🎙️ AI and the Potential Tech Bubble: A Knowledge Sharing Session
00:00:00
Karmi Gutman: Good afternoon, everyone. Uh, it’s 11:58. I want to make sure we are going to start our time at 12:00. Um, just want to make sure everyone can hear me. If you can hear me, give me a thumbs up on the videos. All right, I see a thumbs up. Excellent. So, we will be starting in about a minute, and, uh, we’ll go from there. So, we’ll just wait another 60 seconds, and then we will rock and roll with today’s presentation.
All right, it’s 12:00, so let’s get the ball rolling. Uh, so good afternoon, good afternoon, everybody. Uh, for those who don’t know who I am, um, so my name is Karmi Gutman. I’m the financial planner and the portfolio manager on the lifestyle planning side of Keystone Law Firm. Um, so I’m excited to speak to you all today, um, regarding what you probably have been hearing in the news regarding AI and potentially a tech bubble. Um, the goal of today is not to say, “Is there a bubble, or should you do X, Y, and Z?” This is more of a knowledge sharing, based on some of the yellow flags that I’ve seen based off of the data, and just hopefully, just knowledge share with everyone so you guys can make informed decisions, um, based on what we share.
🛑 Compliance and Housekeeping Items
00:05:46
Karmi Gutman: Um, but again, um, before we go into the presentation, a couple of housekeeping items just to be aware of. Uh, first of all, this is being recorded. Um, so if you’re not comfortable with that, um, I just advise you to leave the meeting just because it is being recorded. Um, in addition to that, um, there are a couple of things to be aware of from a compliance side. So, Lifestyle Planning, we are a registered investment advisor here, located in Arizona. Um, so we, um, manage people’s money for those that we partner with. Um, this presentation is not enough to make an investment decision off of. Um, so I really, really, really want to stress that this is just a knowledge sharing and is not construed as investment advice. So, if you want to make decisions based off of what you’re learning from today, please, please, please, please, please, please speak to your trusted professional before making any decisions, okay? Again, this is not investment advice. This is just a knowledge sharing and educational purposes only.
00:06:56
Karmi Gutman: So, now since I’ve made the lawyers happy, we can now go and, uh, talk about the topic at hand regarding what’s going on with the tech industry and AI in the U.S. So, let’s get the ball rolling. Um, with that, I, I apologize for the false start. If you have questions, um, there will be some time at the end. My goal is to leave around 20, 20 to 25 minutes for questions. Um, as you think of them, um, everyone will still be on mute for the duration of the presentation, but if you hover over to the right of the big red dot where it says “Leave Call,” you’ll see there will be a, uh, a little chat box right next to two people standing next to each other, where you can, uh, actually go and submit your questions in the message center, and then I will be able to read them at the end. So, if you think of them while we’re going through it, chat them in the chat box, and, uh, I’ll make sure we get to it.
📈 The Excitement Around Tech and AI Returns
00:07:57
Karmi Gutman: So, now that I’ve completed the false start, let’s actually rock and roll. So, it’s important to kind of realize why technology has been so exciting for so many people. Everybody and their mother is talking about AI and talking about technology, and, and rightfully so, right? It’s done very, very well when we look on it from a year-to-date level, one, three, five, and ten-year perspective, relative to the S&P 500, um, as well as the—and it may be weird seeing that equal-weighted S&P 500 on the chart there—but the reason why I include that is because, and we’ll see this on the next chart, approximately 45% of the S&P 500 is driven by 10 companies, and you could probably name them, um, right? Apple, Google, Nvidia, Amazon, Tesla, um, Meta, uh, Broadcom, JPMorgan, et cetera, et cetera. Um, and it is very easy to see, right, that the S&P 500 would have similar-ish returns to the NASDAQ, which is a more tech-heavy and pharmaceutical-heavy index. So, obviously, they will have mirroring returns, right? But I think I lost connection.
00:09:43
Karmi Gutman: Can everyone hear me? Okay. No. Okay, I see some head nods. All right, I’m back. Sorry about that. Um, I went and hardcoded in, so hopefully we won’t have that. As I mentioned that I disconnect… Bear with me. Can we hear me? Thumbs up. All right. Okay. Let’s get back at it. Sorry about that, guys. I’m not sure what happened there. Okay.
What I was saying is essentially the S&P 500 is a market cap-weighted index, meaning, so the, the composition of that will be based on the largest-sized companies will have heavier weights than the smaller-sized companies. So, which is why I wanted to make sure that we included the equal-weighted index in there, because, as you can see, yes, they’ve been great returns, but it has not been as evenly distributed as one would have hoped when we look at the U.S. stock market as a whole, right?
00:10:58
Karmi Gutman: So, what we’re really going to see in the next chart is that a lot of the earnings in the U.S. stock market today, um, and over the past three to five or ten years, has really been attributed to the largest companies, the 10 largest companies in the U.S. Okay. But like I said, the point of this slide is really to show that there’s been a lot of excitement in AI because there’s been a lot of returns. But when returns start getting really, really large, and the hype gets bigger and bigger, that’s potential issues. So, we’ll transition to the next slide.
📊 Market Concentration: Now vs. History
00:11:19
Karmi Gutman: And I think it’s always important to compare where we are now versus relative points in history. So, like I mentioned, over 40% of the S&P 500, which is about 70% of the U.S. total stock market, um, is being essentially comprised of the 10 companies we mentioned, right? Apple, Google, Nvidia, Microsoft, Tesla, et cetera. And 45% of that is being driven by 10 companies. That’s a lot. But when you look at it from 1980 to 2025, it’s significantly higher, right?
00:12:07
Karmi Gutman: From the Nifty 50s from the 1980s. For those that are not familiar with that, that was the collection of 50 companies that institutions determined at that time that were the best, uh, companies determining the U.S. economy and stock market at that time. Fortunately, they did not do so well, um, and that was a whole another story regarding that. We looked at the dot-com bubble for those that are a little bit more familiar in the 2000s, right? Those top 10 largest companies were only 25%. And then obviously in COVID, right, we’re essentially, we’re essentially almost double from various points in time in history, which can be a concern if those 10 largest companies have some weakness, right? If we know 40% of approximately 70% of the U.S. stock market is being driven by 10 companies, and we have some weakness in those actually said companies, we’re going to be in a world of pain. Right?
The reason why it’s also concerning and why I’m sharing this is that of those 10 companies, seven of those are AI-related.
00:13:12
Karmi Gutman: So, what is essentially happening is U.S. consumers, global investors, as well as institutional money, are picking large bets into AI, which could pay off if it goes well, but it is something that can be a yellow flag for some if there is weakness in AI. So, let’s, let’s keep going, but I thought this would be a nice way to start to see where we are at different points in history.
So, I don’t usually like to include words in my presentation, but I really wanted to include it in this specific slide word for word from my notes because if I was to try and summarize it any other way differently, it would lose the impact of it. And what I’m trying to compare here is where we are now relative to what a similar type of phenomenon in history that we can potentially relate this to is the dot-com bubble in the 2000s, where if anything mentioned was internet or telecom or media-related, it just went to the moon. So, I like I said, the reason why I’m, I’m including this word for word from my notes is to make sure I drive home the point, right?
00:14:30
Karmi Gutman: Kind of like we talked about, of the 10 S&P 500 holdings, I said seven; I’m going to correct myself, it was actually six are specifically impacted by the AI theme going on today in the United States, right? An eye-popping number is approximately $17 trillion is being composed of those 17 companies. To put that into perspective, that’s 50% of the U.S. nominal GDP. Okay. In English, what that is, is that’s 50% of the, that is approximately half of the total compilation of goods and services that are tracked to determine how much, how wealthy is the U.S., right? So, those seven—six companies are almost half of what the U.S. is generating in a GDP perspective. That’s a lot, okay, right?
When we compare this to what the peak of the dot-com bubble was, so that TMT is that acronym is for Tech, Media, and Telecom, of those stocks in the top 10 holdings at the time, those collective market value was only $2 trillion. They’re only 20% of the GDP at that time, right? So, what we’re really getting at here is that there is a lot of hype around AI and technology that has caused valuations and these companies’ prices to just balloon, and that’s not necessarily a bad thing.
00:15:56
Karmi Gutman: It just is, as prices reach higher and higher points, it will take larger and larger earnings beats as well as new data and profitability metrics to justify their current pricing. And if they don’t meet that, the market may—this ad may not reward the company—for if it was any other sector, it would have been as if it was, it was Christmas in July, or earlier, right? So, what I’m trying to get away from this is that we, there is a large bet right now in the U.S. regarding AI and technology, and if there’s any type of weakness in those specific two sectors, there will be pain in the U.S. stock market, okay? And I really wanted to drive that home with this slide because I think it was really, really important. Okay.
💸 Unsustainable Spending on AI Infrastructure
00:16:40
Karmi Gutman: Now, to make matters worse, um, these AI companies are spending like they are in Congress. They are spending a lot of money to maintain the AI and the AI infrastructure. What is concerning to me—and this data is being, is was collected from the firms’ 2025 June quarterly statements.
00:17:13
Karmi Gutman: These are released by Edgar on the SEC website if you want to go check it out yourself. Um, but what is concerning to me is when you have on the left-hand side, Meta, Alphabet, Microsoft, Amazon, they are spending significantly higher than the most—one of the top-most capital-intensive firms in their industry. Right? What this chart is showing is that Meta is spending over 30% of their budget to maintain AI. That is a large amount of your budget that you’re betting on to invest in AI.
What makes this even more concerning, and we’ll kind of touch on this on the next slide, is, is that industries that are known for spending lots of money because they have to for their industry, like oil and gas, or Chevron and Exxon, or the automotives like GM and Ford, the amount of money being utilized to try and better their business, capital expenditures is another way to put that, is hands and fist almost, right? Three times, no, more than that, right? And if you’re looking a little bit about three to four times larger than the most capital-intensive firms, right?
00:18:20
Karmi Gutman: And the one thing that’s a concern that we’re going to touch on the next slide is what is the most unique factor is one of the AI, uh, investment spending is, is that if you don’t continue to spend, you, you leave yourself at risk of your AI technology becoming obsolete. So, the question is, how much are they willing to spend to maintain their AI dominance, because it’s only going to get more and more expensive as our expectations, industry expectations, increase? So, my, my concern is, is this actually sustainable or not? And who knows, I hope I’m dead wrong, um, but it is a concern because we have large companies that comprise a large amount of the U.S. that are spending a lot on this space.
And I, and I wanted to kind of drive this home as a concern with an example from the 1990s with the fiber optic networks. So, what we see on this chart is, at the time we mentioned technology, media, um, this is when the fiber optic cables were being installed all across the U.S., and everyone thought, “Internet,” and it was a big thing.
00:19:40
Karmi Gutman: So, everyone and their mother decided to go into this space and create, and essentially establish a company creating these fiber optic cables across the U.S. What happened was, because everybody and their mother was going and going into this space and trying to rent out that functionality to those who demanded it, there was a lot of price competition because you had a lot of suppliers, right? Supply and demand. You have excess supply. Prices for renting out those services declined. And that’s what you’re seeing from 1997 to 2005 is the prices that they were able to charge for the services of the fiber optic cables was getting less and less and less due to increased competition in that space.
Now, the good news with fiber optic cables once you install it, right, there isn’t—there, in theory, there should not be as much obsolescence, right? Because once you establish the cables, you should be able to rock and roll going forward. Yes, you might have to do slight enhancements, but there isn’t, it is, it is night and day between the enhancements that need to be made to these AI engines and the AI data centers relative to fiber optic cables.
00:20:51
Karmi Gutman: So, what I’m trying to get at here is, is that we have points in history where everybody was trying to supply and provide the energy and for these fiber optic cables. Now, in today’s world, just flip the script with it being AI technology, with the risk that, with the increased risk that we know that there is going to be a large amount of obsolescence if they don’t continue to spend that way. What’s going to happen is these companies that are devoting a large part of their budgets, and demand is not there what they’re forecasting, there could be some concern and pain in the market.
And what this chart is really showing, it took over two decades, right, from 2005 to 2025, for them to be able to get to essentially be able to charge one for one for what they originally spent. Okay, so that’s a long time to recover. Now, I hope again this is a new—I hope again that this is a new age and a new way of doing business, and AI will be, will be a different story, but it’s important to look back in history to just raise awareness and the concern, right, because we have a lot of oversupply right now. We have a lot of people forecasting that AI is going to be the next big thing, which it will. The question is, is the hype too high, and are the prices people are willing to pay for these companies and the data
00:22:12
Karmi Gutman: centers and the investments being made is it justified at, at this current level? And I’m not so sure about that, at least with the data that I’m seeing.
💰 U.S. Stock Market Valuation Concerns
00:22:24
Karmi Gutman: So, we’ll keep going, and because the other point that I’ve mentioned, right, I wanted to provide some extra info as to with regard as to why the I believe as well as the firm believes that the U.S. economy would be considered expensive relative to history.
So, what you see on the top chart, um, we see that the—and again, I’m starting off with the U.S. on the top because it’s a good starting point, and then we can dissect as to why it is high. So, that’s why we’re starting with the U.S. overall. When we look at it historically speaking, from 1995 to 2025, the, the average, the mean, right, the average level of where we believe that stocks are normally priced is a range from anywhere from 17 to maybe 20 times earnings, right? So, if a company is priced at a certain value, what this metric is saying is that their price is trading 17 times whatever they’re bringing in. That’s what price-to-earnings mean from a profitability perspective, and a lot of analysts utilize this as a determination that is it overvalued or undervalued relative to what they’re bringing in compared to history.
00:23:42
Karmi Gutman: So, when we look at it, there are a few times in history that made sense where, quote, stocks could have been historically underpriced, right? 2008 with the market correction, where you see that drop from 2008 to 2010, and then the, you know, the years following that as things corrected. Obviously, COVID, when thing—everything shut down. And then once where we are right now, um, we have from 2022, right, till 2025, when things opened up post-COVID, uh, we have, have been in a steady uptrend. Companies, there’s been a lot of investments being done in the U.S. because the U.S. opened up earlier, people were, there was a lot of excitement around the technology and, and all of the other aspects that the U.S. had at the time. So, obviously, money was being driven in, which has brought the U.S. stock market to be approximately around 24 times earnings, okay?
So, when we compare it to a historical average of 17, one may argue maybe U.S. stocks are expensive. Now, it is really important to just dissect that further, because not, there isn’t only one sector within the U.S. stock market, right? We have technology is one, we have financials, industrials, energy, uh, consumer staples, consumer discretionary, yada yada yada, and it’s important to kind of dissect as to why the U.S. has gotten expensive, and the main reason of it is because of technology, because of the weight of, kind of like we’ve been talking to at this point in
00:25:18
Karmi Gutman: time that the U.S., that technology has taken up in the U.S., right? So, you, if you look at the chart, that dark blue line is the technology space, and what this is actually showing is a 12-month estimate of forward-looking earnings, right? So, they’re now, they’re taking what is the price today and what do we think the earnings will be in 12 months? So, when we look at technology, even with the increased demand of, uh, sorry, the increased expectations of increased earnings in the AI space as well as technology, we’re still seeing it trading at around 30 times earnings. Keep in mind, the average for the global stock, sorry, the U.S. stock market is 17. So, there is a really, really good chance, or an argument could be made, that technology is overpriced, right?
When we take out technology, the story is a little bit better, right? It’s not as expensive. We’re seeing something closer to 20 times earnings, right? That could be not, it’s not cheap, but it’s within historical realm of what normal U.S. stock prices could be, right?
00:26:33
Karmi Gutman: Of 17 to 20 times what they’re bringing in from a profitability standpoint. And, and this is why I’ve been trying to raise in this presentation some yellow flags associated with the technology market because it has such a large weighting in our U.S. stock market today that if there’s any weakness in the demand for the AI services, the demand for AI agents or the data centers to support that, or even the chips that are powering that, we could have a lot of pain ahead. And I hope that doesn’t happen, but it is a important point to bring this up as a concern.
I wanted to kind of hammer home why I believe that it could be a concern. And I, and it really has to come down to that these type of technology-based companies have very, very high expectations of being able to surpass already elevated returns that they’ve been able to generate for their investors. So, a great way we measure that is through return on equity. So, as what you can see on the top chart, from 1985 to 2025, there’s obviously peaks and valleys of how efficient companies have been in returning capital to investors. Where we are now in 2025, we are at an elevated point, right? That large shoot up in 2020, that’s when the economy kind of reopened up post-COVID, right? And where we are right now is that we have a lot of analysts and a lot of high expectations to continue to for these set of companies to continue to
00:28:17
Karmi Gutman: deliver on already strong results, right? When you’re already starting at a high, the probability of it being able to continue to do that gets less and less and less, right? Or there is a higher chance that there could be disappointment when we’re already at high points, which could lead to potential for corrections down the line.
When we also compound this with analysts and the own companies forecasting higher amounts of potential earnings from the AI investments and the AI, um, infrastructure that they’re putting in place, right? Estimates are, you know, estimates are really just, uh, they can essentially be a just shots in the dark. You can have the best analytic process, but there will be things that out of, out of your control that could cause your forecast to be, um, inaccurate at the end. So, it’s really, really important to emphasize that yes, there is a strong track record of these companies being able to deliver, but we’re now at a point where the hype as well as the initial estimates that have been the cause for some of the large announcements you have heard of investments being done into ChatGPT or Microsoft Gemini or Microsoft Co-Pilot, right?
00:29:48
Karmi Gutman: If there is any risk that those earnings do not materialize, we could see some weakness in the amount of revenue that they were thinking they could have gotten in response to the installation of that infrastructure, which could impact stock prices, right?
So, if we’re going to kind of summarize what we’ve talked to up to this point, right? We have a large concentration in the U.S. that is heavy tech and AI-driven. Of the 10 companies that comprise 40% of the U.S. stock, or 40% of the S&P 500, six of those are AI and tech-related, okay? When you have lofty expectations and they don’t materialize, we could have some risk on the downside. And because of the size of technology relative to the overall U.S. market, if those do not materialize, it is natural to make a deduction that the U.S. stock market may not be as strong as many of will have hoped as compared to years of 2023, 2024, and even this year with the market above, I believe last time I checked, 17% of the U.S., right?
00:30:57
Karmi Gutman: So, it’s one, it’s for these reasons where we’re kind of waving yellow flags here so that, uh, we can bring this to everyone’s attention.
🛡️ Options for Portfolio Protection
00:31:13
Karmi Gutman: So, we kind of talked about the data. Um, I didn’t mean to depress anybody. Um, this is a knowledge sharing session. The goal is to knowledge share. And if this is a concern for one or many of you, what could you look to do to potentially protect yourself? So, we have a couple options for things to look into if any of them things that we mentioned today concerns you.
Buffer Exchange Traded Funds (ETFs)
00:31:47
Karmi Gutman: So, the first thing to consider is, is if you have, if you’re in retirement or close to retirement, you don’t necessarily want to sell a large portion of your stock for whatever reason, you could look into what’s, what are called buffer exchange traded funds. So, what these are in English, are essentially investment products that instead of you going and doing your own DIY options trading, you can buy an ETF, which is a, a collective. It’s a vehicle that is used for investing.
00:32:08
Karmi Gutman: It can be bonds, it can be stocks, it can be alternative investments sometimes. Here, what they do is they will, they usually track a specific index, and they utilize options, um, in order to set a maximum return that you can get through what’s called a cap or a buffer, a protection point to how much could you potentially be protected from in the market if things don’t go your way.
So, the only catch with these types of products that you should be aware of if you’re looking into it is they have high fees, usually around—I usually have seen it around 0.85%—so a little under 1%. Um, so they can be expensive, and it’s very important that you look into what is the outcome period that you are the buffer or cap is for. So, if it’s in, if the but if the period is for January and you’re entering in in June, if because you’re entering six months into the year, the cap or buffer could already have been met because you’re entering mid-year. So, you want to make sure that whatever you look into, you are looking into the period of when you want to have this, quote, unquote, protection for.
00:33:35
Karmi Gutman: So, for example, if this was something that you’re looking for January into the new year, you want to find a buffer ETF that has a cap and a buffer starting in January 1st, or whatever day in January. Usually, it’s going to be around the first week just because it takes time to set up the options, to set up the product, et cetera. Um, some great companies you can look at. Um, Direxion has these. Um, I just got one in an email. I believe it was not Invesco. I’m checking my email real quick because I just, it’s on the tip of my, it’s on the tip of my tongue, and it’s upsetting me that I don’t remember the list. Um, Innovator—sorry, Innovator ETFs. They are probably the largest in the industry that have these type of products across a lot of different indexes or markets that you want to, that you may have already have exposure to that you may want to consider for a portion of your portfolio looking into.
Options Trading
00:34:43
Karmi Gutman: The other option is, is if you’re DIY-inclined and you want to do it on your own, you can consider options trading, right? So, if you have positions in the S&P 500 or a specific type of tech stocks, you can buy put options, right? Which are essentially the right, but not the obligation, to sell the company for a specific price for a certain period of time. All right.
Tax-Efficient Diversification
00:35:14
Karmi Gutman: So, there’s many ways that you could potentially look into protecting your portfolio. Another option, um, is you, if you are able to do so tax efficiently, you could consider moving portions, uh, moving portions of your largest winners in the AI space into more cheaper parts of the global stock market. And I say global for a reason, because we believe, um, that the more attractive spaces in the global stock market today are really outside of the U.S. Um, the reason for that is, is the U.S. exited COVID a lot sooner through lowering their restrictions relative to various other parts of the world. And just recently, the Europe, uh, Middle East, uh, South America, um, and other regions of the non-U.S. delineated world have just started to experience the growth that we have over the past few years.
00:36:07
Karmi Gutman: Um, a lot of it is just due to the fact that differences in culture. U.S. being U.S.-based here, right? Americans, we love to spend, um, and we proved that on Black Friday this year. $42 billion was done over that weekend. That’s a 9% roughly increase year-over-year from last year. And if there’s, if there’s ever going to be a problem, we can most likely bet that the American consumer will get us out of it because we love to, we love to spend money. That’s not necessarily the way the same place across the pond. Um, non-U.S., they’re a little bit more, um, stickier with their spending, um, relative to us here in the U.S. And now those markets that we’ve talked about, the Europe, Asia, Middle East, South Africa, I mean, Africa and the South America, they are now starting to spend more. So, as a result, that surprised markets, and that’s why we’ve seen international over 30% this year, right? It’s, it’s a, it’s a unique story to think about, because for the past 10 years, America has just been just knocking us international stocks out of the park.
00:37:14
Karmi Gutman: So, is this potentially a change? Maybe. But if we’re looking to give us the probability of maybe doing better than the market, might not be a bad idea to diversify away from the expensive parts of the market and going into cheaper parts, right? Um, and I put in parenthesis capital gains harvesting. Um, what I mean by that is, is sometimes if your income is going to be below 99,000, filing jointly—um, and again, I, the brackets change every year, but I believe it’s like 98,000 something something, um—so essentially, if your income will be below 99,000, hypothetically speaking, make sure you double-check the tax tables. You could potentially, you could be able to potentially capital gain realize gains and pay zero taxes for it. It’s a really good way to potentially lower, um, your, uh, exposure to those he—a heavier place size of the market and go into potentially cheaper parts.
Structured Products or Annuities
00:38:19
Karmi Gutman: So, another option to consider, um, and this is probably, uh, one that may get some, uh, some shrewd looks, is going into, uh, going into structured products or annuities.
00:38:32
Karmi Gutman: And annuities, yes, they have a bad rep, um, mainly because of not the products being bad. It’s unfortunately people who’ve sold them. Um, but as long as they’re, as long as you’re buying an annuity or a structured product for a specific purpose, which is usually market protection or, um, you know, focusing on the annuity side first, we’ll go into structured products after, right? A good annuity will solve one of three things. It will solve for income and market protection. It will solve for long-term care, or it will also solve for a or a death benefit if one can’t qualify for, uh, traditional life insurance or long-term care, right? So, as long as an annuity, right, in this case, we’re talking for market protection or guaranteed income for this presentation, maybe a short-term annuity is something to look at, right? If you want to take some risk off the table.
The other option is, sometimes people are like, “No, thank you, Karmi. I don’t want anything to do with annuities.” There’s something called a structured product.
00:39:36
Karmi Gutman: What this is in English is a—think of it as a specific, tailored investment that you can go to, let’s say JPMorgan, and you say, “I have X amount of dollars. I want to, I want to have a certain level of protection from the market, but only on the S&P 500 or a specific stock or et cetera, and I want to have a certain type of buffer protection, and then give me the best return you can give me.” And so, JPMorgan will go, and they will, uh, look at the options market and see, okay, based on X amount of dollar investment, uh, we can give you a, a one-year or a two-year structured product. You give us the money. In return, we give you an IOU or a bond that will give you the potential to achieve X amount of return, depending on how the S&P 500, or whatever you’re asking them to track for you, will return over that one or two-year, or however long period you tell them to, up to a certain maximum point.
00:40:51
Karmi Gutman: That’s the cap. And then there’s a buffer that you can tell them to do. So, if you want it to be fully protected or be 20%, you can go and essentially work with these banks, um, to essentially go and, um, tailor these products. Now, when I say you can go to JPMorgan, I’m not saying you can go directly. If you go, if you work through Charles Schwab, they have a structured, structured products department. If you have a Fidelity, they have a structured part—if structured products department. Any of some of these big warehouses or custodians that I mentioned, they have a department that does this.
It’s just very, very, very important to remember, with structured products and annuities, your money is going to be locked up for a period of time, um, and they’re not usually very easy to get out of without paying some sort of penalty or fee. That’s the catch with them. But it is a nice way to potentially protect your portfolio if you’re willing to sacrifice a little bit on the upside for a, a known protection value from an outcome perspective on the downside.
Do Nothing
00:42:03
Karmi Gutman: And then the last one is, is one I always think it’s important. You can just do nothing, right? And sometimes this is probably the best decision, right? When we start bringing emotions into decision-making processes, that’s where we can get into potentially making a mistake. So, as long as you are comfortable with the risk and potential returns of having if you do large exposure to that space, maybe you just leave it, right?
No, what’s the—There’s a saying my dad always said, “If it ain’t broke, don’t fix it,” right? As long as you’re comfortable with the risk associated with your portfolio being tilted in one direction, or if you have exposure to that, um, maybe just don’t touch it. As long as you’re aware that it could drop, and as long as you’re okay with that, and you know that, “Hey, it’s going to drop in one year, but I strongly believe in this, that it will come back,” then maybe it’s best not to do anything, right? And I always want to make sure I put that in there because it is, it is a valuable thing to do, because sometimes the best thing to do is to do nothing, stick your head under—stick your head in the ground, don’t look at it, come back later. But not everyone likes to do that, or not some people are not comfortable with the risk in return, right?
00:43:23
Karmi Gutman: There’s a no one, the, the from a psychology standpoint. The biggest risk for some people is what is the potential for loss, right? So, that loss aversion is a lot power—is a lot stronger, than people remember their losses a lot more vividly than gains. So, it is one of those things that if you’re going to make that decision, you need to be well aware, is there could be a lot of risk and a lot of reward by not make—making an adjustment.
But again, these are just things to think about, right? These are not investment recommendations. What I wanted to do to kind of round out the presentation was to essentially give options to look into if any of the things that we discussed today is concerning to you, right? But before you do anything, please talk to your trusted person. If it’s a financial planner that you have, or a financial adviser, or a family member, or a really, really, really smart son-in-law or cousin, et cetera, et cetera, speak to them and run it by before making any decisions because, like I said from the beginning of this presentation, this is not investment advice.
00:44:34
Karmi Gutman: This is just pure knowledge sharing.
❓ Q&A Session
00:44:39
Karmi Gutman: So, I did actually really good on time. I’m actually pretty proud of myself. I usually go a little bit longer than I otherwise, but we’re right at the 20-minute mark for questions. So, I would like to open it up at this time for any questions that you may have. Um, like I said, um, if you want to ask a question, there you can, and you don’t, uh, and you want to be able to do it by chatting in on the, uh, there’s a little chat box. If you hover over from the right-hand side where the little red phone is, you’ll see two people kind of like standing next to each other. There’ll be a text box right next to it. Feel free to click on that. You’ll see a blank spot saying “Send a message.” Feel free to put your questions in there, and I’m happy to answer them. So, at this time, like I said, I’ll answer any questions that you guys have.
00:45:45
Karmi Gutman: I take silences. I either did a really, really good job, or I went way too fast. I’m going to, I’m going to lean towards doing a really good job for my own personal, uh, for my own personal, uh, feelings and such. But like I said, don’t hesitate. Feel free to ask a question. Um, I’ll give it a couple more minutes. Um, sometimes it’s harder to, uh, to think of questions on the spot. So, feel free, if things come up, you can shoot me an email, right? Lifestile.com or you can give us a ring. I’m happy to talk into it in more detail.
Question: What Direction Do I Recommend?
00:46:27
Karmi Gutman: Oh man. So, one of the questions that I got is, “What direction do I recommend?” Trying to, trying to get me in trouble. All right, this isn’t a, a, this is not investment advice specific, so I’m going to dance around this.
Um, if there is a concern that valuations have gotten too high from a historical standpoint based on the current data that we’re seeing for a lot of these AI infrastructure that’s being done in place, right?
00:47:05
Karmi Gutman: And we can do so tax efficiently. It may not be a bad idea to consider looking into where are some other potential avenues to take profits and put it into other more profitable—well, other areas that may have a higher probability to generate similar like returns if the AI theme and hype right now doesn’t materialize, right? So, it really depends on what your thesis is on what’s currently happening in the AI space.
So, one point that is alarming for me is we have a lot of infrastructure being placed. I’ll utilize ChatGPT as an example. There is billions of dollars being pumped into it, and there isn’t, uh, at least at this time, they’re very, very, um, nonpublic on their numbers as to the revenue, um, that they’re bringing in. But what they will and what they do publicly share is that the revenue that’s being brought in through the ChatGPT, um, like the Pro, the business, I think they have another one for institutionals, uh, institutional companies. It’s nowhere near the size of the investment at this moment in time, right? So, if that is a concern, then maybe it makes sense to take risk off the table, okay?
However, if your long-term view is going to be, “I’m adamant that AI and technology will, that’s the answer, no matter what,” then maybe you don’t do anything, right? So, it really going to come down to what your thesis is and what are you most comfortable with. And then it will
00:48:58
Karmi Gutman: come down to if it dropped 20, 30, 40%, right? I’m just, I’m just utilizing 40% because that’s the weighting of the U.S. stock market of these large 10 companies right now in the S&P 500, right? If they all tanked, we know that whatever the S&P 500 does, all else equal, 40% is going to be driving it on the downside, right? I danced around the question because it’s a, it’s a knowledge sharing question, but it is something to, I wanted to at least try to answer strategically.
Question: Is There an Expectation of a Timeline?
00:49:43
Karmi Gutman: So, another good question. I’ll, I’ll dance around this. Um, so, “Is there an expectation of a timeline?” That’s a good question.
So, right now, when I’m looking at the data, we have our—we are in a unique situation where the Federal Reserve just announced yesterday that they are cutting rates by a quarter of a percent. Why I mention this is, is because based—and I, we gave a different presentation a little bit earlier regarding inflation—I don’t think it’s going away. Um, what my, what I’m thinking at this time, um, and based on the research that I’m seeing and reading, is that the Federal Reserve is just ignoring that completely because they don’t want to admit potentially that inflation isn’t coming down to the 2% they want, and they’re just focusing on
00:50:29
Karmi Gutman: the labor market instead. Um, the reason why I’m mentioning that is, is we’re in a unique environment where we have a resilient consumer—sp—a U.S. consumer. We have a resilient labor market. Yes, labor has slowed, um, but that’s not because of firing. When we look at the data, a large portion of that has been in response to strict immigration policies, okay? Um, that’s why we’ve seen a lot of the drop from the 200,000, 100,000 jobs being done previously, um, and now only 30 to 40,000 jobs are being created. Um, that’s not due to firing. It’s in response to just the working pool of eligible candidates has shrunk tremendously, okay? Um, yes, there have been firings. I’m not going to deny that. But when you look at the trend of that, it has been, uh, isolated to companies that have potentially overhired during COVID, and now they needed to, they needed the hiring to meet demand at that time, and then now as things have, quote, unquote, leveled off, they don’t need that same headcount.
00:51:44
Karmi Gutman: Okay, that’s the trend I’ve been seeing. So, when you have those two attributes together, and then we have strong earnings across the board in the U.S., right, it’s, it seems strange to be lowering interest rates, which is just adding—we already have a fire going. Now they’re just putting gasoline on top of it. Um, so why you only would lower interest rates if you believe that markets will not do well. So, the reason why I’m dancing around this is, is that as long as the data holds, and as long as the Federal Reserve is determined to continue to lower the pace of interest rates, this is a supportive environment for risk-on assets. Risk-on assets would be high-growth tech comp—high-growth companies that includes AI, that includes exploration of pharmaceuticals, that includes certain consumer discretionary companies, et cetera. So, as long as that environment holds, it will be supportive for these type of investments.
Where the risk happens is that the Federal Reserve says, “You know what, the market’s been cutting. They, they’re expecting us to cut rates further.
00:52:59
Karmi Gutman: We’re saying, ‘No, we don’t want to do that.'” And then we have a repricing in the bond market. Many of you may be familiar with the, with the, the saying that when the U.S. gets a cold, the rest of the world needs to go to a doctor. The difference here is when the bond market catches a cold, the U.S. stock—the stock market needs to go see a doctor. Um, the reason for that is, is a lot of these growth companies are depending on debt and fundraising. And if interest rates move the other direction, right, which means the reference rate, treasury bonds are being offered at a certain interest rate. Those type of companies that need to raise capital, they will have to offer a higher interest rate to entice investors to give them their money because of the additional risk. Now, I’m not going to argue if the U.S. government is more or less risky compared to Google, because some of you may think, “I’d rather give my money to Google than the U.S. government.” For this conversation, we’re talking that the U.S. government is risk-free, right?
00:54:04
Karmi Gutman: So, the reason why I’m bringing this up, if companies have to pay more in, in additional capital to raise funds, that will impact earnings, right? Also, if investors can get higher rates returns and safer assets, why would they take the risk with some of these high-flying AI names, um, as well as, um, other risk-on parts of the market? All that context is important.
I’m going to give you a, a metric that the Macro Research Board is saying, um, because I follow their data. If you want to know who they are, Macro Research Board or Macro Research Board Partners, that is the data that we utilize heavily and rely on heavily, mainly because of the fact, uh, they’re, they, they are not—their research is not going to say, “This and this and this is happening. Please buy my fund because I know what to do,” like some of the other managers can do. How they make money is on subscriptions, and how they get increased subscriptions if they’re right and they provide solid data. Um, I’m not, I don’t always care that they’re right, because no one can always be right.
00:55:14
Karmi Gutman: I more care about is the data sound. And a lot of the information that you’re saying in this presentation is in response to the data that I’ve been reading and have gotten permission to share through proper citations and such. So, they are thinking the risk-on environment is 6 to 12 months. I, I’m more inclined it’s six months. But that’s my personal opinion. That’s not enough to trade on. This is pure knowledge sharing, pure opinions, et cetera. Um, but it is something I wanted to at least give you to answer that question somewhat. But really, two good questions. Putting me in a hard spot, but, uh, have to dance around it a little bit.
Questions. Give me. Last call. Any other questions?
Hey, if any questions arise, please don’t hesitate to give me a ring, 480-637-7076, or you can email me. Um, I really want to thank you all for attending the presentation. Um, I did not mean to, uh, depress anyone before the high, you know, the holiday season and new year. It just was something that was top of mind that I thought would be useful, and I wanted to share that with everyone. So, thank you all for attending. Happy holidays, happy New Year, um, and best of luck in the new year to everyone. Thank you, everyone, for your time.
