September 2025 Quarterly Report

Following the equity market volatility of the first half of 2025, investors saw a calmer third quarter that rewarded those who stayed invested. Spooked by the mini Crash of April, I’ve maintained a relatively high allocation to money market funds. While we seem to be on track for a typical year’s return in the 7% range, anything could change between now and December 31.

Investors have been paying close attention to the Federal Reserve, which, after much anticipation, delivered its long anticipated rate cut of 0.25% at its September meeting. Additional cuts remain possible, though Fed officials will continue to monitor key data points on inflation (which has steadied but remains above target) and employment (which presents a mixed picture, with low unemployment but slowing job growth).

The third quarter also saw passage of the “One Big Beautiful Bill Act” (OBBBA), which brought greater clarity to the tax landscape for 2025 and beyond. For California clients and those in high tax states, the Bill expanded the cap on State and Local Tax (SALT) deductions from $10,000 to $40,000- good news for those who itemize on their tax return. The law is projected to add $3.4 trillion to the deficit over the next decade and underscores that there is no political party serious about approaching a balanced Federal budget. This likely explains, in part, a renewed popularity for gold and other precious metals.

While the S&P 500 has reached record highs and is up 14% so far this year and while corporate earnings continue to exceed expectations, the underlying landscape remains complex, with tech stock-driven concentration risk and persistent fiscal and political concerns.

Standard & Poor’s 500

Source: Seeking Alpha September 30, 2025

Financial markets continue to hold interest for me, because they are, in the short run, so unpredictable. After 50 plus years of participation and observation here is my perspective on the economy:

My career began in early 1974, right after the tumultuous exit of Richard Nixon and a time of soaring inflation, labor unrest, and exposure of America’s vulnerability to Middle Eastern oil producing nations. Twice, between 1973 and 1978 we found ourselves waiting in line to buy gasoline which left me favorably disposed to owning energy related companies. An awareness of this thing called “inflation” left its mark on me as well. For a young couple moving to California in 1977, exorbitant real estate prices and sky high interest rates made home ownership seem an impossible dream.

There were two key economic events that held enormous implications for America’s financial future: first the appointment of Paul Volcker as Chair of the Federal Reserve Board.  President Carter reached for a qualified person, not a political yes man. He wanted someone to slay the inflation dragon which had been robbing people of their buying power for years. He therefore appointed a “monetarist.”  Under Volcker’s leadership the Fed took the highly unpopular step of cranking interest rates to unheard of levels in order to stop high inflation from getting even higher.  Most folks over age 70 can recall mortgages at 12% or higher in the early 1980’s.  The Fed has been pretty diligent in squashing inflationary impulses since then and as a result inflation has generally been moderate since the Volcker days.

President Carter, often maligned as an ineffective Chief Executive, also oversaw the deregulation of key industries like rail, trucking and airlines. Cheaper transportation costs helped control inflation and accelerate the US’s GDP. The deregulation trend continued into the Reagan years, with looser banking regulation and efforts to negotiate lower global trade barriers.

The next most impactful change was the election of Ronald Reagan and a Republican Congress who radically lowered personal income taxes and corporate taxes. By allowing investors to keep more of their profits, greater risk taking and entrepreneurship flourished. I believe this set the stage for the United States to become a global leader in revolutionary technologies, something that continues to this day.

The fall of many global trade barriers raised living standards throughout the world, and the United States consumer has enjoyed cheap imports for decades. Dismantling trade barriers is based on the Ricardian notion that each nation has a  “comparative advantage” due to geography, climate, political system and work ethic. Low labor costs are a key advantage which is why unskilled and manual labor moved out of the ‘States and to Mexico and Asia. Comparative Advantage means that if clothing can be produced more cheaply in mainland China than it can in South Carolina, clothing companies worldwide will begin to source from China. This change gave consumers cheaper shoes, skirts and jackets, while decimating fabric and clothing manufacture in the United States. Same for furniture, consumer electronics and for automobiles. While cheaper consumer goods were a blessing for many Americans (and helped reduce inflation) these came at the cost of good paying blue collar jobs.

Labor was and remains comparatively expensive in the United States especially back in the ‘70’s where the labor union movement was strong and well supported, especially by Democrats. Ronald Reagan was no friend of the labor union movement and demonstrated his disdain for unions when the PATCO (air traffic controllers) strike led him to fire a large number of strikers. The Reagan Revolution did nothing to discourage companies from moving production overseas, where people worked for a fraction of the wages as American workers. Then there were environmental laws. The cost of environmental regulation on American industry drove much production to less fastidious regions of the globe. Californians who recall the “catch” in their lungs from smog have benefited from environmental regulation, but many industries can no longer operate profitably in the USA.  We have become a powerhouse in soft industries related to technology and today about 65% of US GDP comes from services, not physical production of goods.

Today, I believe we are seeing change that is as meaningful for the future as was the Reagan Revolution.  The current President and his team seek to bring jobs back to America, an idea that is popular with underemployed young men in the Rust Belt who likely gave him a second term.  Trump seeks to impose his will on private industry, often with the goal of reshoring industries and bringing critical industries, like semiconductor manufacture onshore.  Many agree with the President’s view that the United States has surrendered too much of its industrial production to foreign nations. But the idea of returning to the days when legions of factory workers found gainful employment at home is doubtful. Robots now largely produce physical products. In the 1950’s, it required about 189 workers to produce 1000 vehicles in a year. Today that figure is down to around 100 workers. The injection of artificial intelligence into current production methods is likely to further shrink the need for human employees in autos and other manufacturing.[1]

While creating good jobs at home is a noble challenge, another one is already weighing on the American worker: white collar “knowledge” workers face the threat of job loss to AI. Jobs in finance, law and retail will be impacted. Some suggest that the current shrinkage of new job openings shows that AI is already disrupting prospects for younger workers.

To repeat: I believe we have entered a new age that makes financial analysis more challenging.

A reinvigorated Trump administration is rapidly putting its imprint on the economy:

• There has been a broad assertion of executive power over all regulatory agencies, with the exception of the Federal Reserve (see comment below). Effectively, no Federal agency can issue a regulation of interpretation of existing law without first running it by the White House.[2]
• Direct investment in certain private corporations:

–  Intel
In August 2025, the U.S. government agreed to acquire a ~10% stake in Intel, converting roughly $8.9 billion in support and grant commitments into common stock.

– MP Materials (rare earths miner)
The Department of Defense has invested $400 million in company issued preferred stock, making it a significant shareholder in MP Materials — a company operating the Mountain Pass rare-earth mine in California. This move is part of a broader push to secure critical mineral supply chains.

– Lithium Americas / Thacker Pass Project
In late September 2025, it was reported that the U.S. Department of Energy will acquire a 5% equity stake in Lithium Americas, and in its joint venture with General Motors related to the Thacker Pass lithium mine in Nevada. This is to support a ~$2.26 billion federal loan and to align incentives for domestic lithium production.

– U.S. Steel (via “golden share”)
In June 2025, in the course of U.S. Steel’s acquisition by Nippon Steel, the U.S. government secured a “golden share” mechanism whereby the President has appointive rights to one of three board members and veto power over certain decisions. While not full ownership, this grants the government considerable say over business operations.

• Similarly, the administration imposed a special export tax of 15% on Nvidia chips sold to Chinese buyers.
• As the quarter ended President Trump was telling Microsoft Corporation to fire Lisa Monaco, recently appointed head of Global Affairs, who, while serving in the Biden administration, was part of an investigation into the attempt to stop the certification of Joe Biden’s election on January 6, 2021.

The actions of the current administration are reminiscent of the the early days of Franklin Delano Roosevelt. Some conservatives are gobsmacked. On October 1, 2025 the Wall Street Journal, hardly a bastion of liberal thought, led with the headline “Trump Keeps Blurring the Line Between Capitalism and Socialism”[3].  Reason magazine, a prominent Libertarian voice offered a scathing editorial noting an uncomfortable alignment between recent Administration actions and advocacy by none other than Bernie Sanders, an avowed socialist: “Trump’s plan is just as foolish as Sanders’, but the president has done a remarkable job of getting Republicans to ignore the socialist impulses that have crept into conservative politics.” Reason’s Joe Lancaster put it this way last week, “an enormous overreach of presidential authority, completely ignoring any considerations about the proper role of government.”[4]

All this seems pretty negative for stocks – Wall Street does not appreciate regulatory instability, nor heavy handed governments. Yet the broad US equity indexes are doing quite well after first faltering in the Spring.

Year to Date and Quarter Activity

There is no clear picture of how good, bad or neutral the economy will be over the next year or two. This moment has the feeling of abnormally high unpredictability to me. As a result, I intend to maintain a healthy allocation to fixed income or high dividend securities.

Here is a sample of performance for some of your larger holdings:

Apple (AAPL) has had a rollercoaster year so far. Disparaged by those who expected a cogent AI offering that has never come, beset by political pressure from both Beijing and Washington, the stock price sagged over 30% earlier this year. It seems to have been rescued by two events: first, a favorable court ruling that removed the threat of lost of income from Google (GOOG) relieved investors as GOOG pays Apple about $20BB/year for featuring the Google navigation app on its phone. Second, there is high demand for the new iPhone 17.  With an installed base of some 1.2-1.5 billion aging iPhones, the demand from core Apple owners (pun intended) bodes well for profitability. I’ve held onto the shares through the big sell off for most clients because of the intense loyalty of Apple customers and because the company regularly retires stock and has plenty of cash firepower to support the share price, if they wish to.  Still, if the recent recovery in the stock fails to achieve new highs, I will consider lightening up.

GOLD continues to glitter for us. For certain clients we added to or initiated a position in SPDR Gold (GLD).

This represents an ownership interest in physical gold and has been one of the most successful trades of the year.  Unprecedented pressure on the Federal Reserve to lower interest rates has reduced confidence in the US dollar by international investors. Some believe an independent Fed is the last defense against runaway inflation. So, gold is seen as a traditional refuge.  Interestingly, there are those who tout cryptocurrencies as the newer, better hedge against a weakening currency, who dismiss gold ownership as archaic. In the current environment, they have been proven wrong, at least so far.

Chart weakness in Costco (COST) motivated me to reduce that holding for most clients. It’s probably safe to say we all love Costco, but at a nosebleed price earnings ratio near 50 times earnings, with a very small dividend payout (.56%) and with the chart slowing rolling over,  I reduced the position by about 1/3. Every client booked a profit on the transaction, so go treat yourselves to a $1.50 hot dog and drink! I’m not sure why the stock is struggling but suspect it may simply be that Costco has generated so much profit in the past few years, holders are taking some money off the table.

Bonds, Preferred Stock and Fixed Income. As it appears we’ve entered a period in which the Federal Reserve will be further lowering interest rates, I plan on bulking up on bonds and preferreds. As rates fall, the price of fixed income securities rises.  I’d rather be ahead of the move.

Owning Banks Again

Based on a bank friendly Administration and the prospect for falling interest rates, I added positions in the banking industry, a group that has fought for profitability ever since higher capital requirements were imposed following the implosion from the Great Financial Crisis. For some clients it was an outright purchase of JP Morgan/Chase (JPM) for others, Invesco Bank ETF (KBWB) a fund holding the top money center banks in the United States.  Mike Mayo, a banking analyst I’ve followed for over fifteen years, is very bullish. Mayo has credibility.  He gained a reputation as a courageous analyst for challenging overly optimistic bank industry projections and issuing early warnings in the months leading up to the Bank Collapse of 2008.[5] At this time Mayo recommends owning large banks as their balance sheets are healthy. Mayo notes a more friendly Federal regulatory environment is a positive. Further, as interest rates fall, banks often earn a widened spread between what they pay depositors and what they charge borrowers. As the so-called “net interest margin” rises, so does the appeal of banks.

To summarize, the US economy and equity markets appear to have the wind at their back. This, despite a bewildering volume of government initiatives that have imposed an additional layer of risk. But what could go wrong? The first thing that comes to mind is an international incident, and one can think of any number of places this might happen, especially in Europe. The second is a bank failure possibly based on defaults on commercial real estate or criminal crypto activity. As stated the big banks appear to have provisioned well against surprise losses, but it is certainly possible that another Silicon Valley bank – type surprise (early 2023) may pop up.

Whatever negatives may arise, I feel your portfolio is well balanced with safe and low volatility holdings that can cushion any shocks that might come and allow you to sleep at night. As stated, goal is to earn a nice return above the rate of inflation, and to deliver this in a tax efficient manner and with low volatility.

Many thanks for allowing me to provide service to you!

Sincerely,

Gary E Miller, CFP

[1] Sources: 1953 study by the U.S. Dept of Labor; Autoworkers and Their Industry, July 2023, MotorCities.org

[2] https://www.brookings.edu/articles/tracking-regulatory-changes-in-the-second-trump-administration/

[3] https://www.wsj.com/economy/trump-keeps-blurring-the-line-between-capitalism-and-socialism-0772d695

[4] https://reason.com/2025/08/19/trumps-plans-for-intel-take-a-page-from-bernie-sanders-playbook/

[5] Mayo chronicled the abuse he experienced at the hands of big bank CEO’s in his book Exile on Wall Street (Wiley 2011).