Dow 100,000

Dow 100,000

Here at ILAF we are an optimistic crew, and whether you are smarting from the 2025 stock market rally or simply riding a tsunami of schadenfreude, it is poignant to consider what the future may hold.

As described in the 2025 Stock Trader's Almanac: The fifth year of almost every decade is the best in terms of stock market performance, as is the 1st year of a new presidency. If Santa Claus comes to the rescue again this year, whatever results 2025 brings might be the best of the decade. But like an old curmudgeon, we at ILAF are not satisfied with simply average returns, or even the best, we dream of stellar, euphoria-inducing returns. Read on dear investor.

Assuming several economic events break our way and AI can deliver the productivity boost it is capable of doing, ILAF predicts...wait for it...Dow 100,000 in 5 years (say Christmas of 2030.)

Dow 100,000 in 5 years assumes a 15% return per year for the next five years. As we all know, linear returns are a fallacy. Developed by the big ETFs and fund companies to convince people the stock market can be tamed and silo'd into discrete linear patterns, linear returns are the original "fake news." Day-to-day, week-to-week, and month-to-month movements CANNOT somehow be converted from a Four-dimensional marketplace into a glossy Two-dimensional marketing brochure. It don't work that way.

How it does work is daily chaos derived from fear and greed trying to maximize return while taking as little risk (allegedly, see 2007-2009) as possible to do it. That 15% annual growth rate can be had, and double the Dow to 100,000 if we can significantly improve productivity, while somehow keeping unemployment under 5%, inflation tame around 3%, and real wage growth exceeding inflation. Big "ifs," but the likely scenario to reach Dow 100,000 may not be what investors suspect.

My theory is that "this time around" AI is going to replace entire job sectors, and as robots improve their dexterity almost every industry that has a "touch" component is vulnerable. California should lead America, if not the world, again...but for all the wrong reasons. California is a great example of where the fusion of AI and robots should have an increasing immediate impact (and a lasting one at that) because of the extreme difficulty in both having a business in the state and even more dangerous having employees.

Look to where there are poor incentives to do business, and there is where AI and robotics will flourish. Keep an eye on places with a heavy labor union presence. Onerous taxes. And lots of lawyers. AI and robot adoption will help transform heavily regulated industries with high plaintiff-cost to productivity darlings. Coastal America looks ripe for massive productivity surges, and given their existing high population densities the Al and robot utility spikes will translate directly to the bottom line of corporations, and possibly even local, state, and federal government.

In the next five years it will be more important than ever to be an OWNER of AI and robotic assets, which for many of us that means owning shares of companies immersed in the sectors. As an owner you should be able to ride the wave of increasing profits, increasing dividends, and sector share ownership. Woe to those who do not own a piece of the action...the downside of all this productivity increase almost assuredly will be job loss.

It is hard to believe AI and robots will INCREASE the numbers of jobs, or increase real wages. At some level (think control or ownership) they might, but for the vast population AI and robots will not be creating jobs, they will be eliminating jobs and lowering the collective standard of living...save for those who are owners of the tech.

Dow 100,000 has a good probability of happening within 5 years, but there is also a good possibility of significant societal changes to effect the stock market doubling. As usual, buy or create assets.

Taxmaster

Taxmaster

As Liberal-Progressive Warren Buffett is poised to retire at 95 as the CEO of Berkshire Hathaway, it is interesting to see his final tax avoidance move on the investing chess board. Considered by many to be the greatest investor of all time, Buffett's annual letters to shareholders of Berkshire Hathaway could constitute an MBA in their own right. For over 60 years Buffett has been steadfast in his position on "tax fairness," ie that the extremely wealthy do not pay their fair share. 

Recently Buffett released a Thanksgiving missive, this letter is what he intends to produce yearly in lieu of his previous Berkshire Hathaway shareholder letter.  Along with several nostalgic stories and anecdotes regarding growing up in Omaha, Nebraska along with several of Berkshire's most luminous figures, including his best friend Charlie Munger it details his future plans.

Via this letter, the reader learns of Buffet's intentions to dispose of his vast fortune...a fortune originating from old textiles mills in New England where oddly there is no bronze statue of Warren Buffett. Why is that? No "Warren Buffett Day" in Cumberland, RI? No "Buffett, Massachusetts?"

Sensitive readers cover your eyes. Berkshire's fortune primarily derived from cheap labor and monopolistic corporate moats, in many cases with unfathomably beneficial terms to Berkshire struck in moments of financial crisis. Many of these businesses had seen better days, indeed Buffett's investment thesis had been for decades "to get the last puff of a cigar for free."

Those old textile mills, namely Berkshire Fine Spinning and Hathaway Mills are now empty lots, industrial skeletons, and piles of red brick. The local economies never recovered from the decline of the textile mills in the 1950s. Yet, Berkshire Hathaway today is a $1.2 TRILLION dollar company, with Buffett owning approximately 15% or about $180,000,000,000 of that value.

Here at ILAF we begrudge no man his fortune. Yet, the concern arises when a fortune is created in the United States utilizing the benefits of our legal system, banking system, infrastructure, labor force, educational system, defense, etc. etc. and after 75+ years of compounding and accumulating vast wealth it strategically avoids the valid claims of taxation from society (taxation is what Oscar Wilde referred to as the "price of a civil society.")

Buffett is by no means alone in this legally-sanctioned, yet morally dubious subterfuge. Show me a billionaire and I will show you a private foundation. What is particularly vexing in the Buffett situation, however, are the literally decades of pontification about him not being taxed enough, about the struggle of the working person, of not passing down generational wealth, of luck, of fairness, of hard work and discipline. Yet the very first paragraph of Buffett's Thanksgiving letter clearly outlines his true intention: to pass on his vast fortune virtually tax-free to his children via foundation structures.

The "foundation loophole" needs to be closed, it is costing American citizens hundreds of billions, if not trillions, in benefits they (American citizens) helped create and on which they (American citizens) have a valid claim. A better legacy to leave the United States and the American people is being known as both the greatest investor of all time and the greatest philanthropist who eschewed foundation tax avoidance and paid the claim due to citizens. 

Barbell Society

Barbell Society

It is becoming increasingly obvious, just as AI imbedded in Google's Blogger helps predict my next words, that society has undergone some fundamental changes in just the past several years. Perhaps the biggest is the emergence of what I consider to be a "barbell society."

In the traditional sense, barbell economics means a concentration of wealth or economic activity at two ends of an economic spectrum; ie your working poor and your working rich. The Middle Class was the thick bar in the middle holding up both given its size, asset ownership, and political power. But with the rapid adoption of AI in the workforce, academia, logistics, fulfillment, food prep, etc., etc. combined with a monopolistic concentration of assets (read cash, gold, bitcoin, stocks, real estate, pensions, 401Ks, business ownership, IP assets, political power, etc.) in the hands of a single generation what has emerged is a barbell society.

This barbell society is new in the annuals of history; typically there was a pyramid type of structure where a few controlled or owned everything and the vast majority of people led lives of serfdom. This has drastically changed over the past two thousand years via successive revolutions. Up until recently in fact, almost every successive generation looked forward to a better standard of living than their parents. That is no longer the case, as "The American Dream" is poised to succumb to a barbell society.

The question that arises now with the arrival of AI in society is where on the barbell is AI? I propose that it is actually the left "BELL" increasingly responsible for more work utility (task importance times volume.) The left BELL is growing insanely fast, replacing mundane, dangerous, and increasingly knowledge-based tasks, jobs, and marketing/sales. The left BELL needs no sleep, no comp, no medical insurance, files no lawsuits, and works for the cost of its coding and electricity. The left Bell grows stronger by the second.

The BAR is what once was the working poor and middle class which have essentially are doing less task importance times volume work, but there are much more of them. Society today resembles more of hockey stick lying on the ice with five feet of it nearly flat and the last foot shooting up.

Mathematically the vast majority of Americans could not pay for health insurance without subsidies or employer contributions. Most Americans do not own their own homes. Most Americans could not round up $400 in an emergency. Simply put, most Americans are poor not middle class. 

In terms of asset concentration, the BAR represents the working poor and middle class with some tinge of upper middle class. Yes, all of these segments have varying degrees of ready cash, bitcoin, stocks, real estate, and perhaps political power but they are fragmented and hence the BAR appearance, flat and linear. The right BELL however is a completely different story.

The right BELL (and make no mistake, this does not imply a singular political party, both Democrats and Republicans transcend into the right Bell) not only controls vast swaths of assets, but also has managed to create wide moats to entry (think Prop 13 in California.) We are seeing the rise of socialism because of this very development. When the odds seemed stacked (and they are), younger generations embrace forceful redistribution of assets.

Consider: Baby Boomers own over 54% of stocks. Likewise with real estate. Small businesses. Obviously nearly 100% of Social Security cash flow. And political power? Well there has never been a Gen X or Millennial President. Average age of U.S. Senator? 65. That used to be the mandatory retirement age! As the poster child of his generation, Warren Buffett is finally retiring (sort of) at age 95 at the end of this year.

Modern medicine, healthy living habits, and unwillingness to "pass the torch" has led to some unusual societal developments...combine this with the rise of AI and what we see is a true barbell society. Think about this: Over 33% of someone's LIFETIME medical costs occur in the last 5 years of their lives. There are approximately 75 million Baby Boomers in the United States. The average Baby Boomer is 68 years old with a life expectancy increasing daily. With miracle drugs like GLPs many in this generation have a good chance of living into their 90s. "Centurion" is one of the fastest going demographics.

From a societal standpoint, it will become increasingly difficult to support the largest demographic. If both the left BELL does not significantly increase economic productivity and the BAR does see real wage growth healthcare costs will drive this country bankrupt. Let me say that again, AI (the left BELL) needs to drastically increase productivity while the working poor, middle class, and upper middle class (the BAR) needs to drastically increases their real wages. 

Longevity

 Longevity

There is an old saying that "youth is wasted on the young, and wealth on the old." That presents a true quandary, because for many of us wealth does not appear until there is gray in the hair and we are on the pickleball courts! So barring a tectonic shift in altruism, the only other option is for investors to internalize a truth: time is the most valuable commodity. It deserves to be considered its own asset class.

If time is truly the most valuable commodity, then investors need to embrace longevity as one of their key tenets in creating dynastic wealth. Along with creating value (the more the better) and buying assets (once again, the more the better), living long allows for many opportunities for both creating wealth and compounding it. The latter factor is vital. Compounding alters lives.

Even a grub stake over time can become princely wealth. A vital factor is correct asset selection which results in compounding. Much of the asset selection process can be learned, and it is often quipped "lessons are expensive and good ones dear." Continuous (yes "Dollar Cost Averaging") of proper asset selection (read that as "real growth," defined as growth in excessive of inflation) over time (and here we want AS MUCH TIME AS POSSIBLE) can result in magnificent wealth. 

Of the three components of #CVBALL (Create Value, Buy Assets, Live Long), Live Long is the most important. You can have many, many failures in life, but generally the older you become you learn from mistakes and try not to repeat them. You may have new mistakes and never exhaust the total "pool" of mistakes possible, but generally you get better at the game as you age.

New Year, same plan! #CVBALL! Concentrating on the "LL," there have been many studies done on longevity. Increasingly it has moved from the fringe to mainstream, especially with widespread adoption of "miracle drugs" like Ozempic. These semaglutides decrease the urge to eat and help jumpstart a virtuous cycle that combined with exercise and a modified diet often results in significant weight loss, improved cardiovascular fitness, and better cognitive functionality. Bottom line, semaglutides along with changing behaviors will result in collectively MILLIONS of years in longer lifespans.

Longevity, whether obtained from pickleball, Ozempic, and/or a reboot of the traditional food pyramid will have massive effects on wealth. Adding just one (1) more doubling cycle to your wealth can drastically improve your quality of life and potentially that of your heirs. Adding two (or more!) doubling cycles is almost hard to fathom...an estate saved over a lifetime for someone in their early 60s worth say $3M potentially becomes close to $25M if they can live into their 90s. And that is becoming increasingly possible. The centurion is one of the fastest going age demographics.

So ILAF (Invest Like A Farmer) offers a solution to those who may feel they are priced out of the real estate market, or don't earn enough to compete, or who have perhaps just suffered a big financial or life loss...hang in there. Longevity offers a myriad of outcomes and forgives many mistakes. Create Value. Buy Assets. Live Long. (#CVBALL).

The Brass Ring

 The Brass Ring

Here at Invest Like A Farmer (ILAF) we play the long game, and you should too. Investing over the long-term, by definition, provides significantly more opportunities for you to compound your wealth than shorter, sporadic intervals. Even measly annual returns compounded over time can become great generators of wealth. We are not interested, however, in measly returns at ILAF...we seek the brass ring during life's carousel.

Getting the brass ring is tricky though, it takes a combination of skill and luck. For some, they are given a brass ring upon birth and their challenges are different; the adage "from shirtsleeves to shirtsleeves in three generations" is often aptly true. For those on the come, the deck and the game need to be understood.

Here is a quick primer: Modern economics in the United States has basically evolved from five (5) seminal events over the past ~100 years. One could go on the cocktail circuit for a lifetime simply addressing these five events.

The first was the creation of the Federal Reserve in 1913. For better or worse, this created an unelected quasi-government akin to Gringott's Wizarding Bank. Over time "The Fed" has arguably become the most powerful unelected (unaccountable?) organization in the world. Controlling interest rates is God-like power.

The second event(s) were World War I and World War II. Wars are extremely expensive in terms of resources, both physical and human capital. The United States transformed from a largely agrarian economy and culture to a full-on manufacturing behemoth. Some argue that the United States entry into WWII finally got it out of the Great Depression.

Bookending the two World Wars, there occurred the third and fourth events. The third was the creation of the income tax via the 16th Amendment in 1913 which effectively replaced tariffs for supporting the Federal, State, and Local government expenses. The fourth event occurred at the tail end of WWII, The Bretton Woods Agreement in 1944 which made the U.S. Dollar the de facto reserve currency for the entire World.

Finally, the fifth seminal event following the creation of the Federal Reserve, the 16th Amendment, WWI & WWII, and Bretton Woods was in 1971 when President Nixon took the United States off of the Gold Standard.

Often referred to as the "Nixon Shock," it effectively ended 2,000 years of monetary policy which had tethered gold to a unit of global government money.  These five events are critical to the long-term game plan of investors seeking the proverbial brass ring.

What the five seminal events normalized was the loss in buying power of the United States Dollar over time, ie a dollar today is worth more than a dollar tomorrow. The Fed organized it, the income tax solidified it, wars (WWI, WW2, Vietnam) expanded it, and Bretton Woods transmitted it around the world.

These five events have made it possible for the government(s) to essentially print unlimited amounts of money without necessarily creating any additional value. Everything humanity knows is finite, except fiat money. That is infinite. The only way around this quagmire is for investors is to: 1) Create value by increasing productivity in some manner, 2) Buy Assets, and/or 3) Live a long time. The crib notes? Create Value, Buy Assets, Live Long...CVBALL.

Qui Bono?

 Qui Bono?

The Roman people regarded Lucius Cassius as a wise and honest judge. He was in the habit of frequently asking "Qui Bono?" or "to whom might it be for a benefit?" Why the history lesson? Because responsibility has become a very touchy subject. But it shouldn't be a partisan one. Hence the utility of an impartial judge from 2,000 years ago.

What Cassius was getting at with the simple question of "Qui Bono?" is who benefits from an outcome? By and large, purposeful decisions over time result in outcomes. You study hard in high school, go to college, get a good job, further your education, etc. Generally you turn out with a decent outcome. Same with investing. If you start young and are diligent and have some luck along the way you generally compound your money over time. The LA Fires are an outcome.

Much will be written and hopefully studied during the autopsy of these fires. A "blue-ribbon" panel would be welcome. There are many important questions that need answers from Gov Gavin Newsom, Mayor Karen Bass, and Insurance Commissioner Ricardo Lara.

Having the courage to ask "Qui Bono?" is an important first step, whether you are evaluating a business deal, looking at an investment or in this case trying to understand an outcome like the LA Fires. LA, California, and yes US citizen taxpayers will be (not "could be" or "may be") on the hook for billions of dollars. We deserve better than the LA Fires outcome.

The challenge of asking "Qui Bono?" aloud is there are many intellectually weak and morally bankrupt  individuals who will instinctively label you a "conspiracy theorist" or worse. Hold your head up high and ask away, this isn't China. Very apropos for the LA Fires oddly though, in an almost mystical way calling back from the past some 50 years ago, is the required viewing of "Chinatown." Test your metal like Jake Gittes and follow the money...it will lead to the truth, perhaps one as Californians we do not want to admit.

Rule of 72

 Rule of 72

The magic in investing is in compounding. That is why knowing your personal "Rule of 72" is so important. This ratio tells you how quickly your net worth is doubling. It is simple and quick to calculate.

First, you will need to know your net worth over a period of time. And that's basically it. For argument's sake let's use 1-year as the base timeline and a $100,000 start value and a $110,000 end value a year later. Utilizing the "Rule of 72," ie subtracting $100,000 from $110,000 yields $10,000 or a 10% yearly return which then is used to divide 72 resulting in the number 7.2.

7.2 would be your personal "Rule of 72." Assuming an average lifespan of 78 in the United States, that would be ~ 11 doubling cycles. Or that $100,000 would turn into about $205,000,000. That is a nice chunk of change! Very few of us start off with $100,000 at birth and perhaps more importantly, very few can avoid touching that stash for a lifetime. Life happens. That is the great challenge we all face.

But the take-away from this post is this: If you know your personal "Rule of 72" you can modify it. Compressing it is like compressing time; even marginal decreases in your personal "Rule of 72" can have meaningful, life-altering results. Better housing. Better food. Better education. Better healthcare. Better outcomes at almost every life touch point.

In a typical life, just adding one or two more net worth doublings can make drastic differences. That is the difference in a 7.2 versus a 6.0. Imagine doubling your net worth every 5 years! This is why typically most people who can survive in the investing game the longest win, they have more doubling cycles at their peak net worths. Consider, Warren Buffett made more than 95% of his net worth in the last 10 years.  Staggering.

Start investing young, ideally at birth. Continue investing throughout your life. Keep a low "overhead" to avoid interrupting your net worth doubling cycle. Avoid losses. Spend judiciously. 

Price Gouging

 Price Gouging

Healthcare insurance has become the perfect storm for price gouging. Like many gainfully employed hard-working Americans, I was shocked (but not surprised) to see my healthcare premiums spike up again, this time +15% year-over-year. Over the past 5 years this cost has doubled. How could this be? Isn't annual inflation 2.5%? Don't economies of scale typically LOWER prices? Hmmm.

Price gouging flourishes under unique economic circumstances, which typically right themselves in a free market; ie if one seller is gouging, then other sellers lower their prices to capture market share. Price gouging almost universally is short-lived. Unless it is engineered.

The danger arises when the market is manipulated by health insurance companies, healthcare providers, and politicians to engineer unfair economic incentives and laws. No one does this better than California, although Massachusetts is a close second. Not surprisingly, these are two of the five states still clinging to the individual mandate.

The individual mandate has been arguably the single most destructive pieces of legislation in history, mandating the purchase of services at a price set by health insurance monopolies in cahoots with government punishable by the IRS. Think about that one.

Access to healthcare is best provided by an open marketplace with multiple competitors vying for your business. By definition, the vast majority of medical services are commoditized services which have been established for decades; provider to patient, no middle man required should be the norm. Simple enough. The gouging begins when access itself is simultaneously squeezed from both ends (it sounds like an uncomfortable medical procedure, and it is.)

First, dollars flow from health insurance companies to politicians who restrict access to the market by defining which health insurance companies "own" certain counties or areas. ie They choose who can compete. Next, the politicians squeeze the constituents by mandating that they HAVE to use said insurance company in certain areas. Finally, the politicians appease the base by using taxpayer resources (read money) to subsidize as many people (not necessarily citizens) as possible.

"Free" is the most expensive word in the English language. When considered a "right" in the context of the healthcare system, high delivery costs are laundered through the hospital, clinic, physician, pharma, and admin systems to name a few. So a routine procedure at the ER which on its face value may cost $100, is ultimately billed out in the $10,000s+. That bill is then thrown into the "insurer pool" like a Baby Ruth on a hot summer day. Gouge the pool!

Monterey, CA is a great example of this price gouging gone amok, but there are hundreds of counties across the country in the same boat. A smaller and smaller pool of full-price payers gets gouged every year because they have no voice; the reality is our local Congressmen Jimmy Panetta happily helped engineer the current system. Residents of counties all across the country facing similar corruption have the same tough choices; vote with your feet out of your home towns or "grin and bear it" every year for the RICO shakedown. Most are just hoping to live long enough to age into Medicare. 

Meanwhile health insurance companies, the true constituents of Congress, continue to pay off the politicians, who are "outraged" by the high cost of healthcare insurance and simply expand the taxpayer umbrella to a larger and larger pool who pay close to nothing for top notch healthcare which encourages all sorts of gaming the system. It is an interesting racket; notch up the premiums every year, subsidize more of the population, gouge the middle class. 

Ending the price gouging corruption is simple; open every marketplace to real competition amongst insurers, publish costs for every service, and eliminate the individual mandate. The free market will solve this problem, and in fact INCREASE the quality of healthcare for everyone as completion drives out losers and promotes winners. This country needs to be in the business of the best outcomes, not beholden to engineered price gouging.