I’ve seldom witnessed a time when information was so unreliable.

 We spend a phenomenal amount of time and resources focused on understanding what is happening around the world that may affect the stock market and other areas of our clients’ financial lives. We’ve always employed an intensely disciplined approach to review sources from various perspectives, comparing headline reports to primary sources of information, and doing our best to identify and challenge our personal biases. What seems crazy to us, is that nearly all of the information we come across, regardless of the source, has been wildly skewed and is propagandized to one side or the other. Naturally you’ll read this first as saying the other side is spreading misinformation, but it’s your side too. 

Misinformation is baked into the data as well. We’ve again seen more substantive downward revisions of economic data, and it feels as though politicians and pundits have realized they can blast the most miniscule (and often irrelevant) information in memes across social media to manipulate public perspective. Again, all sides are doing this and if we truly want to understand the world around us, we must look first at the ways our own biases and groupthink can cause us to misinterpret reality. None of this is even touching the new reality that AI can fabricate all kinds of believable fakes (I’m not claiming everything is a deep fake, but I have access to AI video and audio tools, and it is alarmingly easy to do). 

So what then, can we believe?

Businesses are run by people who are carefully working to create products and services for people who need them, and they aren’t doing it passively. They adapt to consumer demands, changing costs, new technologies, and economic conditions. They have a profit motive, and the end goal is to reward their owners in the form of a dividend payment. So, we invest by owning businesses that have been successful at this for many years. When we have a long-term perspective, these types of investments work very well and eliminate the need to obsess over market timing (which always hurts more than it helps).

It’s important to have the appropriate amount of cash in your portfolio. How much depends a great deal on your personal situation, but insufficient cash can force you to sell investments at a temporary loss that you otherwise wouldn’t sell. In our portfolios, we manage this dynamically depending on the magnitude of potential risks we see on the horizon (as those appear more significant, we tend to have more cash in portfolios). Having the right amount of cash in a portfolio also allows us to take advantage of opportunities as they arise.

We can diligently diversify risk across various industries, business, and service models while avoiding low-quality and high-risk investments (“index” investing really diversifies the high-risk, momentum stocks with lower-quality investments you wouldn’t intentionally buy). We can measure our effectiveness at this in a granular way and pay attention to the specific business, political, and economic risks that could hurt the business (tariffs are a great example here). A tariff on a specific product may heavily impact one business and have a negligible impact on a business not impacted by that product. Investments aren’t all the same, so it is important to invest in them on their own merits. For CoCreate clients, we fully manage this process for you.

We can believe that the only way we can fix the challenges in our society is to begin loving our neighbor, especially those who are different from us. We can’t expect the pundits and politicians to stop exploiting our polarized perspectives. We have to fix that on our own, in a grassroots groundswell of love, forgiveness, and humility. So as you’re watching headlines about anything going on in the world, remember that if you expect the worst from people, you’re guaranteed to get it, but if you open yourself up to look for the best in people, you’ll be surprised by how much you’ll find.

Military Operations in IRAN

I hate war, but I also hate mass murder. I’m confident nuclear weapons are destructive, especially in the hands of violent people. I’m amazed that the most dominant conversation around the conflict in Iran has been about gas prices rather than the millions of people tortured and murdered by the Ayatollah over the past 50 years. We should all feel the gravity of many conflicting emotions about the events that are transpiring. We are praying for every human life and for true peace when the conflict resolves. I will do my best to keep my comments focused on issues that will affect the market and economy.

While we have little quality information to rely on, there are several key premises we should be able to rely upon:

• The increase in oil prices is temporary; the end result of the conflict should result in a substantive decrease in the cost of oil coming from the region.
  
• This is not the same as Iraq/Afghanistan. If this turns into a protracted conflict spanning many years, the implications on the economy would be substantive. The current political climate, however, is not likely to authorize a declaration of war or provide funding for a substantial period of time. The constitution limits the President’s authority in this situation for 90 days. We project that in the most extreme case the conflict can’t survive the mid-term elections.
  
• Moreover, the stated intent and strategy of the military operation are vastly different from the campaigns in Iraq and Afghanistan. Dismantling Iran’s nuclear capabilities, seizing the enriched uranium, and toppling the Ayatollah are all objectives that can be achieved in a short time with little U.S. military presence on the ground. The strategy here is to equip the Iranian people to take back their country from a regime that is Stalin-esque. 
  
• The Strait of Hormuz will be returned to international control, resulting in lower transportation costs for 20% of the world’s oil (net result, cheaper gas). Additionally, Saudi Arabia and other neighboring countries will build alternate transit routes to bypass the strait in case of a future closure. With the damage to Iran’s military and infrastructure, the United Arab Emirates will likely become the dominant player in Strait of Hormuz operations.
  
• We will see the Iranian people experience the opportunity to regain their freedom and perhaps become contributors to the global economy.

We are presently watching the start of a two-week ceasefire. The basis of the ceasefire agreement is unclear across various sources, and we are already seeing officials talking about where or not it has been broken. We would expect to see some of this in a cease-fire negotiation, but it underscores the reality that, from a market perspective, we must consider the conflict to be ongoing until peace is sustainable for the longer term.

Extended Bull Market and Slowing Economic Expansion

You can measure bull markets (growing stock market) and bear markets (declining stock market) in a variety of ways, and different commentators will mark the start and end of a bull market differently. In short, the stock market has been growing ever since the bottom of the great recession in 2009.

It’s been an exceptional bull market driven by a technological revolution that has changed life as we know it. These tend to last about 17 years before there is a meaningful correction in the markets. This isn’t a rule, of course, but we’re on year 17 and there are a mix of reasons to be excited about the future of the economy and things we should find quite concerning. In both cases, you want to be meaningfully invested in the stock market, because over time, these appear more like blips on the radar than financial catastrophes (they become catastrophic when you try to play them to your advantage. Inevitably, you end up selling at the worst time and buying back in when it’s too late). At the same time, we are becoming more defensive in our portfolios as many industry-specific risks and broader stock market risks increase. The S&P500 (which most people use to represent the “stock market” broadly… we think that’s fallacious, but that’s a conversation for another time), looks like it is beginning to form a rounded top. This tends to happen at the end of these secular bull markets as people begin to become concerned about the prospects of future growth. When we do this type of “technical analysis,” we need to be careful not to give it too much weight because it could mean something, it could mean nothing, or it could look entirely different tomorrow. As we are looking at the broader spectrum of data, it can sometimes be helpful.

The end of this secular bull market also doesn’t necessarily mean an impending stock market crash.  There are many scenarios (some of which already appear to be playing out) which could avoid a broad-based market correction. We need to be strategic here, avoiding the major risks while maintaining well thought out investments in businesses that have a real basis for their value (i.e. healthy/growing profits combined with a long history of rising dividends).

Data Indicates Strain on the Economy

• Moody’s has estimated that the top 20% of earners have been responsible for 63% of the spending. These individuals are able to utilize profits from investments and real estate to buy more stuff… and more expensive stuff. The risk is that the “stock market” (different from our portfolios) has struggled this year, and if it doesn’t begin to grow, many of these top earners may start spending less.
  
• Additionally, consumer debt is less than exceptional. The New York Fed reports that 5.21% of auto loan balances are now 90+ days delinquent, the second-highest level since at least 1999 and above most of the 2008–09 financial crisis. Credit card delinquencies have climbed to 12.70%, the highest since 2011, while student loan delinquencies have jumped sharply as COVID-era repayment forbearance expired.
  
• Employment data is mixed. 

Artificial Intelligence

We’re continuing to monitor the investment environment around Artificial Intelligence. In short, we’re still seeing an AI bubble. There is good and bad at this point (which is a slight improvement over only bad). The good news is that we are finally beginning to see AI implemented in ways that can yield significant productivity gains, while at the same time, protecting your own Intellectual Property and private data is becoming easier (I can train and run my own Large Language Model right on my laptop). As I see it, there are things AI will never be able to do, but things that AI can do exceptionally well. The most economically significant development at present is the ability to easily program custom solutions and/or integrations so that information and systems that have been cumbersome and fragmented can be accessed more efficiently across teams. I believe this will be the first wave of AI usage that creates widespread return on investment. 

Despite the continued development of AI, the issues with investment in AI related business persist. Valuations (though AI stock prices have decreased, making values a little better than a few months ago), are still off the charts and demand massive new revenue to justify the current prices. The values are driven by a circularity problem with the major AI investors. JP Morgan analyst, Michael Cembalest, explained this issue clearly last October:

“Oracle’s stock jumped by 25% after being promised $60 billion a year from OpenAI, an amount of money OpenAI doesn’t earn yet, to provide cloud computing facilities that Oracle hasn’t built yet, and which will require 4.5 GW of power (the equivalent of 2.25 Hoover Dams or four nuclear plants), as well as increased borrowing by Oracle whose debt to equity ratio is already 500% compared to 50% for Amazon, 30% for Microsoft and even less at Meta and Google. In other words, the tech capital cycle may be about to change.”

Essentially, there are massive investments being made by the big AI companies and reciprocal investments being made into the big AI companies, all without the support of any meaningful profit from the AI-related activities. It’s been massive corporate FOMO (fear of missing out). We still need to see enough revenue coming from AI business to justify investment in AI at the present time. Without that revenue, there is no basis by which we can expect anything but an AI crash.

Finally, the AI hyperscalers have been buying immense amounts of computing power (chips, data centers, etc.). Much of this will need to be replaced in the near future.  According to McKinsey & Company, hyperscalers need to generate an additional $750 billion by 2030, just to account for the depreciation of this equipment. The combined profits of the hyperscalers are approximately $450 billion at present. These companies that are experiencing extreme values from the circularity issues also have a massive impending financial hurdle to overcome. Either the profits start showing, or the prices must come down much further so that they reflect these companies’ actual values.

Again, every business is not in crisis. We own many in our portfolios that are wildly profitable and are valued fairly (or even cheaply). We believe that now, more than any time in the past ~15 years, careful, intentional, long-term investment in profitable, dividend paying businesses matters. This simply can’t be accomplished by “index” investment, market timing, or many other common approaches. We are working hard to keep our client's portfolios profitable and prepared.

Update to original article: August 1, 2025

Since publishing this update, there have been several key developments that may affect our conclusions.

• The Trump administration imposed tariffs on a number of nations that will begin on August 7, that are in addition to the 10% baseline tariff they have already put in place.  The most notable of these is the tariff on Canadian goods which are not part of the existing trade agreement with Mexico and Canada (the “USMCA”).  The administration also extended the negotiating timetable with Mexico, our largest trading partner indefinitely. The US Court of Appeals for the Federal Circuit in DC (which consists of 12 members), is presently reviewing the US Court of International Trade’s ruling (May 28) denying presidential authority to use emergency powers to enact broad-based tariffs.  The original ruling was stayed until the appeal could be reviewed.  The Appellate court didn’t rule at Thursday’s hearing but expressed skepticism about the administration's argument.  We believe, as we have since the beginning, that these tariffs will be prevented by the courts (except for those nations that have entered into agreements during the process). 
• The more important numbers have to do with the jobs report.  While we were anticipating job creation of about 100,000 in July, the jobs report came in at just 73,000.  More importantly, the Bureau of Labor and Statistics (BLS) revises these numbers throughout the year.  May and June numbers were revised downward in historic proportions.  May’s report initially showed 144k jobs when only 19k were created.  June’s report initially showed 147k jobs when only 14k were created.[1] Before we go making this a partisan problem with data manipulation, the BLS under the Biden administration announced they over-estimated job creation by 818k jobs in the early part of 2024.[2]
  The issues prove the significant negative impact of tariffs on business (which is the U.S. economy).  This will likely force the Federal Reserve to lower interest rates.  We can hope it will push the courts and legislators to engage this issue quickly.  To be clear: free trade is good for the economy, except when there are specific issues that warrant trade restrictions.  Congress and the Courts should be actively engaged in this matter, and it will require a much more nuanced approach than what is currently being implemented.  Businesses will continue to be cautious until these issues resolve.

We are taking a conscientious and data-informed approach as we manage your investments.  We aren’t particularly surprised by much of this news as it’s consistent with our thesis from the beginning of the Trump tariff discussion.  We are confident that our dividend-driven approach to investment will be the most resilient approach to the diverse range of outcomes.  If you have questions, please feel free to reach out. 

[1] https://www.bls.gov/news.release/archives/empsit_08012025.pdf

[2] 2024 Preliminary Benchmark Revision : U.S. Bureau of Labor Statistics

Original Article:

Forward by Matt Hudak, Financial Advisor 

Speaking on behalf of our whole team, we’ve been incredibly blessed to have Emma join us for the summer as an intern.  We’re even more excited that she is now a permanent part of your CoCreate crew.  Christa and I have spent a considerable amount of time working with her as she’s been jumping into a variety of financial planning and portfolio management tasks.  She’s been extremely adept at learning new skills quickly, and her contributions have been impressive to say the least.  She’s brilliant, fun and a great conversationalist.  When you get to know her, you’ll be as grateful as we are to have her on your team. 

It’s been a while since we published a “playbook” article, and we’re happy that the whiplash from earlier this year has slowed down quite a bit.  We thought it would be good to share an update with you as we approach August.  Call it a celebration of Emma’s onboarding (though it might seem like hazing to some of you), we thought it would be a phenomenal opportunity for you to hear from Emma.  I hope you enjoy this missive, and reach out to Emma with your thoughts, questions, and congratulations. 

Matt  

__________________________________________________________________________ 

What’s Happening with Tariffs?  
Despite ongoing uncertainty around tariff proposals and international trade agreements, there have been a few notable developments, including the agreement with the EU that was reached over the weekend. The administration is actively engaged in negotiations with key trading partners like China. While no sweeping changes have gone into effect yet, the potential for new tariffs has introduced short-term market uncertainty.  

Tariffs are taxes placed on imported goods. The company exporting goods pays this tax, but it is often the consumer who feels the cost of them. Tariffs are usually structured as a percentage of the value of the imported product, known as ad valorem, however, they can also have a specific fixed fee which is based on quantity. For example, a 15% ad valorem tariff applied to a car valued at $50,000 would cost an additional $7,500. If the tariff was specific, it would be a fixed fee regardless of price. If the specific tariff was $5,000 per imported car, the added cost would remain $5,000 regardless of if the car was valued at $30,000 or $100,000. The impacts of tariffs can be broad, they can significantly affect domestic industries, consumer prices, and international trade relationships.  

If tariffs are raised, it could mean higher costs for U.S. businesses and consumers. On the other hand, if tariffs are reduced or continue to be postponed, it could ease inflationary pressure and support growth in trade sensitive sectors.  

But if tariffs are inflationary, why may the administration want to impose them? Understanding the administration’s priorities is critical. The President has emphasized his commitment to America First policies that prioritize domestic industries, job creation, and economic resilience. Tariffs, even if they may drive-up short-term costs, are seen by the administration as a strategy to counteract unfair trade practices, resolve social and geopolitical issues and protect the American worker. Tariffs could also be used to bring trading partners to the negotiating table, creating more urgency to strike better deals. They send a signal that the U.S. is willing to take assertive steps unless changes are made, turning economic pressure into diplomatic motivation.  

Here are a few highlights of recent trade activity:  

• U.S. – UK Trade Agreement: A 10% tariff will be applied to British imports. Additionally, the first 100,000 imported vehicles will avoid the 25% tariff and only be subject to a 10% one. This range is much lower than the 50% levy placed on other trade partners. The deal also lifts tariffs from Britain’s aerospace sector, but they are still trying to reduce tariffs on key industrial metals.  

• U.S. – Japan Trade Agreement: The U.S. recently finalized a trade deal with Japan that includes a 15% tariff on Japanese imports, while Japan has committed to investing $550 billion into U.S. infrastructure and industry, with 90% of the investment profits going to the United States.  

• U.S. – Indonesia Trade Agreement: There will be a 19% tariff rate placed on Indonesian imports. However, this rate will increase to 40% if transshipping is involved. U.S. imports going into Indonesia will not face any tariffs and Indonesia has also agreed to lift export restrictions on critical minerals, such as nickel.  

• U.S. – Philippines Trade Agreement: There will be a 19% tariff on imports from the Philippines. President Trump also posted on Truth Social that the Philippines will remove all tariffs on U.S. imported goods, but this is yet to be confirmed by the Philippine government. 

• U.S. – EU Trade Agreement: Over the past weekend, the United States and the European Union agreed to a 15% baseline tariff placed on most EU imports.  

• The President announced a plan to impose a variety of heavy tariffs on countries that have not yet negotiated a trade deal before the deadline of August 1. But some project this deadline will be extended, especially for China.  

How is the Economy Holding up? 
Despite policy uncertainty and shifting global conditions, the U.S. economy has shown resilience in the first half of 2025. While Q1 GDP declined by 0.5%, more recent data signals a comeback. The Federal Reserve Bank of Atlanta estimates a 2.4% growth for the second quarter of 2025, pointing towards renewed economic forces. However, it’s important to note that this data does not reflect tariff policies yet, we will have to wait for the third and fourth quarter of 2025 to receive more accurate information. Our team will be watching and adapting along the way.    

The labor market remains stable, with unemployment going down from 4.2% in May to 4.1% in June. Meanwhile, inflation continues to rise moderately, with June’s annual rate coming in at 2.7%; this is slightly above the Fed’s 2% target, but consistent with long-term historical averages.  

The Fed has not yet confirmed a rate cut, but some economists believe it could happen as early as September if inflation continues to cool and growth remains steady.  While I agree that a rate cut in September is a possibility, there are a number of factors that could delay this. Those include tariff agreements, unemployment, and inflation (which hasn’t cooled enough yet). For these reasons, it would be unwise to bank on the Federal Reserve reducing rates this fall.  A rate cut would make borrowing cheaper for businesses and consumers, potentially boosting investment and spending. However, if inflation remains sticky or trade tensions worsen, the Fed may hold off cutting rates to avoid stirring pricing pressures. Either scenario highlights the importance of staying adaptable and focusing on long-term strategy rather than reacting to short-term shifts.  

What Does this All Mean?
At first glance, it can feel like the economy is on shaky ground. Headlines and social media posts often highlight volatility, rising costs, and political tension, making it seem like we’re on the edge of major market disruptions. But when you zoom out and look at the full picture, the U.S. economy continues to demonstrate resilience and adaptability.  

Inflation has cooled to 2.7% as of June, and while it’s still above the Federal Reserve’s 2% target, it reflects some progress from the peaks of recent years. The Fed’s Beige Book (leave it to bankers to be creative) also noted a modest increase in economic activity, especially from late May to early July, signaling that consumer demand and business investment remain strong despite ongoing uncertainty and caution. The labor market has held steady, and many sectors have continued to grow at a slow but stable pace.  

In short, although concerns around inflation, interest rates, and trade policy remain at the forefront of our minds, the underlying economic data tells a more balanced story. It appears that the U.S. economy is not stalling but instead adjusting. Both businesses and consumers are moving forward with caution, not panic.  

What are some Possible Outcomes? 
From here, there is a variety of directions things could go: 

• If tariffs rise and global trade slows, we may see pressure on supply chains and corporate profit margins. This could lead to temporary market volatility, especially in trade sensitive industries like manufacturing, agriculture, and consumer goods. 

• If trade talks ease tensions, resulting in fewer or delayed tariffs, we could see improved investor sentiment, easing inflationary pressures, and opportunities for both international and domestic companies.  

• If inflation data continues to trend downward, the Fed may feel comfortable holding rates steady or entertaining rate cuts, opening the door for stronger lending activity and increasing consumer confidence.  

• If inflation reaccelerates or new trade disruptions emerge, the Fed may neglect to act which could stifle both growth and the market in the short term.  

 
Our Strategy 
Rather than trying to guess the outcomes, we focus on preparation instead of reactivity. Our investment approach is built around adaptability, diversification, and long-term durability. We’ve thoughtfully assessed a range of potential outcomes, from policy shifts to economic changes, and positioned your investment portfolio to remain resilient no matter the direction the market takes. Our approach is investing in individual businesses, and we evaluate those on an extremely regular basis. We consider each company’s exposure to individual policies and scenarios, we measure how frequently the price changes of each investment move with one another to ensure we have adequate diversification, and we make sure we have plenty of cashflow to weather any storm.  

Of course, we can’t predict with certainty what will happen in the future, but we can prepare with intention. By building a well-diversified, resilient portfolio and staying focused on rising dividend income and your long-term goals, we can navigate uncertainty with confidence. We prioritize making thoughtful, forward-looking decisions that help protect and grow your investments over time. 

The American economy has endured through countless shifts and unpredictability. But it’s natural to be wary of shifting policies, and it is important for us to stay vigilant so we can continue to provide you with peace of mind during these times. The ability for the economy to demonstrate resilience and stability, especially amidst near-term risks and unknowns, is a good sign. 

 The stock market volatility followed by the announcement of “Liberation Day” has leveled out, possibly signaling a broader sentiment shift. Either people are growing tired of the constant swings and are responding less actively, or the economic conditions are more unpredictable than most people expected last November. Either way, there has been a noticeable slowdown in policy change and subsequent reactions during recent weeks.  

I’d also like to note that we’ve completed our review of the Big Beautiful Bill and look forward to sharing our insights and discussing its potential impacts in greater detail in the near future in another blog post. Additionally, we do not anticipate any changes in leadership at the Federal Reserve. Jerome Powell only has a year left in his term and it’s unnecessary for Trump to fight against that.  

Uncertainty is a normal part of the market cycle, and we’ve gone through these ambiguous periods before. What matters most is having a plan that’s built to adapt, not just to the good times, but to the unpredictable ones too. We want you to remember that we’re looking at your accounts carefully and consistently and are available to answer any questions that you have along the way. We’re confident that all your accounts are positioned in the best possible structure so that they’ll hold up in a downturn and be poised for growth.