Cautious Bank Outlook, Crypto Law Update, Dividends or Buybacks, New Tax Rules, Solar Loan Trouble, Private Credit Warning, 401(k) Equity Debate, Costly Travel, Diamond Choice & Streaming Showdown

Big bank earnings give a cautious green light on the economy

Every quarter we get excited about listening to and reading about how things went for the big banks in the most recent quarter as they release their earnings. I’m primarily talking about JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo. We have held a couple large banks in our portfolio for years and they have provided very useful information along with great returns as well. Overall, the big banks were happy with the low rates of consumer delinquencies and writing off debt that was unrecoverable stayed around the same rate as last year.

One banker made a comment that with a 4.1% unemployment rate it’s not likely to see a lot of weakness in their portfolio. This is something we have said for quite a while now, but we believe as long as the employment picture stays strong, the economy should do well. Deal making for the banks looked pretty good across the board and all of them had profit increases compared to one year ago. The overall tone from the bankers was largely upbeat, but a couple banks did call out some concern around commercial real estate and office buildings.

There are certain cities with economies that are doing well, but there are other areas that are more problematic and the banks generally have commercial real estate in many markets across the country. To summarize, it appears the bankers feel pretty good, but they still remain somewhat cautious as bankers always should.

Understanding new legislation on cryptocurrencies

Last week new legislation on cryptocurrencies was announced as the Genius Act, which stands for Guiding and Establishing National Innovation for US stable coins, made its way through Congress and to the President’s desk. The legislation is supposed to provide licensing and oversight for stable coins as issuers must obtain licenses through either a national trust bank charter with the OCC, which stands for the Office of the Comptroller of the Currency, or a state level money transmission license.

The Genius Act is supposed to provide consumer protection in the case of the issuer of a stable coin becoming insolvent. The solution in the Genius Act is to prioritize stable coin holder claims so the holders of those coins should be able to get their money back. This is nowhere near the safety one has in a bank where your deposits are insured by the FDIC should that bank fold. I feel this law will give people a false sense of security and I don’t believe it will prevent a major collapse of stable coins.

There’s also a conflict of interest from President Trump‘s promotion of digital currencies since he himself has a coin and his sons Donald Trump Junior and Eric Trump run a bitcoin mining firm called American Bitcoin and are heavily involved in the crypto space. I believe the whole thing is just adding to the bubble of cryptocurrencies. Keep in mind that a bubble can last 10 to 12 years, if not longer, but the bigger it gets the bigger the financial disaster it causes.

What is better for investors stock dividends or stock buybacks?

Unfortunately, there’s no hard and fast rule based on performance figures in terms of what is better for stock investors, but I would have to lean towards stock dividends. If you look at the right companies paying dividends over a 10-year period you can find that perhaps the company you invested in is now giving you a yield of maybe 7-8% based on your initial investment. Those dividends can be a really great tool for long-term investing and while companies could always stop the dividend, most companies that have paid a dividend for the long-term do not like to stop or even reduce paying that dividend. This can help stabilize returns during downturns and may help investors be less emotional.

A problem with stock buybacks is they can be announced and the stock may see a little bounce, but then it’s possible that management does not fulfill the commitment to buy back all the shares they had planned to. Also, if the company or the markets were to hit a rough patch many times the first thing to go is stock buybacks. It is also possible that the company could do a stock buyback, but within a year or two the stock might drop below the price where the repurchases occurred, which would make those investments a questionable use of capital.

Benefits to stock buybacks include the fact that there’s no taxes for shareholders when they occur and they do increase your ownership of that business. While dividends are generally taxed, they are tax favored and depending on one’s tax bracket you may pay very little or no tax at all. And don’t forget about the compounding effect of reinvesting those dividends back into another investment. Unfortunately, it has become harder to find good quality companies paying dividends for a reasonable price. Looking at the S&P 500 index, the yield is now only 1.2%, which is near the all-time low that was hit during the dot-com bubble.

Over the long-term history of the S&P 500, it’s yield is generally around the 10-year Treasury and I was surprised to learn that up until the 1960’s, the S&P 500 actually generally yielded more than the 10-year Treasury. Even looking just 10 years ago they were both yielding around 2%, but currently the spread between the two is about 3%. This comes as the S&P 500 has seen its forward P/E based on the next 12 months of earnings expand from 17 to around 22 during that time frame. Could this be another warning sign that the S&P 500 index is overvalued?

Financial Planning: New Tax Rules for Tips and Overtime

Starting in tax year 2025 and through 2028, the One Big Beautiful Bill Act exempts up to $25,000 in tip income and up to $12,500 in qualifying overtime pay per individual from federal income tax—doubling to $50,000 and $25,000 respectively for married couples filing jointly. The tip exemption applies only to workers in occupations where tips are customary and must be properly reported through W-2s.

The overtime deduction applies only to the premium portion of overtime wages—i.e., the extra pay above an employee’s standard hourly rate—and must be paid in accordance with Section 7 of the Fair Labor Standards Act (FLSA), meaning it only covers overtime worked in excess of 40 hours per week under federal rules. Overtime paid under state laws or union contracts does not qualify unless it also meets the FLSA criteria.

The full exemption is available to taxpayers with modified adjusted gross incomes up to $150,000 (single) or $300,000 (married filing jointly) and begins to phase out above those levels. To claim the exemption, workers must file a new IRS Form 10324-T with their annual tax return. Keep in mind Social Security, Medicare, and state taxes still apply to the tip and overtime pay. The policy begins with wages and tips earned on or after January 1, 2025, with claims first filed on 2025 tax returns in 2026.

Solar panel loans appear to be in trouble

You may think this doesn’t concern you because you don’t have any loans on solar panels, but guess again as you might own them through bundled investments known as ABS or asset-backed securities. They may also be mixed in with private credit that was sold to you with other loans. The problem in the solar loan industry is the overcapacity and the loose lending of creditors.

The industry saw substantial growth in 2024 as 4492 megawatts of panels were installed. Compare that to 2019 when only 2864 megawatts were installed. Companies you may recognize in this would be Sunnova Energy International along with Goodleap who packaged loans as a middleman, took a commission and then sold the loans. The companies became very aggressive selling solar panels and gave loans to people who had very low credit and thought the savings on the electricity would be far higher and would cover the cost of the loan.

Unfortunately, that was not the case, and with the expected slowdown in solar sales there is nothing to continue to feed these loans. It is so important for investors to understand where they’re investing their money. Even though one may think bonds are pretty safe and the broker that sold them to you told you there’d been no market fluctuation, bad bonds have far greater investment risk than many realize because if the bonds aren’t repaid it can result in major losses for those investors. 

One of world‘s top bankers warns on private credit

Jamie Dimon, CEO of JPMorgan Chase, is considered one of the world’s top bankers, if not the top banker and he recently warned that private credit is a recipe for a financial crisis. I have been warning our readers, listeners and viewers of what I see as the building of the private debt bubble, so it was nice to see some of Dimon’s comments validating my concerns. Unfortunately, some people will ignore his warning because he says he will be competing in the space as well. But people should understand that while the bank has earmarked about $50 billion for private debt, I believe Dimon will be the one that comes in and takes advantage of all the wreckage in poor loans. He is in no rush to go out there and simply loan money at rates 2 to 3% higher to higher risk borrowers.

With that said, he understands that more corporations are turning to private debt due to its flexibility. Make no mistake private credit is far riskier than what banks will lend, which is why there is private credit. But the explosion of private debt over the last eight years has been crazy, considering it has increased by around 100 times to nearly $700 billion. Jamie Dimon also points out he doesn’t like how some private credit firms are taking the savings from small investors to grow their rapid expansion.

These private credit firms are very tricky and some are getting access to small investors by working with insurance companies and using annuities to grow their business. Shame on the insurance companies for doing this as I worry this will be another pot that will over boil in the future. Unfortunately, when the credit boom collapses, I believe there will be many small investors who lose more than they can afford and they will be too close to retirement to recover. The story likely won’t end well, and if investors won’t listen to me, take the advice from a very well-respected banker, Jamie Dimon.

Private equity should not be allowed in 401(k)s

Most of the time I disagree with attorneys, but this time, I’m glad to see that the attorneys will be going after companies that allow private equity in their 401(k)s for their employees. There is currently over $12 trillion in defined contribution plans like 401(k)s and Wall Street has been pushing hard to get private equity into this fee gold mine that could produce billions of dollars in fees for Wall Street. The attorneys say private equity is not a good investment for 401(k)s because of the high fees and the lack of the liquidity, which makes it hard for people to get out of them.

I agree 100% with the attorneys on this statement. Unfortunately, the Trump administration is expected to issue an executive order to make it easier for the private markets to be offered in 401(k)s. Attorneys responded to this by stating an executive order will not overrule the current fiduciary requirements of the Employee Retirement Income Security Act, also known as ERSIA, which governs retirement plans. I’m siding with the attorneys on this because I believe this will destroy many people's long-term retirement plans. I’m hopeful that as the attorneys begin their lawsuits and go after companies suing them for the lack of fiduciary requirements, that employers back off from allowing private investments in 401(k) plans.

That international trip is going to cost you more than you expected

According to a recent survey compiled by Deloitte, 25% of US consumers said they were traveling internationally over the summer. They’re going to be in for a big surprise when they are dining out, traveling around, and buying souvenirs. The ICE US dollar index symbol, USDX is widely used for the value of the US dollar against foreign currencies. From January through June, it posted its biggest decline in more than 50 years.

Thinking of going to Europe? The dollar against the euro was off 13% and even against the Japanese yen the dollar was down 6%. This will definitely wreak havoc on your travel budget and I don’t see it improving in the near future. While this may sound negative for the US, there actually positives that come with it. The increased costs could lead to less people vacationing internationally and instead choosing to stay here in the US. With travelers spending their vacation dollars here it would help stimulate the economy.

Also, people from around the world can now travel to the United States for less and also spend their vacation dollars here. As I talked about six months ago, while the pride of having a strong dollar sounds good, having a weaker dollar can help our economy with continued growth. 

Mined diamonds versus man-made diamonds, which should you buy?

Based on my research, they look the same and can only be told apart by expensive equipment. Man-made diamonds are real diamonds that are created in a lab that can duplicate the extreme pressure and temperature in the Earth that took over 1 billion years to create naturally. Manufactured diamonds are 100% carbon with the same hardness and sparkle of a natural diamond.

Walmart is the country’s second largest fine jewelry seller behind Signet and sold its first man-made diamond in 2022. As of today, roughly 50% of the diamond sales at Walmart are man-made diamonds. Signet, which owns Kay Jewelers, Zales and Jared, says it has been adding more lab grown diamonds to its fashion jewelry and this has helped increase sales for the company. Lab grown diamonds when they first came out were close in price to a natural diamond, but since 2016 the price has dropped around 86%. The price of a natural diamond now is about $3900 per carat vs $750 per carat for a lab grown diamond. Due to the increasing popularity, it appears that most consumers don’t seem to care whether it’s a natural or a man-made diamond. Would you be willing to save thousands of dollars to buy a lab-grown diamond versus a natural diamond?

Who has more viewers, Netflix or YouTube?

Netflix just recently reported their earnings per share jumped 47% and their share of US viewers held steady at 8.3%. If you guessed Netflix has more people from the US watching them than YouTube you would be incorrect. YouTube share of US viewers came in at 12.8%, which was nearly a 33% increase from 9.9% last year. YouTube also has substantially higher revenue of $58 billion compared to the recent $39 billion in revenue at Netflix.

People are excited about the revenue growth at Netflix as it is projected to climb 15% to $45 billion in 2025, but that pales in comparison to YouTube’s expected revenue jump of nearly 21% to $70 billion. Netflix also has a higher cost for content expenses, as 52% of total expenses were for content in the second quarter. YouTube has much lower expenses because most of the creation expense is carried by the creators of the content.

While this has been a positive for YouTube in the past, it could cause some problems in the future as their content creators could be stolen from them by others, including Netflix. As an example, Miss Rachel, who is a children’s entertainer with a very popular YouTube channel, now has a Netflix show that saw 53 million hours of viewing in the first half of 2025. With Netflix owning their content, it cannot be taken away from them.

A wild card that is still out there for controlling US viewers time is TikTok, which is currently in limbo, but could be a major disruptor in the entertainment space since younger audiences seem to enjoy the short videos versus longer TV shows and even movies to some degree. Apparently, younger viewers have a very short attention time span and TikTok is capitalizing on that opportunity and maybe even making that problem worse.