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.