12 months.

Caroline and Reid (is that really you?)
proudly displaying their new faces on Amelia Island!

At the beginning of 2022, all the so-called experts on Wall Street predicted that the U.S. would almost surely go into recession during that year. Even though they did not have a lot of evidence to support that theory, the one that they did roll out to explain a recession theory was that the bond market had an inverted bond yield. For those who are not familiar with bonds, what that meant was that the two-year treasury bond yielded a higher rate of return than a 10-year treasury bond.

The theory behind this logic was when interest rates are high for two years, that indicates a Federal Reserve that is restrictive and trying to control the economy by slowing it down, which would in turn throw it into recession. Also, the fact that the 10-year bond was yielding a lower percentage than the two-year bond would indicate that, more likely than not, the economy would be in recession due to the restrictive nature of the two-year since it clearly was not in sync with the yield 10-year bond. The so-called forecasters on Wall Street predicted that this inverted bond yield created recession 100% of the time; therefore, you should abandon stocks immediately. As would be the case, 2022 ended up being a bad year on the stock market, with the S&P 500 Index stock going down roughly 20% in 2022.

Ava extending her love of all animals to the Charging Bull on Broadway!

I predicted during that same period that the economy would not go into recession because the momentum was just too strong to allow it to go into any type of pullback. I was right, but the stock market proved me wrong. Notwithstanding my explanation of why the economy would not fail, the market went down anyway. But I have excellent news to report. After two years of the inverted bond yield, it has finally right sided itself. The current yield on the two-year treasury is 3.654%, while the current yield on the 10-year treasury is 3.716%. I recognize that the difference is small, but the fact that the two-year treasury is now below the 10-year treasury is quite a positive for the U.S. economy.

It is interesting to me that these so-called experts who predicted a recession in 2022 have not changed their opinion and still believe a recession is likely to occur. Those who quoted the inverted bond yield as evidence of the recession have not come out and changed their opinion because the inverted bond yield is no longer inverted. I recognize that these are extremely technical issues in investing, but you need to understand why the market goes down even without any rational reason. The markets went down in 2022 without any good reason, but the pain was felt in that year. However, it is encouraging that for 2023 and the current 2024 year, the same Index that lost 20% in 2022 is up 20% in each of those subsequent years.

Proud Papa Michael Holmes with daughter, Lily. Kudos to you both!

Since it is a political year, I thought I would reflect on the proposed tax conversation with the current political candidates running for the Presidency. One candidate has proposed that they would be anti-price-gouging from big corporations and pharmaceutical houses. Literal price controls have never worked anywhere in the world, including the United States. Price controls did not work in Cuba (to be explained later), Argentina, Russia, Venezuela, and other third-world countries. If you think that the U.S. economy is more sophisticated than the others, remember Republican Richard Nixon imposed price controls in early 1971, and they were a dismal failure.

What true price controls do is lead to scarcity. This is not a difficult concept for anyone to understand, but if a producer cannot increase prices and therefore would produce at a loss, then they would not produce at all. Suddenly, while you have an oversupply of products, now you have scarcity. The question always centers around the fact of which is the worst situation. Controlling prices is a good thing for the consumer, but having no product to purchase, in my opinion, is a much worse situation. Look at the situation that they have in South American countries where they cannot produce the food necessary to feed their population because the farmers cannot make money on the sale of goods.

Mia giving extra love to dad – Happy 97th, Muzzy!
Cheers to you, and the fabulous journey that is your life!

The obvious answer is, of course, to eliminate those price controls to increase the supply of products. Of course, when you do that, you get immediate inflation and a worse-case situation, such as currently being felt in the Argentina economy, where inflation is up 1000% over the last five years. The most uneducated economist would tell you that price controls are disastrous for the economy and cannot be enforced, and they would clearly be negative to consumers, not a positive, but it sounds good in commercials.

Another candidate running for office proposes that all the problems in the U.S. economy would be saved by putting tariffs on all products brought into the United States. The argument being that it would ensure that more manufacturing takes place in the U.S. since there would be tariffs to keep the prices high for goods produced outside the United States. Once again, the concept is a “populist” concept but is absolutely ridiculous from an economic standpoint. You cannot have tariffs without inflation. If, by definition, you would increase prices on all goods produced outside the United States, that would allow the U.S. manufacturers to exploit the market and increase prices, which would clearly create inflation and destroy consumer’s pocketbooks in the United States.

Alexis and Evan celebrating her 25th at a pasta making class
with friends (not pictured)! Welcome to adulthood, Alexis!

Goods produced outside of the United States have an incredibly positive benefit to the economy as has been clearly shown in the past. During the 1960’s and before, there were only three major car companies producing cars in the United States. The cars were expensive, and the quality was awful. I remember buying a brand-new car in the early 1970’s and taking that car back to the dealer the next day with a long list of things that were wrong. The quality was just not particularly good and since the car companies basically had a monopoly, they just did not care.

However, that philosophy changed when foreign car companies began manufacturing cars and shipping them to the United States. The cars coming out of Germany and Japan were of higher quality and of similar price than the cars produced in the United States. This increase in quality cars made the big car companies in the United States better. They had to improve their quality in order to compete. And they did. There are many examples where foreign manufactured goods have improved the quality of U.S. goods and competed on a level playing field with goods produced in the United States. There is no question that we all desire more goods to be manufactured in the United States to create more jobs and taxes, but the way to do that is not through higher tariffs but through a better working environment.

Another example that both candidates are against is the acquisition of U.S. Steel by Japanese steel companies. Both the current administration and candidates have come out against this acquisition. While you certainly think it would be a desirable interest to keep steel manufacturing in the United States, the way to do that is not as proposed by these candidates. If you were to turn over virtually all the steel manufactured in the United States to one manufacturer, that would obviously lead to issues where they could increase prices any time they wanted to.

Joe using props to explain bullish vs. bearish markets to Ava

The major difference would be that the Japanese manufacturers have agreed to spend $2.5 billion upgrading U.S. steel manufacturing and making it more efficient and cost-effective. This would be an enormous positive for the U.S. economy. First, the spending of this $2.5 billion would create vast amounts of jobs that would be high-paying and long-lasting. The innovation and production of cheaper steel would benefit many industries and construction in the U.S. In my opinion, the acquisition of U.S. Steel by foreign manufacturers would be incredibly positive for the U.S. consumer, yet from a “populist” standpoint, all the candidates are against it.

They argue that in the case of war, steel would be controlled by a foreign government, and therefore the U.S. would be deprived of the steel needed to produce military armaments. The ridiculous part of that statement is that in the case of war, any foreign manufacturers could easily be nationalized, and we would get back the industry for free that they have innovated and spent money to improve. The acquisition of U.S. Steel for many reasons should be approved, yet for political reasons, all candidates for the highest office in the country cannot see the benefits.

The most outrageous proposal is that one of the candidates would like to tax unrealized gains on stocks. You almost have to be amused by this proposal given the extreme complexity of doing so. Having completed tax returns for over 50 years, computing realized gains is hard enough, but to tax unrealized gains is virtually impossible.

I know it only affects taxpayers with over $100 million dollars in assets, and those are very few, but those people control a large portion of the population and employees in this country. But first, think of how you calculate the fair market value of your assets and how that has been done in this calculation. No one knows exactly what a business is worth if it is a private industry. As an example, we all know that the price of your house is subject to many fluctuations and changes year to year. How one with that amount of assets would calculate the fair market value of all their assets would be an exceedingly difficult situation.

Take as an example an entrepreneur who has only one privately held business and virtually no other assets and is stuck in this unrealized appreciation quagmire. Due to the success of that business, the value of that company goes from $100 million to $150 million in one year. Therefore, the $50 million increase would be taxed at 25%, and he would owe $12.5 million dollars in taxes under this proposal. Where does that money come from? It is clear that he would have to sell the stock of the company, which would endanger the company and employees and almost ensure the loss of jobs.

The interesting part of the proposal is that, let us say that the following year, the value of the company falls back to its $100 million level. Does he now receive a $12.5 million refund from the government? I doubt it, but who knows what is under this proposal? But the most important part of this proposal is that, almost assuredly, it is unconstitutional. While it is a “populist” idea to tax the rich, it is not realistic to tax gains that have not been realized. This proposal will not pass Congress, but it is interesting how it has been characterized by the media as being a positive thing when it would be an economic disaster.

DeNay and family enjoying some fresh air and
beautiful views at Rocky Mountain Park

I believe the one proposal that would create a better U.S. economy is the proposal to cut taxes on big corporations. One candidate wants to increase taxes on big corporations, and another wants to decrease them. It is hard to believe that the media just does not understand the difference. If you decrease the taxes of the corporation, you will get more companies that want to operate in this country. They would create new plants and equipment, hire employees, and pay local taxes. The higher the taxes are the more they will stay away and produce in other countries with lower tax rates.

I find it such a simple concept that it is hard to believe it is misunderstood. If you increase taxes on corporations, that is money that they could not use to hire people, expand plant equipment, and produce better goods. Obviously, there is a major difference between higher and lower taxes, but it solely depends on your view of what is better for the country. It is good to have wide-ranging opinions, but I only wish people understood the economic effect rather than the populist idea. It seems the better solution is to cut government expenses, not raise higher taxes.

I have always been interested in Cuba, and more so since I have visited the island. It is an example of why socialism just does not work and will never work in any economy. From an idealistic point of view, you would think that everyone would be better off with socialism than they are under capitalism. But that has never proven to be the case, yet people continue to believe that we are becoming more socialistic in our government in recent years.

Point to Cuba and you see exactly what the issues are. It recently came out that from the year beginning of 2022 to 2023, the island lost 1,011,269 residents (10% of their population). Over a million people left the island since there were no work opportunities, and they had a better chance of finding those work opportunities in other countries. What was the most distressing was that of this amount, over 800,000 of the people that left the island were between the ages of 15 and 59. This is also the age group that produces future generations. That means the most productive part of the population is abandoning the island in droves. Basically, what that means is that they are leaving the incredibly old and the noticeably young on the island, which is creating a financial disaster for the Cuban government. The care of the elderly is of serious concern, and the island has no way to raise revenue, since the majority of the tax paying populace has left to go to a different country.

Mitch, Marty, Barb and Mia trying out their sea legs in Tampa!

The other interesting aspect is that the food production in Cuba has collapsed. Since people are not willing to work on the farms because the pay is equal to those sweeping the street, the production of food in the country has completely collapsed. To give you an example, the production of pork in Cuba fell to 3,800 tons in the first six months of this year, compared to 149,000 tons in all of 2018. The country is headed to a severe crisis since it cannot feed its population and will not accept help from other countries. Most of the people leaving Cuba are coming to the United States. It has now been reported that 645,122 Cubans have come to the United States over the last two years seeking asylum with hopes of residency.

I am asked every day about the potential for recession in the United States, and maybe I look at it differently than most people. And looking back over my financial career of over 50 years, it seems like that every recession in the United States was created with a spike of prices of oil and the effect it had on the consumer. I vividly remember the Jimmy Carter years, where the price of oil virtually doubled overnight. But worse than that, we had scarcity of oil, and therefore scarcity of gasoline. And every year since then, other than the COVID-19 year, a recession has created a spike in energy prices.

All that has changed. While the current administration has fought the production of oil and gas at every turn, the U.S. is now energy independent. We produce more oil and gas than we consume in the United States, and if the current administration would allow us, we would export to more countries. The exporting of natural gas to Europe creates many well-paying jobs and helps the U.S. economy. Therefore, I do not think recession is likely at the current time, because the price of oil has actually fallen over the last year or so or has remained basically stable.

Shelley and Cameron spent Labor Day rescuing
382.9 pounds of food for Second Helpings Atlanta!

People ask me all the time about why we do not invest in gold and Bitcoin. My answer to that is relatively simple. I do not have any way of evaluating what the value of gold or Bitcoin is or should be. It is impossible to evaluate whether those assets have the ability to go up or down, because they have no income stream and basically the only way they have any value is scarcity.

So therefore, they are like collectibles, which would be paintings or fine bottles of wine or autographs of professional athletes. The value has nothing to do with the ability for it to produce income, but more on the ability of scarcity. Since I find neither of these assets to be particularly scarce, I question whether over the long term, they can continue to go higher. I often cite the rednecks that promote gold on television on Friday night as a good example of why gold is not likely to continue to be scarce. If this hard-working group can produce gold, then more likely than not, more gold will be produced in the future. I understand the price of gold has gone up in recent years, but that is mainly due to inflation and not due to scarcity. If you compare those assets with U.S. stocks, you get a dividend flow and an increase in value in those assets that can be quantified. Currently, I see nothing in gold or Bitcoin that allows it to be evaluated on a total return basis, yet I do with stocks, which is why I went into stocks.

For the first time over the last several years, the number of unemployed is 7,115,000. It has approximated the number of job openings, which is 7,673,000. For the most part of the last several years, the number of jobs has doubled for the number of unemployed. As I have written and many times in this posting, we wanted the economy to slow so that the Federal Reserve would cut interest rates. We have now accomplished that goal without destroying the economy, and now we are almost assuredly looking at rate decreases.

I project over the next 90 days that we will see rate decreases of 0.75 which will dramatically improve the economy with lower interest rates and, importantly, lower mortgage rates. We could not have accomplished these rate decreases until the economy slowed, which we have now accomplished. You hear so much about the soft landing and the hard landing and the desire for one over the other. We have now clearly accomplished this soft landing, and that is almost a sure indication of higher stock prices in the future.

Following in her father’s footsteps?
Ava in front of the New York Stock Exchange

The U.S. is running seriously short on power. With the increase in electric vehicles and the use of electricity by technology, the U.S. is clearly running out and private industry is not responding. The answer to the energy problem is nuclear energy. I have never really understood why the environmentalists are so against nuclear energy. It is the only clean way to produce more energy and yet, for some reason, every time we begin a new facility, the environmentalists fight it.

The rest of the world has caught on and is building nuclear power at a rapid rate. In France virtually all their electricity is produced by nuclear energy. In China they are producing nuclear plants at an efficiency unseen in this country. They can build a nuclear reactor in seven years or less, at a fraction of the cost in the U.S. Over the last several years, it has taken over 20 years to build a nuclear reactor in this country, and everyone has been overdue and overbudget.

There are simple solutions to these issues, yet, due to the environmentalists fighting every nuclear plant, we cannot move forward. First off, the production of nuclear plants in the United States should be standardized, and rather than each being unique, they must all be built the same. This is not a novel concept. Also, the government must move in and provide protection to the producers of environmentalists’ legal challenges. Basically, the government would have to guarantee the uninter rupted production of a nuclear facility in the United States. It is amazing to me that politicians are so short sighted that they cannot see the obvious. The obvious is that we are running out of electricity and if we do not begin shortly, almost assuredly, there will be shortages in the future.

Almost everything I read; I see that America is becoming increasingly rich as we move forward. Over my last several postings, I indicated that the passing down of wealth by the current generation to the second generation is going to be historic in its high value. This passing down of wealth will materially alter the U.S. economy for decades to come. It will provide for a consumer; unlike anything this country has ever seen in the past. All these huge attributes can mainly be attributed to investing in the stock market. I have been saying this over the last decade, but the population just does not seem to understand or believe it. There are still too many people sitting on cash, earning virtually nothing as compared to the positive aspects of investing in stocks. I received a notification the other day that supported my assumption.

“Brother and sister, together as friends,
ready to face whatever life sends!” Caroline + Reid

Fidelity Investments announced that there were 497,000 401(k) accounts in the U.S. with assets in excess of $1 million. That is 31% greater than from the previous year. This means that these 401(k) accounts have grown since they were invested principally in equities. This does not include the 401(k) accounts of all the other major brokerage houses such as Schwab, Merrill Lynch, etc. It also does not include the likely millions of investors that have $1 million or more in their IRA accounts, and not their 401(k) accounts. The evidence is clear that America is getting richer by the day, and they are getting richer by investing in stocks.

One of the reasons that short-term dips in the market do not concern me is because of the potential buying power of the money coming into the market daily. I always laugh when you see Apple stock go down after their earnings report. The principal buyer of Apple stock is Apple itself. They use their corporate profits to buy back their stocks, and every time it goes down, they benefit by buying more. The same is happening throughout the investing world. There are literally billions of dollars every day flowing into the stock market from 401(k) accounts. These 401(k) accounts tend to be more aggressive than ever, and therefore grow at a faster pace. Wealth is being created throughout the economy, and yet so many investors elect not to participate. We are moving into the best months of the year for the stock market, and there could not be a better time to invest for future profits.

We all know that the best months for investing are November through May. This time we have an even more powerful stimulus, which is the cutting of interest rates by the Federal Reserve. Once again, we have the trifecta of strong investing stimulus. We have a very sound if slowing economy, we have almost assuredly lower interest rates coming up and corporate earnings continue to expand and get better. We have the three most powerful positive attributes working in our favor at the current time. We do have many potential issues as well, such as the federal deficit, and a major U.S. discord with one-half of the population disliking the other half of the population.

However, I think the positive attributes of the economy clearly outweigh the negatives at the current time. If there has ever been a major opportunity to prove your potential to be wealthy, it is currently investing. I have never really understood why people like to invest in cash when they have the potential to earn many times that by investing in equities. All I can give you advice on at the current time is going into the best months of the year, it is now time to get fully invested.

Dream big! Train hard! Play volleyball! ✔✔✔

We have had a fabulous year so far through August which followed another fabulous year in 2023. Over the last 20 months, the markets have been up substantially, and you have benefited from it enormously. It is a good time to reevaluate your investment philosophy and sit down and discuss with us issues that bother you regarding investing. There is no question that the markets will be higher 10 years from now than they are today. What happens over the next 90 days? No one has any idea, nor should you care.

When I first got into investing, the Dow was at 1,700. As of Friday, the Dow ended up 41,563. Stocks will be higher in the future because corporate profits continue to expand. That is not likely to change, and therefore the likelihood of recession is low. I think it would be a great time to sit down and review your investment philosophy and discuss with us how we can help you going forward.

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.