U.S. Treasury Posts a Historic Surplus

 

With $258 Billion in the Black, U.S. Treasury Posts Historic Surplus

Experts Say It May Signal Brighter Days Ahead

As I read the often dismal analysis in the media, I was reminded of a quote from the Friday, May 23, 2025 edition of The Wall Street Journal, Opinion Section (page A13):

“Making predictions is hard to do, especially about the future.”
—Supposedly from Yogi Berra

Despite the media’s gloom, a striking report caught my eye—shared by The Economic Times (India) via Yahoo News—stating that the U.S. government posted the second-highest monthly budget surplus in history, recording a $258.4 billion surplus in April 2025. This trails only April 2022’s surplus of $308.2 billion.

Key Drivers of the Surplus

This marked the first monthly surplus of fiscal year 2025 (which began in October 2024), largely attributed to an influx of individual tax payments, as April is the deadline for filing final taxes and the first quarterly estimated payments for many individuals and businesses.

Additionally, customs duties—boosted by President Trump’s tariffs—contributed $15.6 billion, more than double April 2024’s $6.3 billion. While still a modest slice of the total, it’s a noteworthy increase.

While it’s too early to predict consistent surpluses or long-term fiscal balance, this positive development is a welcome change from the negativity dominating U.S. news outlets.

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Treasury Yields Rebound, Yield Curve Steepens

As of late May:

• 30-Year & 20-Year Treasury Yields are back above 5%

• 10-Year Yields exceed 4.5%

• Mortgage Rates have climbed back over 7%

The six-month Treasury yield—often a reliable predictor of near-term rate changes—has ticked up by 20 basis points since early April and now aligns closely with the Effective Federal Funds Rate (EFFR). This uptick reflects the Fed’s continued "wait-and-see" approach, echoed by Federal Reserve officials in recent commentary.

A Closer Look at the Yield Curve

On May 23, 2025, the yield curve revealed a steepening at the long end, while the previous sag in the middle (between the 6-month and 7-year yields) has flattened:

• Long-term yields (7 to 30 years) are now above short-term yields, effectively reversing the previous inversion.

• This normalization—or “re-un-inversion,” as some traders call it—suggests increasing confidence in longer-term economic growth.

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A Recession? Not So Fast.

To me, this is not a signal of an impending recession. In fact, bond traders and the bond market are often better indicators of economic direction than the sensationalist headlines of mainstream media. Bad news simply sells better.

We're still far from any reliable long-term forecasts, but Treasury Secretary Besset’s cautious and deliberate approach appears to be yielding results. His philosophy of “slow and steady” economic management aims to stabilize the U.S. economy while gradually improving budget surpluses and reducing deficits—something that appeals to both Wall Street and Main Street.

The Case for Lower Interest Rates

As the U.S. pushes for increased domestic manufacturing, lower interest rates are essential:

1. Lower federal borrowing costs—reducing the inflationary pressure of growing interest payments on national debt.

2. Lower financing costs for manufacturers—helping control the cost of goods sold, as manufacturing costs are embedded in all consumer products.

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THE ART OF A DEAL... NO RECESSION FORECASTED?

When Donald Trump first jumped into the political scene, I bought his book The Art of the Deal on my Kindle. I found it interesting reading—even if I had jaded opinions about who Donald Trump was and his real estate background. I go back to it from time to time for a better idea of how the man operates. As I read his exploits, I find him a rather fair fellow compared to some real estate investors and builders I’ve known.

Watching his public actions over the years, it’s clear that his comments are part of a lifelong pattern of deal-making. Unfortunately, his critics and the media seem more focused on attacking him than understanding how he operates. But that’s politics—something I know all too well.

As in most investments, I’ve often said: wait—don’t make knee-jerk decisions based on current events. Long-term results rarely reward short-term reactions.

During the Trump presidency, I advised long-term investors to build cash and reallocate capital into real estate—not back into the stock market. That advice was later validated by a Wall Street Journal article analyzing investor performance from “Liberation Day” (the announcement of tariffs) through the various resolution periods. Investors who panicked and sold lost out.

We’re in an Adjustment Phase

This realignment of capital has historical precedent. We are entering a phase where the U.S. government will exert less influence over economic direction. Agencies like the DOGE (Department of Government Efficiency) have made strides in reviewing—and eliminating—wasteful spending. A recent 60 Minutes segment revealed how rogue foreign entities have infiltrated government programs, resulting in trillions of U.S. taxpayer dollars lost overseas.

As analysts and media jumped to conclusions based on fragmented data, the markets reacted wildly. But let’s look at some facts:

• As of May 13, 2025, U.S. inflation dropped to 2.3%, the lowest since February 2021.

• That figure was below estimates and contradicted fears that tariffs would spark stagflation.

What is Stagflation?

Stagflation combines inflation with economic stagnation. But current forecasts of a recession are declining. In fact, Wall Street banks are now projecting positive growth—not two quarters of contraction, which define a recession.

Investors Crave Stability

Investors prefer steady, predictable growth. This economic backdrop encourages conservative investors to trim risky positions and focus on long-term, income-generating assets.

The Federal Reserve, faced with mixed signals, appears to be holding interest rates steady—“sitting on their hands,” as has often been the case since the 1970s. The Fed rarely leads; it follows. Until there is executive action to reshape its economic philosophy, we’re unlikely to see bold changes.

Meanwhile, real estate investors are positioned to profit.

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Why Real Estate Shines Now

The reduced likelihood of a recession is the most promising sign for real estate allocation—especially for Triple Net (NNN) Leases.

In a downturn, businesses may close, leases terminate, and owners are left with expenses and no income. But in a stable economy, NNN tenants pay rent plus property taxes, insurance, and maintenance. That leaves the owner with a true net return.

But Choose Carefully

Not all NNN assets are created equal. Some sectors, such as bank branches and pharmacy locations, are under liquidation pressure due to corporate restructuring. This opens opportunities for investors—but also requires diligence. You don’t need inside corporate intel to recognize a bargain, but you do need solid underwriting.

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Time to Pull Risk Chips Off the Table and Wait for New Dealer

When the Dealer is Hot, You Leave the Table

Today’s Stock Market Feels the Same

If you’ve ever played Blackjack, you know: when the dealer keeps pulling 21, it’s time to pick up your chips and move to another table.
That’s exactly where we are in today’s stock market.

Good news is scarce—and when it does appear, rallies turn into selling opportunities. Investors are asking the critical question:

Where should you move your chips now?

• Gold is selling off.

• Crypto is stuck.

• Neither pays dividends or interest.

• Treasury Bills and Notes offer 4.3% yields (1–3 month maturities).

The Federal Reserve has signaled no immediate rate cuts. Stability is elusive.

Meanwhile, traditional hurdles are growing:

• Mortgage rates remain in the mid-6% range.

• Insurance costs continue to climb.

• Job security is wavering—even government and Silicon Valley jobs are at risk.

Home listings are rising. Cancelled and expired listings are mounting.
Even fix-and-flip investors are getting cautious, bidding low to protect against rising holding costs.

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Where Smart Money is Moving: Multi-Family Real Estate

Today’s investors are aggressively shifting into Commercial Multi-Family Housing—and it’s easy to see why:

• Rental markets are strong: Renting is safer than buying today.

• Demand is accelerating: Last week I identified 14 potential 5–15 unit properties for an investor. By Thursday, only two remained—under contract.

• Stable returns: Multi-family income outperforms Treasuries with upside potential and tax shelter.

Sample Yields:

• Peninsula properties: Net Operating Income (NOI) averages 4.5%.

• San Francisco: NOI ranges between 5.5%–5.8% in desirable neighborhoods.

These yields match or exceed Treasury Bills and offer appreciation upside—something T-Bills simply can’t.

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Why Other Commercial Assets Are Struggling:

• Bank branches, fast food outlets, pharmacies: Increasing closures leave property owners with empty buildings and no cash flow.

• Office buildings: Flooding the market, with many being converted into low-income housing projects.

In contrast, Multi-Family Housing remains a safe harbor for investors.

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The Economic Backdrop is Clear:

• GDP Q1 2025: -0.3% decline (expected +0.4%).

• PCE Inflation: 3.7% (up sharply from 2.4%).

• Jobs Report: 177,000 new jobs vs. 133,000 expected.

A second consecutive negative GDP will confirm a recession.
Inflation pressures make rate cuts unlikely—despite what media chatter may suggest.

Smart investors ignore media noise and focus on fundamentals.

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Summary:

Income-Producing Real Estate is the Safe Option Right Now.

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