Smart Investing with Brent & Chase Wilsey

Another lawsuit against generative AI company Perplexity for copyright infringementThe New York Times has had enough, and they have filed a lawsuit in a New York Federal court. In October 2024, the Times sent a notice to stop accessing and using their content and then followed up with another notice this past July. Perplexity continues to ignore the warnings and a spokesperson for the company, Jesse Dwyer, said publishers have been suing new tech companies for a hundred years starting with radio, TV, the Internet and social media, but that has never worked out for them. I think this is a little bit different since AI pretty much takes the content directly from the publisher and publishes it for people to read. The Times is also including infringements for use of its videos, podcasts and images. The Times said in the lawsuit they are seeking damages, which at this point is unknown and injunctive relief which includes removing all of the Times content from Perplexity’s products. This would be a major problem for Perplexity if they were to lose this case because the whole AI system pulls information from all across the web, and this would leave a big hole in the end result of Perplexity’s information. The Times is not the only publisher suing Perplexity, other lawsuits have been filed by Dow Jones and the New York Post. If one company were to win in court that would be a major problem for AI companies like Perplexity. First it would set a precedent and other publishers would likely sue, it could also lead to less accurate information as there would be less sources to pull data from.    Just when Apple corrected their major problems, it looks like there’s a management drainApple did a great job handling the proposed tariffs on its products, which would have devastated the company. Also, in court they managed to keep the $20 billion a year they receive from Google. But now, they seem to be fighting a management exit by some of their top executives. Over the last couple of weeks, it was announced that both their General Council and Head of Policy will be retiring next year. Another major concern was also announced in that timeframe that their Head of Artificial Intelligence and Strategy is also going to retire. Making matters worse, their Chief Operating Officer said he’ll be retiring in July of next year. Don’t worry about CEO Tim Cook being age 65, he said he is not considering retirement, and people at the company said he is not slowing down at all. It was also recently announced that Meta has taken from Apple a top designer named Alan Dye. Also Jony Ive, who is a Steve Jobs protégé and helped build the iPhone along with the Apple Watch, is heading over to OpenAI to help Sam Altman. It’s not just the top people leaving though as apparently dozens of Apple engineers along with designers who are knowledgeable in audio, watch design, robotics, and much more are also finding a new home at OpenAI. Running a major technology company like Apple and striving for new innovation makes it difficult when a company is losing top management and star engineers and designers. I don’t think this will cause a major drop in the stock short term, but it could be difficult longer term for the company when it comes to innovation and new products, which could concern investors in the years to come!   It’s time to put some commercial property into your portfolioYou may be questioning why would I put real estate like commercial property in my portfolio that over the last five years or so has had a return of maybe 7% versus stocks that have done much better? The simple answer is the basic investing principle of buying low and selling high. Looking forward, I believe commercial real estate over the next five years should get better returns than artificial intelligence considering the fact that it is very pricey. Data from MSCI revealed that year to date large investors have purchased $4.6 billion more US commercial property than they sold. That

We have gone through four industrial revolutions in the US, why does the AI revolution scare us the most?Industrial revolutions are nothing new in the United States as we have had four including the current one we are in. The first one came in the mid-18th century when changes came for waterpower, steam engines, and textile manufacturing. The second industrial revolution was in the mid-19th century when steel became a big factor along with electricity and mass production. We also saw transportation by railroads and automobiles during this revolution. The third industrial revolution came around the mid-1990s. Some of us who are 50 years or older may remember the effects. Electronics including personal computers, information technologies, and this scary thing called the World Wide Web were developed during this revolution. The fourth industrial revolution is happening now and it’s scary because we don’t know what the future holds. This revolution includes digital, physical, and biological technologies. This includes AI, the Internet of Things, and robotics as well. The reason this is scarier than the third revolution with personal computers was that people could see how they could benefit and get more done and maybe use that computer to start a web-based business. Currently with AI, people are not seeing how it will benefit or improve their lives but only how it could take away their livelihood by making their job obsolete. There could be a slowdown in the advancement of AI similar to what happened in the late 70s with nuclear power. People as a whole rejected nuclear power, and it has taken almost 50 years to be accepted as we can see in today’s newspapers. Based on history, it looks like the acceptance of AI may slow down because polls show that just 40% of people said the AI industry could be trusted to do the right thing, and 57% say the government needs more regulation on tech and AI. Maybe your job is safe for longer than you thought.   Bitcoin holder Strategy should be getting nervous about the price of BitcoinThe public company Strategy, which used to be known as MicroStrategy and trades under the symbol MSTR, should be getting nervous about its 650,000 Bitcoins that are worth around $56 billion depending on the day. The problem is the company has about $8 billion of convertible bonds outstanding that require interest payments and about $7.6 billion of perpetual preferred stock that also pays dividends. The cost to pay the interest and these dividends is about $780 million annually and since all the company’s assets are essentially in Bitcoin, they don’t receive any interest or profits from that asset. The CEO, Michael Slayer, is saying if they must, they will sell Bitcoin to raise the cash to pay the dividends and interest payments. The convertible bonds could also be problematic down the road as they are due in about 4.4 years on average and come with a combined interest rate of 0.421%. The stock itself has been pulverized, and its market cap has been as low as $49 billion from a high of $128 billion in July. MSCI has proposed cutting digital asset treasury companies from its indexes if crypto tokens make up a major part of the assets. This decision will come in a little over a month on January 15th and if this happens, Strategy could see $2.8 billion in passive outflows. JPMorgan estimates that about $9 billion of the company's market cap is tied to passive and index ETFs and mutual funds. This could put more pressure on the stock if more indexes also decide to remove these treasury companies. You won’t believe how the company makes their profit and loss statement. When the price of Bitcoin rises, the company books a paper profit even if it did not sell any Bitcoin. Obviously, if Bitcoin goes down in value, they must book the losses as well. One must love the estimates for the earnings of Strategy for 2025.  Strategy is expected to report a loss of $5.5 billion or a profit of $6.3 billion or something in b

Fast food restaurants like Wendy’s are experiencing a slowdown in businessThe fast-food restaurant Wendy’s is planning on closing hundreds of locations throughout next year because they continue to see a slowdown in spending from their customers. They said most of their low-income consumers are cutting spending and making fewer trips with smaller purchases at the restaurants. Wendy’s increased prices after the pandemic at a higher rate than grocery stores and now other fast-food restaurants have begun to add value menus to keep customers coming back, but Wendy’s has held firm and not created any values for their customers. Because of this they have seen their net income decline to $44.3 million from a year ago when it was $50.2 million. Over the past year the stock has declined from around $18 a share down to under $9 a share, which is a decline of 53%. With the reduction in the stock price, the dividend yield is now 6.5% and the company trades at 10 times earnings on a forward basis. This company may be worth looking into as an investment as within in the next 6 to 12 months we could see lower end consumers stabilize.   The affordability index for people buying a home is the worst in 50 yearsPeople may be excited about buying a home because mortgage rates are around the lowest they’ve been in over a year, but the affordability of a home is still far out of reach for many. The reason for this, and we have talked about this for the last few years, is that the increase in the price of homes has far outpaced the increase in people’s income. The 50-year average for a price-to-income ratio is around four times, and it reached a low in 1999 of around 3.6 times. But with the rapid increase of homes over the last few years, the price to income ratio has climbed to slightly over five times. Also not helping are the increases in home insurance costs and property taxes. Back in the summer of 2019, when looking at households earning $75,000, nearly 50% of those people could afford to buy a home. Today, when looking at those same households earning $75,000, only 21% would be able to afford a home. Back in 2012, the home affordability index was over 200, but it has now been cut in half to just about 100 with no signs of improving any time soon. I believe it will probably take 3 to 5 years to correct itself. If you look back in history, the affordability index does not change overnight. What will happen is probably incomes will increase slightly over the next 3 to 5 years and maybe the price of homes will either stay the same or decline slightly, which would increase the affordability index. What this means for people buying a home today is you should not have any aspirations of a rapid increase in the value of your home. What caused the problem was during the pandemic mortgage rates dropped to lows not seen in 50 years and that pushed up demand and the prices for homes climbed at a rapid rate. I believe this scenario is extremely unlikely to play out again! The brokerage firm Robinhood looks more like a gambling platform than a brokerage firmRobinhood initially went public at $38 a share in 2023 and the stock then fell to under $10 a share. It has recovered nicely since then as it’s now trading around $110 a share. What has caused this shift and the huge increase in the stock price? One big reason is that the company has really allowed major speculation for their investors. Starting off with crypto, they have allowed people to buy coins like BONK, Dogwifhat and Pudgy Penguins. Just when you think there’s no way they could come up with anything more speculative, surprise; they have come up with an investment known as prediction markets and event trading. Somehow the regulators have let this slide or maybe since government agencies don’t move that quickly, it just has not been addressed yet. It appears for investors on their app that you can predict what the outcome will be of a football game, politics, contracts over economics, e

No surprise to me that there’s a glut of apartments on the market I saw the potential for this oversupply happening in San Diego a couple of years ago. It seemed anywhere you drove within a short distance you would see the construction of new apartment buildings. It is not just here in San Diego though as the glut of apartments is happening around the country. With the dynamics of supply and demand, if you’re looking for an apartment today, you’re in for a treat. In September rental rates had the steepest drop in more than 15 years. Landlords are now offering months of free rent, gift cards, free parking and some are even paying for your moving expenses just to get you to sign a lease. You may want to play hardball because in some areas they’ll even cut the rent on top of all those incentives. In September, 37% of rentals agreed to concessions like months of free rent. What caused the problem for landlords is during the early years of the pandemic, developers could not begin building apartments fast enough, especially in the Sunbelt area where there was a major population migration. It became the biggest apartment construction boom in 40 years, but because of the delay of construction permits and labor shortages, development took much longer than they had hoped. It seemed no one looked around to see all the apartments going up, and now they’re all competing with each other for renters. The landlords are hoping they can raise rents by the end of 2026 or at least sometime in 2027, but I don’t think they are factoring in how many apartments are online with more still to come. Based on the current apartment inventory and new apartments coming online, renters could be in for lower rent maybe perhaps until 2028. This will not be good for the housing market because rent for houses will be the next to fall and then people will have to factor in the affordability of renting vs buying a home. This would also likely hurt the demand for buying rental properties as an investment if you can't get as much rent as you thought.  Are the large hyperscale companies like Meta, Microsoft, and Alphabet inflating earnings? Michael Burry, who was made famous by "The Big Short", made the claim that some of America's largest tech companies are using aggressive accounting to pad their profits. He believes they are understating depreciation expenses by estimating that chips will have a longer life cycle than is realistic. Investors are likely aware of the huge investment these companies are making in AI, but they likely don't understand how the accounting of the investments work. If a business makes an investment in these semiconductors/servers of let's say $100 B, that doesn't hit earnings when the money is spent as under generally accepted accounting principles, or GAAP, they are instead able to spread out the cost of that asset as a yearly expense that is based on the company’s estimate of how rapidly that asset depreciates in value. From what I've seen, these companies are generally depreciating their Nvidia chips for over 5 to 6 years. This seems to be a stretch considering Nvidia is on a 1-year chip production cycle, and the technology is changing quite rapidly. Burry estimated that from 2026 through 2028, the accounting maneuver would understate depreciation by about $176 billion and if Burry is correct, hyperscale's will have to write off AI capex as a bad investment, due to depreciation-useful life mismatch. This would then produce a major hit on earnings. While I remain a believer that AI is here to stay, I do believe there will be some big-time losers in this space given all the money that is being spent. Be careful chasing the hype as I do worry the fallout for some of these companies could be larger than many things possible. Burry has also warned this year that AI enthusiasm resembles the late-1990s tech bubble and recently disclosed put options betting against Nvidia and Palantir. He also stated that "more detail" was coming No

Apple CEO Tim Cook pulled three rabbits out of a hatPulling a rabbit out of a hat is a pretty good trick, but pulling three out of a hat is nothing short of a miracle. In the spring of this year, Apple stock fell below $170 a share as it was faced with enormous tariffs on iPhones, the potential loss of a $20 billion per year payment from Google, and sales for iPhones seemed to be stuck in the mud. To handle the tariff situation, Tim Cook promised US investments of $600 billion over four years. This was not bringing iPhone production back to the US, but it was an investment of making AI servers in Texas and offering manufacturing training for US businesses in Detroit. Apple also announced a $2.5 billion commitment to make iPhone cover glass in Kentucky with Corning and a $500 million partnership to produce rare earth magnets in the United States. After this investment pledge, the President said Apple would be exempt from tariffs on imported electronics. To save the $20 billion yearly payment from Google, Mr. Cook sent Apple’s senior vice president in charge of services Eddie Cue to testify. He convinced the judge that technology shifts are so powerful that they can take down even the most massive companies. In other words, the judge didn’t need to impose harsh penalties, and the market would essentially take care of itself. And somehow consumers have been convinced that the new thinner smart phone called the iPhone Air is a must for any consumer. The marketing on this must be phenomenal because the iPhone Air has a weaker camera, a single speaker, a smaller battery with a shorter life and a higher price tag. Apple also convinced consumers that the rest of the iPhone 17 lineup was worth an upgrade. Apple is predicting up to12% revenue growth in the holiday quarter, twice what Wall Street estimated. So, in roughly 6 months the stock, after dropping to a low around $169 a share, it is up roughly $100 and somehow supports a price earnings ratio of 36. Congratulations to Tim Cook and shareholders of Apple stock. If anyone said they knew Apple would be fine either they have a crystal that really works, or they didn’t understand the problems Apple was facing. Going forward the road is still bumpy with operating expenses coming in slightly over $18 billion for the December quarter, a 19% increase year over a year and well above the 10 to 12% revenue increase that Apple's projecting. We don’t see any big drops in the stock coming up, but I still can’t justify the share price or see any reason why the stock will continue to climb going forward.   In 2026 you could be buying stocks on the Texas Stock ExchangeBusinesses and CEOs are getting tired of the high taxes in New York City and the regulations that are costing them billions of dollars. Texas, which is known as a pro business state will be opening in Dallas the Texas Stock Exchange (TXSE). This has already been approved by the Security Exchange Commission (SEC). It is expected to see operations open for trading in the first quarter of 2026. The Texas stock exchange has the backing of JPMorgan Chase, who just invested $90 million into the new exchange. Large companies like BlackRock and Charles Schwab are also on board. It is backed by many businesspeople including billionaire Kelcy Warren, cofounder of Energy Transfer Partners, and billionaire Paul Foster, who founded the investment firm Franklin Mountain Investments. This could be a heavy blow to New York and New York City, who have been unfriendly to business because they felt like they have the only place in the country to trade. Now that New York City has elected Zohran Mamdani for mayor, it will be interesting to see how businesses respond since he says he will go after business and the wealthy to pay more taxes. The state of Texas has no income tax, but if you live in New York City you could pay a state tax of 10.9% plus a city tax of 3.9% and it doesn’t take long to get to those levels based on your income.   Publi