An Invisible Hand Shaking the World's Foundations

NEWSLETTER SECTIONS

• Manatee Performance Year to Date
• Notable News
• Wealth Corner
• Survey Says: How Your Peers Answered
• Money Matters: Let's Solve It Together

Manatee Performance Year to Date

As a group, the MANATees* have continued to outperform the S&P 500 in 2024. Of the $2.7 trillion increase in the S&P 500’s market cap so far this year, 28% was generated by a single stock: NVIDIA. Meta Platforms contributed another 12%, while Microsoft and Amazon.com were responsible for 10% and 9%, respectively. Notwithstanding this success, three of the seven MANATees have started the year traded down or sideways (TSLA, AAPL, GOOG).

* Microsoft, Meta, Apple, Amazon, Nvidia, Alphabet, Tesla

Manatee Milestones

• After rising 112% in 2023, an equally weighted portfolio of the MANATees is up another 14% so far this year (Feb 23, 2024).
• The 7 MANATees now account for 25% of the entire US stock market.
• They increased $5.1 trillion in market cap over 2023, more than the half of the $9.3 trillion increase in market cap in 2023 for all 6,658 publicly traded companies in the US.?
• Their $13 trillion market cap exceeds China's entire stock market ($11.8 trillion).
• Four of these seven stocks (namely NVDA, META, AMZN, MSFT) accounted for 60% of the S&P 500’s year to date.

Notable News

Nvidia’s Meteoric Rise

Nvidia recorded the largest-ever single-day jump in market capitalization on February 22nd, adding $272 billion and rising 16.4% to close at $785.38.? That beat the prior record set just two weeks prior by Meta, which added $205 billion in market cap after publishing a stellar earnings report and announcing its first dividend.?

Nvidia’s has been on a tear. Its market cap surpassed Google’s on February 21st, just 1 day after surpassing Amazon’s. It’s the latest example of the stock market’s enthusiasm for AI — and especially for the companies building the infrastructure that makes it all possilbe.?

Nvidia’s market cap is now flirting with the $2 trillion mark, more than all Chinese companies listed on the Hong Kong Stock Exchange.

Growth for this quarter y/y:

Revenue: ? 265%

Net Income: ? 769%?

Data center sales: ? 409%

AI Victim Watch: Hollywood’s on Fire

Exciting yet chilling insights have emerged from a recent study conducted among 300 Hollywood leaders. They reveal the profound impact AI tools are having on the industry. According to the January report, an overwhelming 75% of these industry leaders have already? observed AI facilitating job reductions, eliminations, or consolidations within their organizations. Looking ahead, the study forecasts? nearly 204,000 roles to be impacted over the next three years.

The positions thought to be most susceptible to displacement?

• sound engineers
• voice actors
• concept artists

Additionally, the realm of visual effects and other post-production processes is highlighted as particularly vulnerable to the adoption of AI technologies. As the capabilities of AI continue to evolve, these roles are increasingly viewed as replaceable by such advancements.

If I were employed in one of these positions, I would set about hedging my career exposure by buying shares in the companies developing these technologies. An unpleasant investment, but likely a prudent one.

“It’s going to demolish our industry,” said a concept artist who has worked on several Marvel titles. “Everybody is pitching projects using generative AI now. We’re already getting screwed.”

And that was what Ortiz said before the recent release of Sora’s text to video service by Open AI. Indeed, the videos generated by Sora wer so impressive that media mogul Tyler Perry decided to abandon an $800M project to build state-of-the-art studios.

“If I wanted to write a scene on the moon, it’s text, and this AI can generate it like nothing. If I wanted to have two people in the living room in the mountains, I don’t have to build a set in the mountains, I don’t have to put a set on my lot. I can sit in an office and do this with a computer, which is shocking to me,” he said in the interview.?

The Google Gaffe Machine

Trying to impress us with its AI prowess, Google has stepped on yet another rake.? Have a look at the screenshot below at how Google Gemini depicts German soldiers from WWII. Perhaps there are some limits to diversity, equity and inclusion after all?

Buried in Google Gemini’s code lies a strain of western culture so ideologically progressive that it is prepared to deny objective reality and alter the historical record so that outputs might be more consistent with the values of its creators.?

The results? Laughably absurd.?

The unintended consequences? Conservative backlash and greater polarization.?

AI + DEI = WTF?

Who Belongs in this Club Anyway?

If you’re as old as I am (thank you for not asking! ??), you may remember a game on Sesame Street in which kids were asked to compare four items and pick out the one that didn’t belong. It was a nice interlude in the program, though it was always impossible to guess incorrectly. Here’s a screen shot from those days.

How about we play the same game, but in this version we decide which company doesn’t belong in the MANATees (aka “The Magnificent Seven”). Let’s see what our viewership thinks. Apologies if I made it a little too easy! ??

WEALTH CORNER

A New Draconian Law That May Affect You

Are you forming a company or do you already own or manage one? Effective January 1, 2024, the Corporate Transparency Act (CTA) will require entities to report both beneficial owners and control persons. The CTA is administered by FinCEN and will require filing by approximately 32 million entities. Control people might include officers, directors, managers of an LLC, key employees, etc. Owners might include those holding options, warrants or other rights. The CTA will impact the vast majority of companies, including:

• limited liability companies (LLCs)
• corporations (both C and S corporations)?
• limited partnerships (LPs)

Consequences for failing to file are severe and may include:

• a penalty of $500 per day (up to $10,000)?
• imprisonment of up to two years

Deadlines

• Existing reporting companies must file with FinCEN between January 1, 2024, and January 1, 2025.
• Newly formed companies will need to file their FinCEN reports within 30 days of formation.?
• However, this deadline will be extended from 30 to 90 days for new reporting companies formed on or after January 1, 2024, and before January 1, 2025.

My opinion? It looks like the 'less is more' approach to regulation just turned into 'more or less, a mess'!

Debt as a Shield Against Taxes

Borrowing against an investment portfolio, often referred to as securities-based lending, offers a strategic way for investors to access cash without the need to sell off their investments, which can trigger capital gains taxes. This method can be particularly beneficial in scenarios where selling assets would not only incur taxes but might also disrupt a well-crafted investment strategy or force the sale of assets at an inopportune time.?

By borrowing against their portfolio, investors can maintain their market positions, allowing their investments to potentially grow or recover in value, all while having the liquidity to meet immediate cash needs, finance a large purchase, or handle an emergency without liquidating assets prematurely.

However, this approach is not without risks. The most significant is the potential for a margin call, where the borrower must deposit additional funds or sell assets in their portfolio to maintain the loan's required collateral level. Additionally, interest rates on the loan may vary, increasing the cost of borrowing over time. Some ways to mitigate these risks inlcude:?

• borrowing at a conservative loan to value ratio, for example < 50%
• making the loan against stable, high-quality investments

While securities-based lending can provide convenient access to funds, it is crucial for investors to understand these risks and to consider the stability of their investment portfolio and their ability to manage the loan in various market conditions.

To Roth, or not to Roth?

That, my good fellows, is the dilemma we face. It echos the drama of a play by Shakespeare himself, albeit with fewer tragedies and more consultations on taxation! Attend me now: I hold in high esteem the Roth IRA above its elder, the traditional IRA, and herefore I shall share my reasoning - 'tis all for the augmentation of thy nest egg for the twilight years.

Both the Roth and its elder sibling, the traditional IRA, are bound by the same limits of contribution, yet here lies a subtlety oft overlooked. With the Roth, thou art obliged to pay tribute to Uncle Sam at the outset, for thy contributions are taxed ere they enter.?

Leap forward to thine age of leisure, when thou art perhaps reclining on a distant shore, partaking of exquisite libations, and thou beginneth to draw upon thy funds. With the traditional IRA, the day of reckoning with taxes doth arrive, the IRS dost intrude upon thy merriment, and thy withdrawals are diminished by the rate of thine income tax.?

But with the Roth, the taxmen linger in the confines of Washington, and the treasure remains entirely thine – free from the grasp of taxation upon withdrawal.

Thus, if thou art wise in this game, contributing an equal measure to both a Roth and a traditional IRA, and maintaining all else constant, the Roth doth promise to bolster thy retirement fund by no less a margin than a third!

What vision hast thou for thine latter years? Art thou destined for a life of meticulous savings, or dost thou aspire to a future where thy gravest concern is the coordination of thy vessel with thine attire?

In jest and in guidance for thy investments,

The Bard

P.S. - I do heartily thank thee, ChatGPT!

Financial Fitness Test

If you’re interested in improving your financial health, use take this financial fitness test. Just keep in mind that this checklist was designed specifically for employees of publicly traded technology companies (i.e. a company offering RSUs and a competitive 401k).

INSTRUCTIONS: Answer “YES” or “NO” to each question and then tally your score by counting the number of times you answered “YES”.

1. Do you have an RSU plan in place?
2. Do you fund a Mega Backdoor Roth every year?
3. Did you make employee contributions to your 401(k) of $54,750 in 2023? (Many people erroneously believe that the maximum employee contribution was $22,500 for 2023).?
4. Do you have a revocable trust in place or some other form of estate planning?
5. Have you consolidated your old 401(k)s into an IRA?
6. Do you and all members of your household have Roth IRAs that they contribute to every year??
7. Has your investment portfolio generally performed as well or better than the S&P 500 over the long term without excessive concentration risk*??
8. Do you have an HSA?
9. If you have children, have you set up 529 plans and/or Roth IRAs for them?
10. Do you hold your high risk / high return assets (e.g. Bitcoin, tech stocks) in tax-efficient accounts that will avoid capital gain and income taxes?

*No company accounts for more than 20% of your portfolio. We’re assuming a slightly above average tolerance for risk, an assumption that will be adjusted for your particular circumstances.

SCORING: How many times did you answer “Yes”?

• 0-3.? We can create a lot of value for you.?Let’s talk.?
• 4-5.? Not too shabby, but there’s room for improvement!?Let’s talk.
• 6-7. ? I’m impressed! If you’d like to explore the other 3-4 items, we’d be happy to speak with you. So?let’s talk.
• 8-10. You are an inspiration! Have you considered a career in wealth management? Would love to consider bringing you on board as a partner. ;^)

IMPORTANT DATES

April 15 is the deadline to:

• contribute to IRA and Roth IRA* for 2023 tax year
• contribute to an HSA
• file a tax return extension

* Most of you will need to do a Backdoor Roth to avoid IRS income tax limits.

Survey Says

Correct answer: Meta (blue), Google (green), Microsoft (red).

Money Matters: Lets Solve It Together

If you'd like to discuss something specific or have a money matter that needs solving, let’s chat. I'm generally available for several meetings ever week - online or in person here in Silicon Valley. To set up a time, please tell me a little about yourself and set up an appointment on our website.

Subjects often covered include:

Disclaimer: This newsletter is the opinion of Matt Lewis and is made from the perspective of a US tax payer. TechView Wealth Advisors LLC does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction or tax strategy.