Alternative Assets Crumbling, Tariffs & Inflation, HHS Overhaul, Richer Rich, Retirement Recession, Cybertruck Letdown, California Gas Woes, Bitcoin Surge, Utility Bill Spike & Solar Slowdown

Alternative Assets Appear to Be a House of Cards

I remember using that same terminology back before the tech bust about 25 years ago. I was maybe a little bit early back then, but the house of cards collapsed. The more I read about alternative assets the more I scratch my head and ask how is Wall Street getting away with this? In the end, I believe the small investor will end up paying dearly for investing in these alternative assets.

I learned something new over the weekend, a company called Hamilton Lane Private assets can buy private stakes from other holders at a discounted price, but then they can magically increase the value to the net asset value. This also reminds me of the mortgage crisis in 2008 with collateralized mortgage obligations better known as CMO‘s that also had major difficulties. Hamilton Lane Private assets can disregard the discounted price they paid no matter how they paid for it, even if it was in a competitive auction and again mark it up to net asset value. In 2024 there were $162 billion in secondary deals with an average discount of 11%. My question is how can they magically create $18 billion of value on those secondary deals.

The incentive fees that private equity firms like Hamilton Lane earn range from 10 to 12 1/2%. If it sounds complicated, it is and if you don’t understand something, you should not be investing in it no matter how simple your broker tries to make it sound. The greed on Wall Street appears to be running rampant, I would highly caution investors to avoid any type of private equity in their portfolio.

Tariffs Are Still Not Impacting Inflation

The May Consumer Price Index, also known as CPI, showed little impact from tariffs. Headline CPI came in at 2.4%, which was right in line with expectations and core CPI, which excludes food and energy, came in at 2.8%, which was actually below the expectation of 2.9%. The headline CPI continues to remain softer than core CPI due to falling energy prices.

Compared to last year, energy prices were down 3.5% and gasoline in particular fell 12.0%. The core prices do remain a little bit stuck at the 2.8% level considering it was at that level in both the March and April reports as well, but considering the concern around tariffs I would say this was a really strong report. It will be interesting to see the coming months as economists are pointing to the fact that companies brought in excess inventory before the tariffs were implemented so they are still working through pre tariff inventory and have not needed to raise prices yet.

I do wonder if inflation does not substantially increase at what point will economists say that the tariffs maybe aren’t as impactful as they once thought? My belief remains that we will see a small uptick in inflation in the coming months, but there are other forces reducing inflation in some areas so I think it will be more muted than many believe. 

Health and Human Services Is Receiving a Major Makeover

Back in the 60s, the world looked to America’s health regulators for guidance because they had a reputation for integrity, scientific impartiality and a strong defense of patient welfare. Today and for probably the last couple of decades, HHS has lost trust among many people. This week, a major shakeup of the advisory committee for immunization practices known as ACIP is retiring all 17 of the current members on the committee.

In the past, the committee had many persistent conflicts of interest and approved every vaccine that came through. The committee met behind closed doors and without transparency the public had no faith in their decisions. Some of the members had financial stakes or received substantial funding from the pharmaceutical companies.

I’m happy to report with all 17 of the committee members being forced into retirement we should see big changes on the approval of vaccines and hopefully in a few years, the HHS and the committee can regain public trust. This could have an impact on some pharmaceutical stocks if vaccines go through a more rigorous approval process. 

Financial Planning: What If There’s a Recession While in Retirement?

With 8 in 10 Americans already changing their spending habits and 58% expecting a recession, it’s clear that economic uncertainty is weighing heavily on people’s minds. But the reality is if you're retiring soon, or already retired, you should assume you'll face multiple recessions, market corrections, and bear markets during your retirement. It’s not a matter of if, but when.

Historically, recessions occur about every 6 to 10 years and typically last 10 to 18 months. Market corrections, defined as a drop of 10% or more, happen about once every 1 to 2 years, and bear markets, declines of 20% or more, occur roughly every 5 to 6 years, lasting on average about 10 months, though the recovery to previous highs can take up to 2 years or more depending on the severity.

The point isn’t to try and time retirement around these events, it’s to build an income strategy that expects them. A well-structured retirement income plan includes diversified investment portfolio that will provide long-term growth, cash reserves to avoid selling investments at a loss, a sustainable withdraw rate, and flexibility to adjust withdrawals from various sources when needed. By accepting volatility as a normal part of retirement, you can build a plan that weathers it and sleep better when the markets are volatile.

Yes, the Rich Are Getting Richer

That is how the saying goes and the rich did get richer in 2024. With the nice gains for many assets during the year, the number of people in North America with at least $1 million in investible assets grew to 8.4 million, which was an increase of 7.3%. This led to the group’s wealth increasing by 8.9%, to nearly $30 trillion. It is important to understand that the ultrarich, which is those with at least $30 million in assets, really provides a lot of the wealth.

While this group represents just one percent of wealthy individuals, it accounts for 34% of all the wealth. People that have investable assets of less than $1 million should not despair and they too should continue to invest and grow their wealth. One of the reasons that the rich get richer is that they spend more time understanding investing they tend to buy assets. In many cases they are also more conservative as they don’t want to lose what they have. In my experience, many times people with less than $1 million in assets like to gamble in higher risk investments trying to get rich quick and we all know how that turns out.

If you only have $100,000 or even $50,000 one should adhere to a good investment plan of buying good quality equities, and not panic and sell when a drop in price occurs. Any easy way people with lower incomes and investable assets can grow their wealth is in 401K plans and IRAs. This can increase the percent of their investments by a larger magnitude compared to a person with over $1 million because the contribution limits are not as effective on higher dollar amounts.

For example, if you max out your 401k this year, which would be $23,500, that would have a much larger impact on the percent your assets grew if you had $100,000 instead of $1 million. I believe If one plans well and invests in good quality equities along with staying the course, it is very possible that they too can pass the $1 million in investible assets.

The Disappointing Cybertruck From Tesla

I’m not surprised that the Cybertruck is not selling as well as expected. It is selling well under the estimates and when I say well under, I mean it because in 2024 Elon Musk estimated goal was 250,000 sales per year. It did not even come close to that figure last year as sales came in under 40,000. The first quarter of 2025 looks even worse with total sales of only 7,100. Could it be because it is still the ugliest vehicle on the road? It reminds me of years ago when VW had the Thing. Could it be the price of around $100,000 is too high?

Interestingly, the price has already been greatly reduced as the company has likely been trying to get sales moving. Or could it be the seven recalls on the Cybertruck? I do know that some of these were software issues, which could be fixed by a download, but there are also issues with the windshield cracking. The windshield is very heavy and very long. Also, what is known as a cant rail could fall off while you’re driving down the road because the adhesive was too weak. Another scary recall was the accelerator pedal that had a rectangular pad can become loose and get stuck under the paneling, which locks the accelerator in the down position, that’s a scary thought! It took years for the truck to come to market and it definitely did not meet those initial claims.

It was first announced in 2019 at a cost of $39,900 with a battery range of 500 miles and it was supposed to be able to go in the water. Fast forward to the reality of today and the price as I said is well above $40,000. The battery range at best is 350 miles and the truck needs to stay on land and it cannot function on water. I have seen a few around town and I think the people driving them are pretty proud that their vehicle stands out, but I still think it is one of the ugliest things on the road and you could not give me one.

Shocker… California Continues to Struggle With Gas Prices

We have discussed how refiners are closing in California due to growing regulatory and cost pressures. Both Phillips 66 and Valero will close two major refineries in the state by next year, but there are already problems with supply and recent outages at refineries in the state have only added fuel to the fire. The state’s fuel imports climbed to 279k barrels per day in May, which was the highest in four years. This meant refiners had to turn to trading partners in Asia to make up for the shortage of fuel.

The shrinking supply will likely only exacerbate this problem and I wouldn’t be surprised to see the import numbers continue to climb. The restrictive policies and the high taxes in California have led to gas prices that are far above the national average. Last Friday, retail gas prices averaged $4.68 per gallon in California versus a national average of $3.12 per gallon. This means California prices are about 50% higher than the national average. 

The Tidal Wave in Bitcoin Continues to Build

Bitcoin is trading over $100,000 once again and it has attracted a lot of attention. Public companies are even starting to buy Bitcoin to put it in their treasury to hopefully get a boost in their stock price. It appears about 60 public companies with ties to the stock market are using a Bitcoin strategy for their treasury investments. They are in hopes that Bitcoin will continue to increase in value and ultimately boost their stock price. Some of these public companies are even borrowing or selling shares of their stock to raise money to purchase Bitcoin.

I remember back during the tech boom many companies were implementing a similar strategy as they were buying high risk tech stocks in an effort to boost the value of their own stock price. We know how that ended. Based on research, if Bitcoin would fall below $90,000, roughly half of the public companies that invested in Bitcoin would then have a loss on their investment. If the company stock price began to fall, the companies may elect to unwind their investments in Bitcoin, which then could create an avalanche of selling.

Who knows where the bottom would be? The only reason Bitcoin is being bought now is because it continues to go up, but we know that cannot go on forever. Bitcoin does not pay dividends, interest or anything else, it is just a gambling chip. As I mentioned in the title, this is a title wave where the wave continues to grow and get bigger and bigger until at some point in time it collapses and wipes out everyone involved. I don’t know where we are with the Bitcoin tidal wave, but I would not want to be holding any of it finally crashes on the shores. 

A Hot Summer Is Going to Lead to Higher Utility Bills

The temperatures for June, July, and August are expected to be higher this year than last year and that’s not the only thing that could be going higher. It is projected with lower supply and higher demand that natural gas prices could also be higher. Natural gas futures are currently around $3.80 per million British thermal units and are expected to rise with estimates of above four dollars and some estimates even hitting five dollars by August.

For the past two years there has been a glut of natural gas and prices have stayed on the low side. But now with demand for LNG, which is liquefied natural gas, and power producers requiring more energy, natural gas prices will likely push higher. The biggest natural gas demand is still in the winter months, but because of the warmer summer, the demand is picking up with power plants accounting for 41% of US natural gas consumption. There’s also a lack of natural gas piping on the East Coast, which really slows down the transportation and is adding to its cost.

Other countries around the world need natural gas as well, and the United States has now become a big producer and exporter of LNG, which takes away from our supply here at home. The natural gas market in the US has now becomes a global market. We need to correct the pipeline matrix and develop more natural gas to meet the increasing demand and keep prices low.

The Sun Is Setting on Solar Companies

The tide has definitely turned-on installers of residential solar companies, which have been hurt by higher interest rates and now the tax and spending package passed by the House of Representatives includes eliminating certain tax credits for rooftop solar and battery storage. This has crushed companies like Sunnova Energy International, which at one point had a market capitalization of $5 billion and over 400,000 customers.

The company was started in Texas in 2012 to provide affordable residential solar products across the country. The stock is now a penny stock after falling 93% and has a market cap under $30 million. The company cannot pay its debt or attract new investors and will likely file bankruptcy. They are not alone as SunPower, Lumio, and Solar Mosaic filed for bankruptcy last year. Titan solar also just closed the doors, leaving their residential customers nowhere to turn. Sunnova being the biggest was probably hurt the most last year. The company lost $448 million and probably has very little chance of ever being a profitable business again without the tax credits as many consumers will forgo solar energy.

Because of the high cost of energy in California, there may be some room for a small operator to offset the high cost of electricity in the state. Another well-known company in the solar industry is First Solar, which has seen its stock drop nearly 50% in the past year may have a chance to survive since they sell and manufacture solar for businesses rather than residential customers. The fundamentals of the company look pretty good and it appears since they manufacture solar in the US they will continue to receive some tax credits, but the future for this company is just too fuzzy and while they may pull through, I don’t think the risk is worth the reward.