Allocation and Investment Committee Meeting 07/04/26
Notes on the Economy
The US economy continues to run at a strong pace. The question that many have now is whether this pace has been TOO strong too fast. Inside the numbers there are some stats that look very strong, but when we look inside those stats at the details, it may not be so. Let’s take the unemployment rate. Typically, if we have low employment people tend to think this is great, right? The more people work, the more people have to spend. What could be wrong with that? Looking inside the last employment report (which came in at a very low 4.2%) we see that this figure may be a bit skewed. In this last report we see that a whopping 720,000 people simply left the labor force. That is a huge number. It is the largest number that the government has seen in five years. So, the participation figure that is used in calculating unemployment will show a lower number as the number of people running the data is significantly lower. I would think that if you added that figure back in you might have seen a higher unemployment figure.
Our discussion on the equity markets:
What a year. In the past we have suggested and bought stocks that are supplying the AI and data center boom. I’m sure glad we did! Big spenders like Microsoft, Amazon, Google, and META have fallen off quite a bit. However, the companies that are on the receiving end of that spend have gone stratospheric.
Micron makes memory chips. These are in extraordinary demand. Micron stock has been a tear to say the least. Their profit, as per their last earning report, has increased 15 times. Let me repeat this. The PROFIT has increased by 15 times. They made, in profit, $28 billion. Semiconductor stocks as a whole are up nearly 240% during this run. You read that right.
Many of us in the markets have often and maybe overused the analogy of the gold rush to describe how things work. When the great gold rush happened, yes, some people who searched for gold hit it and got rich. Nearly ALL of the store who sold the shovels and pickaxes got rich. We are seeing this analogy here in tech. We do own the companies that are spending money on the tech pickaxes BUT we own more of the companies that sell to them. This will end someday; we just don’t know when. I would think for the time being though investing in the equipment companies and those in that periphery are still a good bet.
Interesting thoughts we discussed:
Space X went public, and it was the largest IPO in history, raising an astounding $85.7 billion in day one. At 135 a share, this placed the valuation of Space X at $1.77 trillion.
In May, the US Government took $336 billion and spent $628 billion. Interest expense on US Government public debt was recorded at $1.3 trillion over the last 12 months. This is the second largest line item the government has behind Social Security. I think it will soon pass that.
Sports betting is huge. Betting took in over $165 billion in wagers last year. That is more than people spent on going to movies, buying books, concert tickets, and sports events tickets combined.
Allocation Suggestions:
Taking in all the above and we maintain that our portfolios will have a base allocation that is comprised of:
50%-55% Stocks
30%-40% Fixed Income
10-20% Private Investments or Alternatives
All investors and their plans are created differently, and every investor should have an allocation that fits their needs. The above allocation is what we call our “base” which primarily is for people looking to grow their assets. The percentages will change depending on where clients are in their lifecycle and plans.
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