Daily gyrations of financial markets continued into the first quarter culminating in an apparent bottom for the S&P 500 stock index on April 7. This was followed by a dramatic turnaround that few anticipated, and few believed. There was so much “noise” amplifying the usual uncertainty that accompanies investing, that protecting client assets appeared the responsible thing to do. Thus, a large portion of your portfolio remained in purchased money market funds earning a respectable return of a little greater than a 4% annual rate.
Here is a three month “Heat Map” to show relative performance of individual stocks. The size of the square indicates its performance and of course the color green is for a positive return:
Source: Charles Schwab & Co, Inc.
Most Trusted Financial clients owned winners like Amazon, Microsoft, Nvidia and Meta which did well, but in many cases, I’d reduced the holding out of caution, before the turnaround. Apple and Google were weak. We abandoned Google, and I am doubtful about re-entering the position given that some 2/3 of its revenue and earnings come from web search, which is now being seriously challenged by competing artificial intelligence driven search engines.
Bonds held up well, despite impending passage of a new deficit busting budget, which will rapidly expand government debt. So far, US treasury bonds have not cratered in price or sent interest rates soaring, as might be expected. Further a predicted recession driven by high tariffs has not materialized, so some money[1]is coming off the sidelines and back into financial markets. Those who monitor fund flows believe it is younger investors who have been plunging back in.
Perhaps experience has made me too cautious. I was unconvinced as the stock market rose, in the face of a flood of unpredictable pronouncements from the Executive branch, and while the dollar continued to sag. A more aggressive approach in retrospect would have been more rewarding. But “aggressive” is not what I do, and that seems to be just fine with Trusted Financial clients.
As previously discussed, your portfolio still holds a significant allocation in purchased money market funds. These funds, such as Schwab Value Advantage (SWVXX) and Schwab Government Money Fund (SNSXX), offer an annual yield of about 4.15%, outpacing both inflation and typical sweep accounts, which earn just 0.05%. Unlike sweep funds, purchased money funds require active management but provide better returns and nearly no risk of share price decline—unlike stocks, which can be volatile, as seen with Microsoft’s recent large price swings.
Of note, purchased money fund interest rates are comparable to one-year CDs but offer greater liquidity, making them a suitable choice amid ongoing market uncertainties.
As stocks kept rising into the end of the quarter I did a bit of buying, but remain cautious; economists now expect a possible tariff resolution, steady employment, and continued stock market strength despite global events and domestic challenges. Additionally, over half of S&P companies are trading above their 200-day moving averages, signaling positive momentum. Nevertheless, some serious challenges remain.
Orgy of Federal Spending Continues
To sell the Big Beautiful Bill, Congress is using gimmicks to minimize the resulting damage to our national balance sheet. These include things like pretending a provision will expire when it likely will be renewed (e.g. child tax credit) or making unrealistic growth assumptions that will perhaps raise additional taxes without raising the tax rate. Legerdemain is not unique to the current crew in D.C. The “Build Back Better” legislation passed under President Biden contained plenty of questionable assumptions. In fact, this sort of budget manipulation goes back at least to the Johnson administration, when a so called “unified budget” was invented to mask the “guns and butter” spending under that 1960’s administration. The idea was to pretend that deposits into the Social Security and Medicare system could be counted as current income to the government, covering day to day spending such as the military, regulatory agencies and all levels of Federal government operations.[2] Successive deficits have been modified with this trick, but now that Social Security and soon, Medicare, pay out more than comes in, this threatens to accelerate reported deficits.
The implications of these fiscal maneuvers and shifting investor sentiments cannot be understated. As government debt mounts and fiscal discipline erodes, the result is a landscape where long-term economic stability is increasingly questioned. The weakening of the US dollar, now outpacing historic drops, has set off alarms not only domestically but across international markets. Investors, ever attuned to risk, are recalibrating their portfolios—turning away from traditional US debt instruments in favor of more diversified or alternative assets.
This pivot is particularly visible in the surge of interest toward so-called safe havens. As uncertainty becomes the new normal, assets such as gold and crypto related investments begin to shine, drawing capital that once would have been firmly rooted in dollar-denominated securities. The consequences of eroding confidence are beginning to ripple through financial systems, manifesting in everything from currency volatility to shifts in global trade dynamics. In this era of fiscal laxity, the question is no longer whether these changes will impact individual investors and savers, but how swiftly—and how profoundly—those impacts will be felt.
While I have not reviewed the Big Beautiful Bill in any great depth, there is one hopeful provision for those who live in highly taxed states like California. When the first Trump administration passed its budget and tax bill in 2017, it nearly killed off a long honored tradition, allowing state and local taxes as deductions against Federally taxed income. The deduction for SALT (State and Local Taxes), which was fully deductible for generations, was suddenly capped at $10,000. This was both a middle finger to high tax states and an effective tax increase for their residents.
A California couple who owns their own home, pay $10,000 in property tax and who have $150,000 of taxable state income suffer state and local taxation of about $17,000. Yet only $10,000 of this can be deducted for Federal tax purposes under the 2017 legislation. Republicans from highly tax states like New York and California have been fighting tooth and nail to raise the allowable SALT deduction cap or remove it altogether. Expansion of this deduction would be a boost in spendable income for many of my clients. It is a major point of contention in the proposed new budget.
Tariff Threat
Throughout President Trump’s second term, tariffs have been threated, delayed, modified and batted around in such a way as to prevent many businesses from moving forward with capital investments. At this moment, it’s difficult to gauge what tariffs might do to economic activity both here and abroad.
Now that neither political party cares about being able to pay off the Federal debt, international and domestic investors are quietly shifting some holdings to debt from foreign borrowers. This shift has not become a crisis as yet, but some attribute this shift to the sharp weakening of the US dollar, a drop of over 10% so far this year.[3]
Source: FT.com
It is chilling to note that annual interest payments on our national debt now exceed our annual defense budget.[4]
Gold-offsetting US Dollar weakness
According to a quarter end report in Barrons, Gold futures had their best first half since 1979, with a gain of 25.2%.
Most clients have been allocated a position in gold either via direct ownership of the ETF with symbol GLD (SPDR Gold) or through ownership of the First Eagle funds where some 15% of the portfolio is in gold. There appear to be multiple reasons why gold may now be in a secular bull market. Central bank purchases have accelerated, retail buying is following the trend, and a ballooning US Federal deficit is again raising questions in the mind of certain investors as to the wisdom of holding too many dollar-denominated assets. Finally, inflation continues to stalk the buying power of paper dollars (and most other currencies as well).
Traditional “Gold Bugs” have for generations warned that unrestrained issuance of “fiat” currency, paper with no real backing, is a sucker’s bet and that paper money (or electronic entries measured by a currency) will continually lose buying power to inflation. The Federal Reserve is tasked with controlling inflation and was created as an independent bank to avoid politicization that may lead to permissive debasement of the currency.
Now, an aggressive chief executive in the White House openly attacks the Chairman of the Federal Reserve, and the Judicial branch when he is unhappy. This strikes at the foundation of “checks and balances” that has allowed the USA to flourish for the past 250 years. It has shaken confidence in the stability of the USA as a place where the rule of law and property rights are respected. As much as anything, gold, once touted as an inflation hedge, is really more of an uncertainty hedge. Further, nervous gold buying can be attributed to the outbreak of war in Europe[5], and a possible expansion of war in the Middle East has accelerated interest in gold.
Economist Ed Yardeni, who I often quote, recently offered his predictive chart of where he believes gold prices could go:
Crypto: Here to Stay?
Cryptocurrencies like Bitcoin offer an alternative to traditional currency and have been viewed as a hedge against fiat government issued money. The earliest crypto currency, Bitcoin was and is created by solving an equation which is rewarded with a bitcoin. As the equations become progressively more complex powerful computers (driven by Nvida chips) were employed to do this “mining”. Early supporters valued crypto’s anonymity, but for my clients, the risks—volatile price swings, scandals, and theft—were too high. Initially, my skepticism stemmed from the lack of regulation and the informal investment process, which required wallets and enabled unreported transactions.
Source: Chatgpt
My reservations were shared by mainstream economists and financiers. Despite this, cryptocurrencies continue to demonstrate resilience and impressive price history. Avenues for investing in crypto have improved – recent Federal legislation passed by the Senate known as Financial Innovation & Technology Act, if passed by the House and signed by the President, will clarify which regulatory agency CFTC or SEC presides over a blockchain based assets.
The government of El Salvador has been accepting crypto for taxes and tourist fees since 2021. The city of Detroit and state of Colorado likewise. Mastercard, Visa and PayPal (PYPL) all accept payment in the form of crypto currencies[6]. At least one publicly traded American corporation, Micro strategies (MSTS) is actually buying up bitcoin using borrowed funds.[7] No less a light than Jamie Dimon of JP Morgan/Chase has expressed a change of heart from earlier dismissal of crypto to acceptance of Bitcoin ETF’s as loan collateral for margin accounts at the firm.
Direct crypto ownership carries serious risks. Direct ownership requires the use of a “wallet” and should the wallet owner lose his/her key to the wallet, or have it stolen, the crypto currency may be stolen. Fans of crypto currencies like Bitcoin and Etherium went from joy to mourning in a matter of three days during the first quarter of this year. Bitcoin achieved an all-time high US dollar value on Valentine’s Day then promptly surrendered about 20% of its value. Some of this was profit taking, but the selling accelerated when it was revealed that those crafty North Koreans managed to invade the wallets of certain holders of Etherium and abscond with USD$1.5Billion of the crypto currency.[8]
Frankly, crypto currency is worth whatever market participants will pay. It has no practical value, although proponents tout its freedom from devaluation of paper currencies today.
Similarly, the price of gold, which most clients own, is, like crypto, subject to market perceptions. Unlike crypto, gold has some industrial and jewelry value but has always been priced primarily by the emotions of investors/speculators.
As a regulated market appears to be developing, I am exploring ways to benefit this asset class.
Artificial Intelligence Boosting Productivity
The Federal Reserve manages inflation, but persistent government borrowing can create upward pressure. Increased production of goods and services, potentially fueled by rapid A.I. adoption across sectors, could help counteract this effect.
A.I. is already driving efficiently, it’s enabling faster analysis in research and being integrated into industries like medicine where day to day operations of clinics and practices are finding time saving uses and where pharmaceutical research promises faster development of healing medicine and automated surgical procedures.
Below is an amazing chart that claims to have estimated time saved for many tasks:
Whether the above estimates are accurate is a question but there is little doubt, from my own experience, that artificial intelligence is going to dramatically increase productivity and efficiency in the US and world economy. It may prove to be as dramatic as the harnessing of electricity or the creation of gasoline and diesel motors.
The AI revolution represents an $800 billion market opportunity over the next decade. This massive potential is driving an “AI arms race” among major tech companies, with billions being invested to capture market share. Microsoft, held by virtually all clients, is an early mover with its $13 billion investment in OpenAI, creator of ChatGPT. Meta is also making significant strides, with 30% of Facebook content and 50% of Instagram content now delivered by AI recommendation engines. The company plans to invest $60-65 billion in AI-related capital expenditures in 2025. A direct beneficiary of this boom is Nvidia corporation (NVDA) which we began buying for clients in early 2024. [9] Earlier this year a scare ran through holders of NVDA when Chinese researchers made the claim that they had developed A.I. that could run on far cheaper chips than those sold by NVDA. This has not so far reduced apparent demand for its most powerful processors, quite the opposite being true.[10]
Current Holdings
As mentioned, money market funds were the largest holding in most client portfolios. Most clients had exposure to common stocks of the “Magnificent 7” tech stocks, but these have contributed a lot of volatility and a mixed return so far this year. Bond and preferred stocks did not move much but continue to generate a nice revenue stream in the form of interest and dividends. I added Verizon (VZ) with a dividend yield of over 6% to many portfolios. We also added or increased our position in the First Eagle Overseas fund, (SGOIX) or First Eagle International (SGIIX) and watched both notch new historic highs.
I hope this review has been helpful and it goes without saying that your questions or comments are always welcomed!
Gary Miller
[1] Stephanie Link, a money manager I follow claims this amounts to some $7TT on the sidelines. Trusted Financial clients were among those holding an unusually large about of “cash.”
[2] Now that both Social Security and Medicare trust funds are sending out more money than they are taking in, this accelerates the size of the Federal deficit
[3] https://www.ft.com/content/75a4acf6-b3fa-4a90-8b4e-4c0724afd407
[4] https://www.msn.com/en-us/money/news/elite-investor-ray-dalio-warns-the-us-may-suffer-a-financial-heart-attack-if-the-debt-problem-isnt-tackled/ar-AA1zPB4F
[5] Recent murders in India administered Kashmir and military retaliation against Pakistan by India also serve to remind that violence can erupt between two populations known to favor gold as a secure holding
[6] https://www.coindesk.com/business/2025/07/01/mastercard-expands-crypto-team-with-two-senior-hires-to-drive-blockchain-initiatives
[7] Crypto leverage: https://www.bloomberg.com/news/articles/2025-06-16/crypto-perps-why-perpetual-futures-us-debut-is-edging-closer-under-trump
[8] https://www.coindesk.com/markets/2025/06/27/cryptos-worst-six-months-yet-north-korea-hacks-lead-to-21b-in-thefts
[9] Many clients do not hold this stock directly but instead it is owned inside a mutual fund or ETF
[10] https://www.marketwatch.com/story/this-common-worry-about-nvidia-is-laughable-morgan-stanley-says-174a091a
