The Long Term Investor

Not good news for house hunters.

Mortgage rates rise above 7% for first time since May
Housing market remains stalled as mortgage rates continue to climb

https://www.foxbusiness.com/economy/mortgage-rates-january-16-2025

Bad news for buyers now that mortgage rates are back above 7%....although on a historic basis this is probably in the normal 5-7% range for mortgage rates.

I have been watching the...."Applicable Federal Rates" (AFRs)....every month. This is the minimum government mandated interest rates for private and other loans.....in order to avoid IMPUTED INTEREST. The long term AFR rate for February 2025 has been released and it is 4.75%. Of course most consumers can not get anywhere near this rate on a mortgage.

My kids mortgages are both family financed by the family banker....my sister. She holds both the mortgages on my kids houses. My sister benefits since these two mortgage loans produce a nice chunk of her retirement income. Since these are "family" loans they get a great rate and great terms. One of my kids loans was put in place back in July of 2024 since they moved to a new house.

Their initial......"AFR"..... rate on the loan was 4.46%. We were able to capture a NEW long term rate for their mortgage when the AFR dropped to a low of 4.03% in October 2024. We did this by revising and re-signing their mortgage note. I drafted a new note with the new rate set at 4.03%. This reduced their rate from about 4.46% to 4.03%.

I will continue to follow the AFR on a monthly basis and any time I can get them a good reduction on the rate I will redraft their note. My goal is to get them down to about 3.25% on their note....since that is the rate that my other kid has on their family held mortgage.

Incidentally....on these family held mortgages.....I do draft a legitimate note and deed of trust which are properly recorded.
We make sure we comply with anything necessary for the IRS. Doing these as family loans also gives us great flexibility in the payment terms of the loan.....especially the number of years.....for example a 40 year loan versus a 30 year loan.

We do make sure things are equal for both kids on their mortgage loans. My sister CHOOSES to GIFT BACK to my one kid....the difference between their payment at 4.03% and what it would be at the rate that my other kid has at 3.25%. She uses the annual gift tax exemption of $18,000 to do this legally. Of course she.....properly........uses the actual rate and payment....before the gift......for income taxes.

 

If you are curious about the AFR that I talk about above.....here you go.

https://www.irs.gov/applicable-federal-rates

Applicable Federal Rate (AFR): What It Is and How To Use It

https://www.investopedia.com/terms/a/applicablefederalrate.asp

"What Is the Applicable Federal Rate (AFR)?
The applicable federal rate (AFR) is the minimum interest rate that the Internal Revenue Service (IRS) allows for private loans. Each month the IRS publishes a set of interest rates that the agency considers the minimum market rate for loans. Any interest rate that is less than the AFR would have tax implications. The IRS publishes these rates in accordance with Section 1274(d) of the Internal Revenue Code.

Key Takeaways

• If the interest on a loan is lower than the applicable AFR, it may result in a taxable event for the parties involved.
• AFRs are used to determine the original issue discount, unstated interest, gift tax, and income tax consequences of below-market loans.
• Parties must use the AFR that is published by the IRS at the time when the lender initially makes the loan."

and

"If the lender charges interest at a lower rate than the proper AFR, the IRS may reassess the lender and add imputed interest to the income to reflect the AFR rather than the actual amount paid by the borrower. Also, if the loan is more than the annual gift tax exclusion, it may trigger a taxable event, and income taxes may be owed. Depending on the circumstances, the IRS may also assess penalties."

MY COMMENT

Personally.....I do consult with a CPA as to tax and other implications on any family loan that we do. I am able to do my own research and understand how it all works....but to be safe and make sure I am correct on my reading and understanding of the laws.....I do verify my opinion with a CPA when I am drafting the loan documents.

 

In our family.....we operate as a MINI-FAMILY-OFFICE.......very "mini"....compared to the "Family Offices" that are run by the very rich.. I personally handle the mortgage documents and finances, I handle most of the family investing accounts, and I handle most of the estate planing and documents. My sister is the family banker.

This works for us since we are a small family with myself, my wife, and my sister as the older generation and then my two kids and their spouses as the next generation. There are also three grand-kids. It would be much more complex if we were a larger family.

This works for us since my sister has no kids and considers my kids as hers. BUT......of course....every family and the family dynamics are different....so the bottom line is you have to do things the best way for YOUR own family. Just like in investing.....it is all about....."YOU"....and what is best for you and your family.

 

AND....I will say that I continue to stay busy with music projects. I am currently working with various people as to regular playing and shows.

I still have a couple of "production projects" that I keep putting off due to the cost that will be involved to get them done.....but I continue to slowly work on both. Both are LIVE CD projects......both for deceased National/International artists....one of whom I played and toured with.

They are both in raw form right now....but need me to invest in studio/engineering time for mixing and mastering. Hopefully I will get them both done this year.

 

I REFUSE to invest in Chinese companies. It is clear that any company of any substance in China is under the TOTAL control of the Chinese government. Not only is China our most significant ENEMY in the world and a threat to all free countries....but....it is of course the most brutal communist dictatorship in the world responsible for the death of tens of millions and tens of millions of people.

In addition all those people that....."think"....they own shares in a Chinese company in reality own....NOTHING of any substance.

Here is the vehicle that the Chinese government uses to control all significant business in the country.

Golden share

https://en.wikipedia.org/wiki/Golden_share

"People's Republic of China
In 2013, the People's Republic of China introduced golden shares termed "special management shares".[3] Since then, golden shares have been utilized by Chinese Communist Party (CCP) general secretary Xi Jinping's administration to expand control over private companies, particularly technology companies.[3][4][5] During the 2020–2021 Xi Jinping administration reform spree, the government used strategic share acquisitions to increase its golden share holdings.[6]: 275  In 2021, The Economist and Reuters described the Chinese government's stake in ByteDance as a golden share investment."

AND....here is what you actually own when you...."think"....you own shares in a Chinese company.

"How Variable Interest Entities Work

Chinese law prohibits foreign property ownership in most industries. For Chinese companies to raise foreign capital, they must create offshore entities. These are the VIEs, which get around the foreign-ownership laws by remaining under the control of Chinese nationals. These shell companies — often held in the Cayman Islands and named similarly to the associated Chinese company — hold legal agreements which give them claim to the profits of the associated company."......

"VIEs are not new, but Chinese companies have made them popular as a way to make foreign investment acceptable to both Chinese and foreign regulators. Although this structure circumvents China’s tax, foreign currency exchange, and foreign-ownership laws, Chinese regulators have mostly turned a blind eye for decades....."

............

"Up in Smoke

When agreements are violated, shareholders of VIEs are left stranded and cannot expect enforcement from the Chinese government. One of the most publicized examples of this was the 2011 dispute over Alipay."

https://ghpia.com/what-do-you-own-when-you-invest-in-chinese-stocks/

MY COMMENT

In my simple little and irrelevant opinion on this issue.....I think it is ABSOLUTELY INSANE that we allow shares of any Chinese company or VIE to be sold on any USA stock exchange or to be owned by USA citizens.

It is your money....so do what you want. BUT......buyer beware.

 

I like this little and simple article. This is a great lesson for parents. I will mention in advance I totally agree with the section on owning the MEGA-WINNERS........and....one of the best ways to do this for life is owning a SP500 ETF.

3 investment lessons for my newest son

https://www.riskhedge.com/outplacem...ntent=RH144OP731&utm_medium=ED&utm_source=rcm

(BOLD is my opinion OR what I consider important content)

"My wife and I just welcomed our third child (George) into the world.

He’s doing great and settling into home life with his big sister and brother. Right now, his only job is drinking bottles of milk and sleeping.

But one day, he’ll start asking grown-up questions like, “What’s the stock market, and how do I invest?”

When I was little, no one ever sat me down and taught me about stocks. Now that I have three kids, I’ve been thinking about what a dad should teach his children about money and investing.

I’m not talking about specific tips or tactics, or even what types of investments to buy. But the truly big stuff. The two or three money principles that really move the needle.

If I can ingrain these principles into my kids, I’ll know I’ve done all I could to set them up for a wealthy life. As I’ll show you, it comes down to the Big 3. Nail the Big 3, and everything else in your financial life slots into place.

Teaching your kids the Big 3 while you’re still around will help them build onto your achievements. So if you have kids and grandkids, please share this letter with them, too.

Step #1: Save, save, save

Saving money is the foundation of wealth and a prerequisite to investing.

Before you even think about investing, you first have to save a lot. If you don’t put money aside, you’ll never be able to buy stocks.

This is hardly groundbreaking advice. Telling someone to “save money” is like a fitness guru advising you to eat healthy and exercise. Both sound obvious. Yet, it’s impossible to achieve success without them.

Americans spend a combined $35 billion on gym memberships each year. Yet roughly four in 10 Americans are obese. What gives?

A study published in The American Journal of Clinical Nutrition found exercising makes you feel like you did something healthy, which leads folks to rationalize a post-workout food binge. Eating pizza after sitting on the couch all day might bring guilt. But scarfing junk food after running five miles feels justified.

The same happens in our financial lives. Spending more when, say, you get a raise is as tempting as eating junk food after exercise. It feels earned. But as my grandad used to say, “When your outgo exceeds your income, your upkeep becomes your downfall.”

Imagine you could only choose one of these for your kid:

#1: They’re a high earner but spend every penny.

#2: They get a decent salary and save a lot of money.

I’d choose #2 every time. How much you earn is important, but it’s not nearly as important as how much you save. There’s a big difference between making a lot of money and becoming wealthy. The gap between what you earn and what you spend is what really matters. This pile of cash is what allows you to invest.

In his book, retirement expert Charley Ellis highlighted how important it is to start saving when you’re young. He found folks who began saving at 25 rather than 45 cut their required annual saving rate by two-thirds.

In other words, these folks can save 65% less than older savers each year and still build a dream retirement.

Step #2: You gotta own stocks

I’ve told you before that starting a successful business is the single best way to get rich.

Amazon (AMZN) founder Jeff Bezos, who’s now worth $230 billion, is the perfect example of this. But you don’t need to build the next trillion-dollar empire to get rich. You can piggyback on great CEOs by buying shares of their companies on the stock market.

The US stock market is the greatest money-making vehicle in history. You must own a piece of it. A study from Arizona State University found: “Investments in US stocks improved the wealth of shareholders by over $47 trillion dollars between 1926 and 2019.”

For over nine decades, US stocks have handed shareholders $500 billion in profits each year, on average. That’s enough to cut every American a $1,500 annual check for their entire lives.

I told you, saving is the foundation of wealth creation. This is the first step—but it won’t make you rich.

Vanguard founder John Bogle said:

I think whatever your view of the world is, you have to invest. You can’t put the money in the mattress. And in this day and age of low interest rates, you can’t put it in a money market fund or a bank CD, so invest, you must.

The US government’s own calculations show a dollar is worth 25% less than it was 10 years ago. And nearly 90% less than it was 50 years ago!

These days, owning a piece of a successful business—owning stocks—isn’t a nice-to-have. It’s a must. Buying stocks is one of the best ways to beat inflation.

Think of being a shareholder like having a lucrative second job without the hard work. With this second job, you earn money when you’re sleeping, when you’re on vacation, and when you’re retired.

Think about buying Amazon shares. Every time the disruptor bulldozes through another industry and its stock soars, you get a slice of the profits. When it crushes earnings and Jeff Bezos’s net worth surges, it means you win, too.

Step #3: You gotta own the megawinners

Just owning stocks isn’t enough. You must own the right stocks: the megawinners.

JPMorgan Asset Management published a great paper called The Agony & The Ecstasy.

It’s a deep dive into the performance of the US stock market over the past 40 years. And it confirmed an important investing truth: Most stocks suck.

JPMorgan found almost half of stocks suffered a “catastrophic loss” from 1980 to 2020, meaning they plunged and never recovered. Another 26% of stocks produced returns lower than the overall market.

Effectively, all the market’s returns came from just 10% of stocks, which JPMorgan called “megawinners.”

Lots of losers… and a few big winners.

This is why picking individual stocks isn’t for everyone. In fact, many folks are better off owning a broad basket of US stocks or buying indexes. By simply owning the S&P 500 ETF (SPY), you would have doubled your money over the past five years. That’s a good, stress-free option.

But investors who really want to accelerate their wealth creation must go on the hunt for these megawinner stocks. You can build lasting wealth through owning great businesses profiting from disruptive megatrends."

MY COMMENT

I absolutely agree with the above. Instill these values in your kids and they will be way ahead of most people.

AND....you do not have to invest in individual stocks or be a genius stock picker or researcher. ALL you have to do is invest in a SP500 ETF.......and you will own a good percentage of the MEGA-WINNERS over your entire life.

 

The obvious news of the day today.......with the markets closed in honor of MLK.

Trump prepares to unleash a wave of first-day orders on everything from oil drilling to TikTok
The president-elect is now promising 200 executive actions on the first day of his second presidency.

https://finance.yahoo.com/news/trum...ng-from-oil-drilling-to-tiktok-131614008.html

 

Bitcoin seems to like the above....as it soared to a new ALL TIME high today. As I type this it is at $107,825. I looked at it last night and it was at $102,000.

Bitcoin Tops All-Time High and Dollar Weakens

https://finance.yahoo.com/news/asian-stocks-gain-trump-xi-224219470.html

 

YOu know back years ago when Hedge Funds first appeared.....there was somewhat of a frenzy as regular investors wished they could get into these new and exciting investment vehicles. Of course, over time some of them and much of the gains turned out to be simple due to being Madoff feeder funds.

As to the others....here is the dirty little secret.....although it is not really a secret.

Hedge Funds Kept $1.8 Trillion as Fees, or Half Their Gains

https://finance.yahoo.com/news/hedge-funds-kept-1-8-000100186.html

(BOLD is my opinion OR what I consider important content)

"(Bloomberg) -- Hedge funds have long been regarded as notoriously expensive. New research reveals just how costly they truly are for their clients.

Of the $3.7 trillion in profits they have earned as an industry since 1969, nearly half or a staggering $1.8 trillion was gobbled up as fees, according to estimates by LCH Investments, a fund of hedge funds. With soaring assets, hedge funds have raised their charges to 50.4% of gains, up from the roughly 30% they earned until the early 2000s.

This is the first time LCH has ever quantified the high expenses that have become the bedrock of hedge fund firms and have helped mint multiple billionaires over the years. Warren Buffett once described those fees as “a compensation scheme that is unbelievable,” while Bill Gross, the co-founder of Pacific Investment Management Co., called them a “giant ripoff.” Such criticisms have largely been brushed off by an industry that researcher HFR says has grown sevenfold this century to manage a record $4.5 trillion.

“The Great Financial Crisis of 2008 presented an opportunity for a reset in the way hedge funds charge fees to investors,” Rick Sopher, chairman of LCH, told Bloomberg News. “This opportunity was largely missed.”

The charges were, in part, the result of investors not recovering fees already paid when they redeem or funds close after losses, Sopher said. “This factor becomes particularly meaningful during periods when hedge funds suffer significant losses such as the global financial crisis of 2008 and in some subsequent years,” he added.

Hedge funds charge a fixed management fee, with the largest of them increasingly introducing a so-called pass-through expenses that allow them to charge clients for anything from bonuses, hiring cost, research, entertainment to other expenses. When hedge funds make money, they also keep typically 20% of the profits as performance fees. When they lose, clients take the entire hit in addition to paying the fixed or pass-through costs.

LCH studied fees as part of its annual ranking of the most profitable hedge funds in the world.

D.E. Shaw & Co. topped the table as the most profitable hedge fund for 2024, followed by Izzy Englander’s Millennium Management. Ken Griffin’s Citadel, which leads peers for the most money made by a hedge fund since their launch, was placed third last year.

The annual survey focuses on money managers with the most overall profits in absolute dollar terms since inception, and as a result the largest and oldest hedge funds typically tend to do best. The top 20 firms, which oversee about a fifth of the industry’s assets, generated $93.7 billion or roughly a third of the industrywide gains last year.

As measured by a more traditional way of assessing returns, the top-20 grouping gained 13.1% on an asset-weighted basis, outperforming returns of 8.3% across all funds.

Hedge fund managers overall made $289 billion for their investors in 2024 and the top 20 have made about $855 billion net of fees since inception."

MY COMMENT

Some "ok" returns above....but they are significantly watered down by the whopping fees and expenses. Personally I see hedge Funds as a SUCKERS investment.....unless you are one of the owners of the fund.

BUT....to each their own.

 

Ok....how is that for a nice little flurry of posts.......on an irrelevant day when there are no markets.....and therefore....nothing to talk about.

It is called......."icing the puck". It is also called.....knowledge. It is always possible to learn something new even when the markets are closed.

 

HAVE A GREAT DAY EVERYONE.......we will hit it hard tomorrow.

 

I would call TODAY.....the actual start of investing year 2025.

We are now:

Done with the majority of the year end profit taking, portfolio re-balancing, and tax moves.

Done with the change over in the government.

In the guts of the forth quarter EARNINGS.

For better or worse we can now move on and into the investing year.......Happy New year. Let the fun begin.....as we continue to......ENDURE.....THRIVE....with.....PATIENCE......and long term...... FOCUS....which allows us to....IGNORE....the short term noise..

 

A good start to the day for me. Now if MSFT, AAPL and CMG can come over to the "light" and away from the dark side....it will be a great start to the short week.

I dont have much hope for AAPL today...but MSFT and CMG....."might" make it by the close.

 

A very good reminder for us all.

I updated my will. Here’s why you should, too
Wills are designed to ensure your wishes are carried out and make things easy on your family

https://www.foxnews.com/opinion/updated-will-heres-why-should-too

 

With the news focused on the....new government.....there is little to nothing....in terms of actual investing or market content. BUT....that's ok....it is the story of the day.

Not much out there for me....but....this is good news for investors and the markets.....indirectly.

Schwab rises after earnings top estimates on record inflows

https://finance.yahoo.com/news/schwab-rises-earnings-top-estimates-124414961.html

"Fourth-quarter revenue grew by 20% year over year to $5.3 billion, topping estimates of $5.19 billion. The company posted adjusted earnings per share of $1.01, also exceeding predictions. Full-year revenue growth was 4%, surpassing the 3% to 3.5% guidance the firm gave in December.

“Record net inflows into our managed investing solutions helped lift 4Q24 revenue,”"........

"Total client assets were $10.1 trillion, after passing $10 trillion for the first time in November. That just undershot analyst estimates of $10.17 trillion."

 

WELL.....DUH.....this is an obvious negotiating strategy. Here are the markets today.

Dow rises as investors feel Trump’s tone on tariffs is softer than feared

https://www.cnbc.com/2025/01/20/stock-futures-rise-as-trumps-second-term-begins-live-updates.html

(BOLD is my opinion OR what I consider important content)

"The Dow Jones Industrial Average advanced on Tuesday as Wall Street viewed President Trump’s comments and first-day actions around international trade as a bit softer than initially feared.

The 30-stock Dow added 244 points, or 0.6%. The S&P 500 gained 0.4%, while the Nasdaq Composite
flickered around flat.

3M climbed more than 4% after earnings came in better than analysts expected. Tuesday’s rally also included small-cap names, driving the Russell 2000 nearly 1% higher.

Several big technology stocks also took a leg up, with Amazon and Alphabet each gaining more than 1%. But a drop of more than 3% in Apple
on the back of two Wall Street downgrades weighed on the tech-heavy Nasdaq.

Trump said he was considering 25% tariffs on Mexico and Canada on Feb. 1 because of their border policies while signing first-day executive orders in the White House Monday night. He also mentioned China, noting that the U.S. could put tariffs on the country if it doesn’t approve a TikTok deal.

Ultimately, Trump issued a broad memorandum directing federal agencies to study what he deems as unfair trade policies with foreign countries. But the president stopped short of authorizing new levies on his first day back in the Oval Office, which investors took as a sign that he may be less ardent about issuing tariffs than previously expected.

“President Trump’s Inauguration Day policy announcements on tariffs were more benign than expected,” said Alex Phillips, chief U.S. political economist at Goldman Sachs, in a note to clients. “For now, it is a lower priority than we would have expected.”

To be sure, Phillips said Trump’s language around Canada and Mexico was actually more hawkish than he anticipated. Still, the economist said he was lowering the odds that the U.S. slaps a universal tariff on all imports this year, which can offer confidence to traders originally cautious that a wide-reaching policy would reignite inflation.

Trump said he wasn’t ready for universal tariffs yet and he was vague when discussing levies on China.

Outside of trade policy, Wall Street will be focused on Trump following through on the pro-business proclamations he made throughout his campaign, most notably his calls for looser regulations that helped lift banking banking stocks following his election win in November. Other components of the so-called Trump trade — including small caps, oil stocks and bitcoin — will likely be hypersensitive to what his administration does.

In his inaugural address, the president labeled his return to the White House as the beginning of a period of growth and success for the country, while largely condemning the Biden Administration. Trump also on Monday declared a national energy emergency to increase fossil fuel production.

Apple shares fall after two downgrades

Apple shares pulled back nearly 4% after two firms downgraded the iPhone maker ahead of the opening bell.

Jefferies downgraded Apple to underperform, warning revenue could disappoint investors. Loop Capital lowered its rating to hold, citing a “material iPhone demand reduction” ahead of the iPhone 17.

The rating changes are a rare show of pessimism for Apple, which remains a consensus buy on the Street. According to the CNBC Analyst Consensus Tool, 32 out of 47 analysts consider the tech company a buy or a strong buy."

MY COMMENT

I am also seeing headlines regarding....."how in the world is the FED going to navigate the Trump term". Like the fear-mongering over tariffs.......this is total BS.

Relax investors....ignore the NOISE. Anyone that is an adult and has at least four years of memory ability....knows exactly how all the Trump posturing, negotiating and government is going to work. After all.....we all experienced four years of this government just....FOUR years ago.

This is ALL politics and media BS. Little to nothing....negative.....for investors. In the end.....for investors.... it will ALL be about business fundamentals and EARNINGS as usual. I will NOT get all caught up in the political drama. I am all about....business, business, business.

 

This is a pretty....safe prediction.....since it just did.

Bitcoin will hit a new all-time high in 2025, Binance CEO says

https://www.cnbc.com/2025/01/21/bitcoin-will-hit-a-new-all-time-high-in-2025-binance-ceo-says.html

My COMMENT

LOL....sorry for the sarcasm. There is actually some real content in this little article:

"Key Points

• Richard Teng, Binance’s CEO, on Tuesday said that he sees “much clearer regulation” in the U.S. this year under the new Trump administration, adding that this will be supportive for crypto markets.
• “If you look at past cycles, this year will be a year that we see a new all-time high for the crypto industry,” Teng told CNBC at the World Economic Forum in Davos, Switzerland.
• Last year, bitcoin passed the $100,000 price milestone for the first time, as traders grew optimistic about the crypto industry’s prospects under a Trump administration."