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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"Why Bear Markets Are Real Estate Buy Signals"

 Bear Markets Are Real Estate Buy Signals

Stocks. Bonds. Real Estate. Gold. Commodities. Crypto. These are all “asset classes,” each considered by investors to be a Store of Value. But here's a truth seasoned investors understand: in every market cycle, money flows to what’s working.

Think of asset classes like an orange. There’s only so much juice inside—12 ounces, let’s say. And investors must decide how to divide that juice into glasses:

• Appreciation

• Income

• Liquidity

• Safety

• Tax Advantages

Choose stocks, for instance, and you’ll pour heavily into appreciation and liquidity. But you’ll likely sacrifice safety and predictable income—especially in a downturn. Want 100% safety? You’ll give up appreciation. Every investor has to make tradeoffs.

From Tulip Mania to Tech Meltdowns

The past decade’s bull market—much like others over the past 50 years—has been fueled by growth stocks: technology, energy, biotech. Each sector has taken its turn leading the market. Today, AI led the charge. And now, AI is leading the retreat.

Is it tariffs? Economic uncertainty? Overvaluation? It doesn’t matter. Stocks don’t grow to the sky. Trees don’t either. Eventually, investors panic, selling triggers more selling, and we officially enter…
The Bear Market.
The Recession Headlines.

And then? Investors seek shelter.
They rediscover real estate.

The Shift Begins

Stock options get exercised and liquidated.
Cash piles up.
Short-term interest rates soften slightly.
And then, residential real estate gets bought—fast.

Look at Silicon Valley today:

Los Altos

• 501 Cherry Ave: Listed $7.498M → Sold $9.017M

• 1235 Portland Ave: Listed $5.998M → Sold $6.2M

• 93 Sunkist Ln: Listed $4.3M → Sold $5.71M

Redwood City

• 1733 Kentucky St (Woodside Plaza): Listed $2.725M → Sold $3.175M

• 503 Iris St (Mt. Carmel): Listed $2.75M → Sold $3.01M

• 956 Stony Hill Rd: Listed $1.995M → Sold $2.415M

All in the last 18 days.

Panic in one asset class leads to a “pop” in another. In this case, homes—especially in places like Silicon Valley—serve as both shelter and store of value. They’re tangible. You live in them. You care for them. They offer tax advantages. They provide comfort, equity, and emotional security.

That’s four out of five glasses from our orange juice metaphor.

What Happens Next?

Eventually, investors sitting on cash get tired of waiting.
Rates begin to fall.
The stock market remains volatile.
Even crypto stumbles.

The search for income, stability, and appreciation brings up a new conversation—one about Commercial Real Estate.

It happens casually: a friend at golf, a coworker at lunch, a neighbor at dinner tells you about their investments:

• An apartment complex

• A car wash

• A dental office

• A gas station

And they’re not just holding. They’re collecting monthly cash flow, writing off depreciation, and watching values rise.

Suddenly, you realize…

You’re still holding NVIDIA or AMD, hoping to break even.

Maybe it’s time to stop waiting.
Maybe it’s time to look at Commercial Real Estate.

Because the professionals are already doing it—today.

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MAN PLANS & GOD LAUGHS

When Chaos Hits, Real Estate Shines

There’s an old saying that comes to mind when markets unravel: “In chaos, money finds clarity.”
That’s one reason real estate investors sleep well at night.

Money flows to the best-performing asset. Yet ironically, the average investor rarely diversifies effectively to shield against volatility and loss.

Think of an asset like an orange. It has rind, pulp, and juice—each part serving a distinct purpose. Similarly, an asset may offer capital gains, income, security, or liquidity. A true asset is simply anything that acts as a store of value—be it stocks, bonds, precious metals, commodities, real estate, or even crypto.

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Stocks Have Been On a Rollercoaster

The S&P 500 began its run in December 2019, peaked in September 2021, dipped to a low in June 2022, rose again to a new high in September 2024—and now, we’re seeing another decline. Investors have had their faith tested, especially in the last few weeks.

Still, the mantra persists: “It always comes back.”
But does it?

Look back over 50 years: The Dow Jones hit 1,000 in 1970, dropped below 500 during the 1973–74 recession, and didn't break out decisively until 1983. The beloved Nifty Fifty saw dramatic falls. Many companies vanished. The Dow 30 lineup changed. And the word “recession” sent shivers down Wall Street.

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Real Estate: The Steady Performer

Meanwhile, real estate investors collected rent, added properties to their portfolios, and continued building wealth—especially those who avoided over-leveraging. Even during real estate “crises,” the conservatively-positioned prospered and acquired more assets at discounted prices.

Today is no different.

Wall Street is calling it a bear market. Analysts and hedge funds whisper “recession.” Banks are cautious. But real estate? It remains active.

Commercial leases continue. Financing is still available—typically 6% to 6.75% with 30% down. Residential homes are still drawing multiple bids in hot markets.

Stock market chaos often leads investors to rebalance portfolios.
Options are exercised. Shares are sold. Larger homes are purchased.
Institutional players adjust allocations. Everyone leans more conservative when plans go sideways.

And somewhere, God is laughing.

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Real Estate Remains Your Real Asset.

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Being Played: The Old Art of Negotiation

 

Being Played: The Old Art of Negotiation

“Being played” is an age-old art in negotiation. In real estate, it’s practically a script.

Agents use it to stir urgency and manipulate emotion:

• “We have multiple offers coming in.”
• “It looks like offers are over list.”
• “Get your offer in by noon today.”

This is the classic playbook of listing agents trying to push buyers into action. Meanwhile, behind the scenes, more inventory is coming to market, list prices are being discounted, and many buyers are balking at inflated valuations.

The goal is simple: trap the opposing party into overcommitting. That’s what it means to get played.

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Now Playing: Real Estate Tactics in International Relations

It appears that the real estate investor in the White House is applying his own version of this art—on the world stage.

There were rumors that Putin preferred Biden in the last election, viewing him as predictable. Not so with Trump. The current administration’s unpredictability seems to have caught many off guard.

Despite heavy rhetoric around tariffs, only China faces active penalties. Tariffs on Canada and Mexico have been repeatedly postponed to April 2, 2025. In response, both countries have made significant concessions—closing borders and in Mexico’s case, extraditing drug lords to the U.S.

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Europe Arms Up, Markets Adjust

Meanwhile, Europe has expanded its defense spending by over €1 trillion, a significant geopolitical development.

Back at home, the stock market correction in high tech has been swift and deep. Even the Federal Reserve has stated that employment will be another deciding factor for rate cuts. The Fed has signaled two cuts this year, not through formal announcements—but through verbal cues from what some now call "the Realtor in Charge."

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Real Estate Market: Shrugging Off the Noise

Despite media noise about tariffs and spending cuts, the real estate market is holding steady.

The bond market continues to price in rate cuts by mid-year. The yield curve no longer signals a recession, and investor confidence is returning—especially in multi-family housing and office buildings.

Bank of America recently declared, “Growth is better than people think.” Meanwhile, Hudson Bay Company quietly acquired Neiman Marcus’ flagship store in Union Square, signaling strong investor interest in prime retail.

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Commercial Office: Comeback in Progress

New York’s office sector is showing early signs of revival. Demand from the tech sector has resulted in a staggering 86% increase in tenant space over the past year.

The Commercial Mortgage-Backed Securities (CMBS) market is also reviving. The latest offering includes 38% office-backed loans—a figure unheard of just a year ago.

Out West, San Francisco’s Transamerica Pyramid landed its largest lease since 2020:

• 123,000 square feet to global law firm Morgan Lewis,
• Spanning seven floors,
• Signed at a premium rate—clear evidence of resurgence in confidence.

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Multi-Family Housing: The Market Star

No sector showcases the real estate rebound better than multi-family housing.

In Q1 2025, San Francisco and San Mateo County posted strong demand and rising absorption rates. Over the last four quarters, net absorption exceeded 2023 levels, culminating in 2,800 units absorbed in 2024.

Submarkets like Redwood City and downtown San Mateo led the way, with Mission Bay close behind.

What’s driving this?

• Improved public safety and reduced homelessness,
• A visible crackdown on drug activity and crime,
• A renewed sense of urban livability.

The result? Businesses, workers, tourists, and residents are returning—especially in San Francisco, where the booming AI sector is fueling capital investment, job growth, and new leasing activity.

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Looking Ahead: Rent Growth and Appreciation Potential

Population growth is back. The economy is stabilizing. And yet, Bay Area rent growth of 1.6% still trails the national average of 3.1%—creating a strong opportunity for future upside.

Add to that the Fed’s projected rate cuts, and you have the recipe for:

• Lower mortgage rates,
• Reduced ownership costs,
• Increased investor demand,
• Higher rental income potential.

While media chatter warns of recession and markets swing, smart investors are shifting capital into multi-family.

With limited new development and tight supply, the fundamentals point to strong long-term returns.

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Institutional Money Returns

We’re also seeing the return of institutional buyers—a clear market signal.

While large trophy assets are grabbing headlines, most transactions are happening in the 6–12 unit range.

• Current cap rates: ~5.6%
• Compared to 4.1% during the 2020–2022 boom

That means higher returns for new investors—and a correction in values that has created more realistic buying conditions.

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In Closing: The Bay Area Advantage

The San Francisco Bay Area continues to be a global leader in innovation, investment, and technology. It’s home to the world’s fastest-growing companies and the highest household income growth in the nation.

Increased investment in AI over the past year has likely planted the seeds for the Bay Area’s next growth cycle.

This will lift not only the office sector but also residential, retail, and multi-family—making the next few quarters crucial for savvy investors.

Chaos, Opportunity, and the Real Estate Market in Transition

 

Chaos, Opportunity, and the Real Estate Market in Transition

Change Brings Chaos—And Opportunity

A change in management always creates chaos. New managers, new teams, and new management styles disrupt existing systems, affecting staff, clients, and customers. The same holds true for political administrations.

The Trump administration is not just another management change—it has the backing of the electorate. This shift brings both uncertainty and opportunities across various economic sectors.

Stock Market Reflects the Chaos

The stock market, a mirror of economic confidence, is responding with heightened volatility. When uncertainty looms, investors reevaluate their portfolios, leading to market fluctuations.

Among major asset classes, real estate remains a cornerstone of the American portfolio, from residential homes to commercial investments. However, current market conditions highlight the uncertainty in valuations, demand, and financing.

The Federal Reserve: Leaders or Followers?

Historically, the Federal Reserve provided stability and confidence to financial markets. However, today’s interest rate policy appears to be dictated by market forces rather than proactive decision-making. The Fed Governors have become followers, not leaders.

Instead, the bond market has taken the lead:

• 2-year Treasury yield: 4.00%
• 1-year Treasury yield: 4.06%
• 6-month Treasury yield: 4.25%
• 30-day Treasury yield: 4.30%

Bond market futures now anticipate three rate cuts by the end of the year.

Why Is There Optimism?

Despite market turmoil, several factors contribute to investor optimism:

• Lower borrowing by the U.S. Treasury
• Progress toward a balanced budget
• Continued economic activity

Residential Real Estate: A Market in Transition

The residential real estate market is seeing selective increases in inventory. Mortgage rates are declining, yet demand for housing remains subdued.

Notably, the luxury market is seeing an uptick in lease-option-to-buy contracts, as reported by the Wall Street Journal.

• Homebuyers are opting to rent, waiting for affordability to return.
• The rental market is booming—properties disappear almost as soon as they hit the market.
• Multi-family properties are seeing increased interest, with cap rates dropping and prices rising.

Commercial Real Estate: Shifting Investment Strategies

Investors are offloading Triple Net Lease (NNN) properties, including:

• CVS
• Walgreens
• Bank of America
• Rite Aid
• Small shopping centers
• Office buildings

Companies are closing underperforming locations as part of cost-cutting initiatives. For example, Joann has listed 800 leases for sale.

Chaos Creates Opportunity

For savvy investors, chaos breeds opportunity. Understanding the market’s shifts allows strategic decision-making.

• Residential real estate revolves around affordability.
• Commercial real estate depends on two key questions:
  1. Will the tenant continue to pay the lease?
  2. Will the property remain occupied?

Government Shakeups Affecting Real Estate

Federal staff reductions and property sales add another layer of complexity:

• 400 government properties are now up for sale.
• Office lease terminations under the Trump administration have already affected $1.43 billion in commercial mortgage-backed securities (CMBS) tied to 20 properties.

A Silver Lining: Office Market Stabilization

A positive sign amid the chaos: Government and corporate employees are returning to offices. This shift has led to stabilization in the office sector, sparking renewed investment interest.

While still in its early stages, demand for office properties is beginning to rise.

Investors Must Be Strategic

Before making investment decisions, investors should:

• Evaluate each property’s vacancy factor.
• Assess the potential for rent increases.
• Analyze the stability of tenants and lease agreements.

In major U.S. cities, net absorption rates are turning positive. Even Silicon Valley is slowly recovering, with offices reopening and commuter buses returning—though still below pre-pandemic levels.

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New California Real Estate Laws for 2025

California continues to roll out new laws impacting landlords and renters. Here’s a summary of key changes:

1. Rent Reporting (AB 2747)

• Landlords must offer tenants the option to report positive rental payments to credit bureaus.
• This applies to all new leases after April 1, 2025 and existing leases by April 1, 2025.
• Exemptions: Buildings with 15 or fewer units, unless corporately owned.
• Tenants opting in may be charged a fee up to $10/month.

2. Security Deposit & Fee Restrictions (SB 611)

• Tenants cannot be charged fees for rent payments by check or for certain notices like lease termination.
• Military servicemembers with extra security deposit charges for poor credit must be refunded within six months.

3. Security Deposits & Move-Out Deductions (AB 2801)

• Landlords must take photographic records of the unit before move-in and after move-out.
• Deposit deductions can only cover actual damages (not regular cleaning services).

4. Rent Caps for Affordable Housing (AB 846)

• Rent increases for state-subsidized housing are now capped at 5% plus CPI or 10%—whichever is lower.
• Goes into effect June 2025.

5. Domestic Violence Protections (SB 1051)

• Tenants can request lock changes for themselves, family, or household members affected by domestic violence.
• Landlords must pay for and complete lock changes within 24 hours or reimburse tenants who change them.

6. Eviction Process Changes (AB 2347)

• Tenants now have 10 days (up from 5) to respond to an eviction filing.
• Supporters say this helps prevent “default evictions” due to missed deadlines.
• Critics argue longer litigation times could increase tenant debt.

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Market Trends: What’s Next?

California’s single-family rental market continues to decline as landlords shift toward commercial properties.
Meanwhile, fix-and-flip investors are aggressively searching for distressed properties to capitalize on market shifts.

The Light at the End of the Tunnel

Despite uncertainty, economic activity is stabilizing, and the Federal Reserve may step in sooner than expected.

Current market expectations:

• The Fed is expected to cut interest rates by 25 basis points in March 2025.
• However, rising inflation risks from new tariffs and extended tax cuts could introduce stagflation concerns.

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Final Thoughts: Navigating the Chaos

Real estate investors must stay informed, strategic, and patient.

• Residential markets will continue shifting based on affordability.
• Commercial markets will see office sector stabilization and retail property challenges.
• The bond market, not the Fed, is now the true economic leader.

Those who study, plan, and adapt will thrive in this environment.

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What’s Next for You?

If you’re looking to navigate the changing real estate landscape, now is the time to act strategically.
Whether you’re a buyer, seller, or investor, opportunities are emerging from the chaos.