News From the Control Tower:

There was a lot of noise recently over the Musk-Zuck non-fight. A nice contrast is from Lindsay Adler in the Wall Street Journal this week. She highlights the importance of the team player in her piece on Kansas City Royals pitcher Jordan Lyles. He literally takes one for the team: despite his losing record, he has the skill to pitch into deep innings, allowing other pitchers more rest time. In contrast, a team that didn’t work so well together in business was the Jacuzzi family. The New York Times tells a great story on the origin of the Jacuzzi was to treat their child suffering from rheumatoid arthritis. The boy recovered, but family in-fighting ultimately led the company to be sold.

With this morning’s GDP print coming in higher than expected, I’m looking at a number of things keeping the economy hot (or at least warm). In last week’s news post, I discussed both the labor and housing markets. This week it’s the recent climate law (also known as the Inflation Reduction Act) and Taylor Swift. A year in, and many are seeing significant impact from a few pieces of legislation: the Inflation Reduction Act, the CHIPS Act and the Infrastructure Act have all ramped up quickly. The combination is spurring a clean-energy build out and starting to bring manufacturing jobs back to the US. Meanwhile, Bath & Body Works had been working since 2008 to onshore its foaming hand soap production. Its soaps now take one month to complete at an Ohio factory instead of five months in China. Last month, we saw Sweden blame Beyoncé for inflation. Now the Fed is taking note of Taylor Swift and her economic impact.

There’s lots of talk this week on the Fed’s actions (or lack thereof). Whether or not they’re skipping or pausing, their rapid rate hikes are definitely impacting small businesses – one of the bellwethers of our economy. Previously, the Fed had said that they would hike rates until something broke. Was that the regional bank collapse we saw in March? Based on Powell’s recent comments, it doesn’t sound like that was broken enough for them.

News from the Control Tower: Our weekly curated list of news stories affecting you and your finances. The push and pull forces driving our current economy and markets continues this week, nicely highlighted by the Fed-whisperer Nick Timiraos in The Wall Street Journal. Remember, the Fed has a dual mandate – to keep inflation down, but also to maximize employment. Powell et al. continue to try to thread that needle by skipping a rate hike at their June FOMC meeting. The WSJ brings us behind the scenes at the Las Vegas Airport Lost and Found in Las Vegas. I found it surprising how proficient they seem at tracking and returning lost items.

Yes, parts of the stock market are doing well this year. I love how the Wall Street Journal this week still spins it as “investors are worried”: Stocks are down, investors are worried. Stocks are up, investors are worried. This pairs nicely with the story I shared recently on how the more neurotic you are, the worse you will do in the stock market. Remember, the news media doesn’t report on the planes that land. Keep your focus on the long-term. In case this wasn’t on your radar, yes, you have to start paying on your student loans again. (Personally I'm very grateful for the pause to focus on paying off my private loan I took out to pay for law school.) This CNBC article highlights the real burden that these debt payments can be on many budgets.

News from the Control Tower: Our weekly curated list of news stories affecting you and your finances. In a recent post I alluded to some of the legal problems AI has ahead of it: this week I include a few more. One story is about OpenAI not wanting to reveal its sources to EU regulators (hint: they would open the company up to copyright infringement lawsuits). Another item showcases the trouble a lawyer got into when using ChatGPT to write his legal brief: the system entirely fabricated legal quotes and precedents. The judge was not happy.

This week, our news summary opens with a great story on a lottery/tax fraud scheme that went on for TEN years. Now that Congress has finally increased the IRS’s enforcement budget, I’m curious to see what other tax evasion schemes have been cooking out there. Speaking of fraudulent schemes, remember the LIBOR scandal? Now Andy Verity, a BBC economics reporter, reveals new evidence of what happened with the LIBOR rigging. SOFR (the LIBOR replacement) is supposed to be less prone to manipulation, but it sounds like people aren’t even clear still on how the rigging happened with LIBOR in the first place.

There’s a lot of buzz around AI, but there are so many legal risks that many just gloss over. Remember when Napster was really fun and exciting until Metallica showed up? Lina Khan, the chair of the Federal Trade Commission, lays out some of her thinking on regulation of AI in this New York Times Op-Ed. Speaking of legal risks, Wells Fargo seems to love them. They recently agreed to pay $1 billion for misleading shareholders that they’ve cleaned up their act. There’s been a lot of media attention around the pandemic relief funds pumping too much money into the economy as a driver of inflation. Often overlooked is the impact of the extra funds from those refinancing their homes when the Fed dropped interest rates. The New York Fed recently put some numbers to it: 5 million people extracted $430 billion in home equity – that’s the same as the estimated size of the Inflation Reduction Act recently passed by Congress.

I loved the article about the Habsburg-pretender to the Austrian throne living his best life as a race car driver; it’s a nice contrast to the pomp of the recent coronation in England. Then there was a nice pair of articles on the WGA writer’s strike: one from a writer explaining their goals, and one on the incredible deal that Tyler Sheridan has to make the hit show Yellowstone. Next we look into the future some to how Norway is doing now that most of their cars on the road are electric. Maybe you’d have guessed it, but the air is cleaner and asthma rates are down. Finally, Florida passed a new ESG law. If you want to familiarize yourself with the consequences of this, bone up by viewing my recent webinar on ESG.

It can be easy to get distracted by the new shiny objects in investing, but what about the tried and true? This can be seen in Warren Buffet's investment approach – it’s hard to argue with his performance even if his style might feel a little boring. This weekend is the Berkshire Hathaway annual meeting and that is an event that’s never boring. But what about that classic advice of “Sell in May and go away”? The article below breaks down some of the numbers, but on average, this adage doesn’t hold water. The S&P500 has risen 70% of the time between May and October since 1990. Checking in on the latest news with the banking system: things could be better. The government just took over First Republic, further contributing to bank consolidation. Meanwhile, Pacific Western bank is starting to have trouble. Something is amiss on the West Coast. Finally, we frequently warn clients on the risks of being house poor. The recent case before the Supreme Court (Tyler v. Hennepin County) illustrates yet another reason why this can be dangerous: you need liquid funds to pay your property tax bill. If you can’t pay your property tax, many state governments have the power to seize your property, sell it to pay the tax, and then they also pocket the overage. The moral of the story? Don’t put yourself in this position.