Bob’s Journal for 12/12

The Artificial Intelligence Boom After Two Years

It’s been just over two years since OpenAI released ChatGPT and ignited the artificial intelligence (AI) boom.

The phenomenon affected stock markets, business investment, employees and many aspects of the economy. Bespoke Premium summarized the effects with the following highlights.

Perhaps stocks have shown the biggest effect thus far. A basket of AI stocks assembled by Bespoke increased by 131%, or $13.1 trillion, over the last two years. Bespoke calculated those stocks accounted for 45% of the total increase in global stock market capitalization during the period.

The 50 stocks in the Bespoke AI Basket now account for about 20% of the world’s stock market capitalization. The AI stocks also had substantial increases in expected earnings.

The stocks Bespoke classified as AI infrastructure saw 12-month estimated earnings per share increase more than 80%, while AI implementation stocks had a more modest increase of about 25%.

AI has led to significant investments in data center construction, increasing such investments by an estimated $7 billion beyond what would have occurred without the AI mania. Electricity consumption by commercial users also spiked in the last two years.

As Bespoke pointed out, it takes a significant amount of money to develop good AI. It isn’t clear that the leading AI developers will generate enough revenue to cover their investments, plus the future investments they’ll have to make to keep their AI on the leading edge.

That’s why some of the leading AI providers are considering switching from subscriber-based business models to advertising-funded business models.

Examine Life Care Communities Carefully Before Entering

Continuing care retirement communities (CCRCs), also known as life care communities, are popular. Many have waiting lists of two years or longer.

Despite their many potential benefits, some CCRCs are dangerous to the wealth of their residents. A CCRC can run into financial trouble and even go bankrupt.

The residents can find themselves without homes or in homes without all the promised services and amenities.

The most recent case is The Harborside in Port Washington, New York, part of Long Island.

The CCRC has about 181 residents with an average age of 90.

The residents have been living with financial uncertainty for some time. The CCRC has filed for bankruptcy protection three times in nine years.

Residents thought they had a savior when a business offered to buy the operation. But Life Care Services pulled out of the deal in early 2024, saying the state took too long to review and approve it.

The CCRC’s been in limbo since then. A judge recently told The Harborside to find a buyer or face possible liquidation and piecemeal sale of the assets.

The bankruptcy trustee said the reorganization should be dismissed because the financial situation has gotten worse since the bankruptcy petition was filed.

The Harborside said it is negotiating with two potential buyers, but no deal is in place. Any potential deal would have to be approved by two state agencies.

CCRCs are attractive because they allow residents to move from independent living to assisted living and on to cognitive care or a nursing home, if needed, all on the same campus.

Residents generally pay one large entrance fee, plus monthly fees.

Of course, it’s important to look into a CCRC carefully before signing a contract. You want to know details about the living units, the amenities and services provided, how the residents are cared for, and more.

But it’s also important to take a close look at the financial condition of a CCRC and any parent or sponsoring entity. If you aren’t comfortable reviewing financial reports, it’s worthwhile to pay someone to offer an opinion.

You want to examine the financial statements with an eye toward how the entity could weather a financial downturn. See if it depends on initiation fees from new residents to make ends meet. If entrance fees are fully or partially refundable, where will the CCRC obtain the cash for the refunds?

Also, determine if the CCRC is putting part of its annual revenue into reserves to pay for improvements and replacement of major assets.

These issues were discussed in more detail in past issues of Retirement Watch and in my books.

Baby Boomers Are Making Their Heirs Wait

Baby Boomers don’t have a strong urge to pass on some of their wealth while they’re alive, according to a recent survey from Charles Schwab & Co.

The survey covered individuals with at least $1 million of investable assets (excluding homes and retirement accounts).

About 21% of Boomers said while they were alive they wanted the next generation to enjoy some of the wealth. That compares to 53% of millennials and 44% of Generation X.

About 45% of Boomers also said they want to enjoy their money while they’re alive, and 56% said they plan to distribute some wealth during their lifetimes.

To some, the results make the Boomers seem stingy or greedy, especially when compared to succeeding generations.

But for the Boomers, the question isn’t hypothetical. About half of the Boomers are 65 or older, and the first wave is approaching 80. The other generations are years away from seriously considering the decision.

It’s likely the Boomers know that if they’ve lived this long, they could live considerably longer. They don’t want to be a burden on others.

Instead, they want to ensure their savings last for the rest of their lives, no matter how long they live. They don’t want their heirs to have to care for their own children and their parents at the same time.

It’s a good idea to make lifetime gifts to loved ones. They might benefit more from the money now than at some uncertain time in the future. They’ll also learn how to handle extra wealth, and you’ll see how your wealth benefits loved ones.

But make lifetime gifts only when you can do so without the risk of running out of money during your lifetime.

The Data

The NFIB Small Business Optimism Index rose to 101.7 in November from 93.7 in October.

The November level is the highest for the index since June 2021 and the first time in 34 months the index was above its long-term average of 98.

The change appeared to be due to the election results. Business owners reported being more certain about future business conditions after reporting record high uncertainty for about three years. They expect tax and regulatory relief and lower inflation pressures.

The Consumer Sentiment Index from the University of Michigan increased to 74 in December. That’s the highest level since April and the fifth consecutive month the index increased. The index was 71.8 in November.

The big jump was in the Current Conditions subindex, which rose to 77.7 from 63.9. The Expectations subindex decreased to 71.6 from 76.9.

The Consumer Price Index (CPI) increased 0.3% in November, following a 0.2% increase in October. The 12-month increase in the CPI was 2.7% through November and 2.6% through October.

The core CPI, which excludes food and energy prices, rose 0.3% in both November and October. The 12-month increase in the core CPI was 3.3% in both November and October.

Productivity increased 2.2% in the third quarter following a 2.1% increase in the second quarter.

Unit labor costs increased 0.8% in the third quarter after falling 1.1% in the second quarter. Over the last four quarters, unit labor costs rose 2.2%.

There were 227,000 jobs created in November, according to last week’s Employment Situation reports. In October, 36,000 jobs were created, a number that was distorted by the recent hurricanes.

Average hourly earnings increased by 0.4% in both November and October. The 12-month increase in average hourly earnings was 4.0% through both November and October.

New unemployment claims increased by 11,000 to 224,000 in the latest week.

Continuing claims, which lag a week behind new claims, decreased to 1.871 million from 1.896 million.

The Markets

The S&P 500 fell 0.18% for the week ended with Tuesday’s close. The Dow Jones Industrial Average lost 0.94%. The Russell 2000 dropped 1.39%. The All-Country World Index (excluding U.S. stocks) added 0.02%. Emerging market equities advanced 1.17%.

Long-term treasuries gained 0.02% for the week. Investment-grade bonds increased 0.27%. Treasury Inflation-Protected Securities (TIPS) added 0.03%. High-yield bonds gained 0.24%.

In the currency arena, the U.S. dollar advanced 0.10%.

Energy-based commodities fell 0.14%. Broader-based commodities rose 1.65%. Gold increased 1.88%.

Bob’s News & Updates

A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com and regnery.com.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

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A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.