Gold Investment, University Endowments, Trade Wars & Home Prices, Converting Pretax, Apple Margins & Stock Drops, Global Recession Fears, US Trade Deal Growth, 2025 US Tourism, Bitcoin & Mag 7

Should you invest in gold for the long term?

Gold has been a great asset to hold over the last year, but I remain a skeptic of investing in gold long term. I personally don’t own any gold nor would I recommend buying gold at this point in time. While the recent gains in the price of gold look attractive, given the fact it is up over 20% so far this year in a difficult market, the long-term results aren’t enticing. There are periods of time where gold has been a strong performer, but trying to guess those periods is extremely difficult.

If we look at January 1980 gold reached $850 per ounce, but the important number here is that the inflation adjusted price was $3,486 per ounce. This means it was not until recently when gold hit $3,500 per ounce, we see an all-time high on an inflation adjusted basis and essentially you made no real gain for over 45 years. At the end of the day gold is just a piece of metal worth only what the next person will pay for it. It has no earnings, no interest, no rents. This makes it extremely difficult to value and given the added expenses for trading and holding gold, it just does not make sense to me. I will continue to invest in good strong businesses at fair prices as I believe that is the best strategy for long term wealth creation. 

Why is the government supporting universities with large endowments?

I’ve never really thought about this before. I have known that some big universities have multibillion dollar endowment funds, but I did not realize that 658 institutions have approximately $874 billion, which is nearly $1trillion in endowment funds. When I dug a little bit deeper, I discovered that in addition to these universities receiving money from the federal government via grants, some pay little or no income tax and also get a waiver on property taxes.

If you’re starting to get a little bit irritated at this point because your hard-working dollars are going to universities like Harvard that has a $53 billion endowment or Yale with a $41 billion endowment, you might be like me and think it’s time that things change. The cost of tuition at Harvard is $57,000 per year and the President makes about $1.3 million a year. The president of San Diego State University has a salary of $531,000 and the cost for one year of tuition is about $8700. I’m sure the students at Harvard do receive a more prestigious education than at San Diego State University, but is it 6 1/2 times better? Do the students who graduate from Harvard make a salary that’s 600% more than a graduate from San Diego State University? I don’t think so. I wondered where money from these endowments goes and basically 48.1% of endowment distributions go to fund student financial aid, 17.7% goes to academic programs and research, 10.8% is used for endowment faculty positions and nearly 17% of the endowment funds are used for other purposes. Wouldn’t it be nice to know what those purposes are?

I think we need to take a hard look at what universities have in their endowment funds, their tax benefits and grants, and let’s have more students here in the United States benefit from those billions of dollars to get a good education as opposed to the fat cats in the Ivy League towers of the universities. One other point I found interesting was the investing philosophy for these endowment funds. The goal is to earn around 8% per year and pay out 4.5% to 5% to fund those various expenses. This should then allow the endowment fund to continue growing.

A big problem is many have not been able to achieve that goal with only 25% of 152 schools that were surveyed being able to meet the 8% return over the last 10 years. The other concern is if they can’t cut expenses if there is a lack of grants, many endowments are not liquid. Harvard for example had 39% in private equity, 32% in hedge funds, 5% in real estate, 3% in real assets, and just 3% in cash. With all this said I really believe this system should be reviewed to better the entire country, rather than just the Ivy League system.

Could the trade wars hurt home prices?

We are starting to see some cracks in the housing market, such as the delinquency rate on FHA mortgages, which cater to the high-risk borrowers who can’t qualify for a conventional mortgage because they either have a small down payment or weak credit. The delinquency rate for FHA currently stands at 11% according to the Mortgage Bankers Association, it has not been at this level for 12 years.

Unfortunately, and we warned against it, but many people have stretched themselves too far financially to get into a home over the last few years. Because it’s only been two or three years since they bought their home, after fees and commissions they may not have much if any equity built up in that home. Another area of weakness that is being seen is with the homebuilders who have really increased their incentives because they have more completed but unsold homes. The builders are getting a little bit worried because they have not seen this many homes sitting on their lots with no buyers since 2009. The average incentives for homebuilders is usually around 5% of the total value of the home, but we are starting to see some incentives around 13% from big builders like Lennar.

The volatility of the 10-year treasury, which mortgages generally trade off of, has not been helpful because it has had a wide trading range lately. This then makes it difficult for homebuyers to lock in a good rate. At this point in time, I think I would be waiting to buy a home until maybe late summer. I think there should be some good deals at that point in time as the tariff war should continue to progress and we should have a clearer picture of the economy by that time.

Financial Planning: Why converting 100% of pretax is bad

Roth conversions can be a powerful tax planning tool, but like any tool, using it the wrong way can do more harm than good. One of the most common mistakes we see is the idea that you should convert all of your pre-tax retirement savings, like a traditional IRA or 401(k), to a Roth account. Everyone loves the idea of a tax-free retirement. When you convert money from a traditional IRA to a Roth IRA, you're moving it from a pre-tax account to a tax-free account, but there’s a price, the converted amount is considered income and you must pay ordinary income tax in the year of the conversion. Once converted funds grow tax-free. The best way to think about money in a pre-tax account is that it is deferred income. It will be taxed, it’s just a matter of when.

When you make contributions to a pre-tax account, you are not receiving a tax deduction, you are deferring income to a future year. When performing a Roth conversion, you are voluntarily deciding to pay tax on that income, even though you don’t have to yet. This only makes sense if you are able to convert at a lower tax rate than you would otherwise be subject to if you did not convert. This most commonly happens between the beginning of retirement, typically in your 60’s, and the beginning of your required distributions at age 75. During that period taxable income is generally lower which means conversions may be done at a lower tax rate than when required distributions begin at 75.

Required distributions can be a problem because if you have too much in pre-tax accounts, your required taxable distributions may push you into a higher tax bracket and trigger IRMAA. Roth conversions help this by shifting funds from pre-tax to tax-free, therefore reducing the level of taxable distributions beginning at 75. However there is an efficient amount that should be converted for every person. Converting 100% of pre-tax funds means you will likely be in a lower tax bracket after the conversions, and will potentially not have any tax liability at all. This doesn’t sound bad, but it means you likely paid too much in tax to convert the funds in the first place.

Again, money in a pre-tax account is deferred income that will be taxed. The goal is to have that income taxed at the lowest rate possible. If you convert too aggressively you may be settling for a higher tax rate on the money coming out and not receive enough tax-free income from the Roth to justify it. Instead, structuring withdrawals and conversions to keep your taxable income consistently low all through retirement will result in a higher level of after-tax income.

History shows Apple stock performs poorly when margins decline.

We all know that Apple is a great company and that the stock has done very well over the past few years; however, history has shown that when the margins get cut, the stock drops and so does the P/E ratio. In 2015 the stock dropped 16% that year as gross margins took a hit and Apple’s forward PE fell more than 30%, which makes sense because why would investors pay up for declining profitability. It was worse in 2013 when the stock dropped by 29% as the annual gross margin fell more than six points due to higher expenses with the new design of that years iPhone.

No matter what Apple does this year, even with the talk of trying to move production to India, it is estimated that the cost to build iPhones will increase by 50%. So far, for some reason Wall Street has not put that declining gross margin into their calculations yet. Maybe they’ve been too busy selling alternative investments and have taken their eye off the price of Apple stock. In our opinion, at Wilsey Asset Management this could be far worse than 2013 or 2015 as far as a margin decline and a stock decline is concerned!

The world is fearful of a recession!

Many countries around the world are preparing for a slowdown in their economy and why is that? It’s because the biggest consumer in the world, the United States, is saying it wants equal and fair trade. The administration is essentially saying if you make our exports more expensive to your consumers, we’ll make your exports to us more expensive for our consumers.

Central banks in countries like India, New Zealand and the Philippines have already cut their rates and I believe more countries will do the same going forward. South Korea announced a multibillion-dollar package of emergency support measures to help support the auto sector, which will likely see a big drop off in car sales as US consumers will not want to pay 25% more for their cars. The peoples bank of China, which controls the Chinese currency, has continued to let their currency decline against the U.S. dollar, which makes their products less expensive for US consumers and our products more expensive for Chinese consumers.

The Bank of England recently delayed selling UK government bonds as they wanted to wait for a better time because of the volatility in the world bond market. With more than 70 countries around the world wanting to talk with the US about making a deal before they see more tariffs in July, countries like Vietnam are talking about buying more liquid natural gas and agricultural products from the US. Other countries seem to be preparing for a slowdown as well with Canada making it easier for their workers to apply for unemployment insurance and Spain recently rolled out a $16 billion aid package.

I continue to remain confident trade deals will start to come through considering the fact that the US is the world’s largest consumer and many other countries don’t want these tariffs to persist as it would be devastating for their economies. 

Trade deals with the US are starting to blossom

It’s only been a couple of weeks since the major tariff announcement but some countries are working with the US to come up with trade that is more balanced. We do believe this process will take months, but it is nice to see some progress. Vietnam said it will buy nearly $300 million in new Boeing jets. Thailand said it will purchase corn feed and Europe said they would boost soybean purchases. South Korea is talking about participating in a $44 billion liquefied natural gas project in Alaska.

The EU, which currently gets about 45% of its LNG from the US talked about boosting the amount they import. They currently get 20% of their LNG from Russia. Wouldn’t it be nice if we took all that business from Russia and we exported to the EU 65% of their LNG. India said its target is to increase their current trade with the US fourfold to $500 billion.

The Prime Minister of Israel has promised to get rid of the countries $7.4 billion trade surplus for goods with the US. It is more difficult for some lower income countries to purchase US goods and they have either promised to not fight back or pledged to remove their own tariffs on US imports. There is still a lot more work to be done and remember some of these trade deals are very complex and could be up to 50 pages long. While there hasn’t been the announcement of a major deal, it is nice to see some progress and we believe we will see things continue to develop over the next few months.

Will US tourism drop in 2025?

Recently Goldman Sachs estimated a possible decline in US tourism would hit GDP by 0.3%. It is not a huge amount of a decline in the GDP at about $90 billion, but it would be nice to see that increase not decrease. What I believe the Goldman Sachs estimate is missing is that the ICE US dollar index has declined close to 10% so far in 2025. One would have to go back 40 years to find such a decline this early in the year. This could actually be a positive for tourism because it makes foreigners currency much stronger, allowing them to buy more here in the United States. This would make travel to the United States more reasonable. This would also be a positive in the cost of our exports and could make them more attractive to other countries.

While it may sound like a negative, the decline in the dollar does come with some benefits. The important part is the decline can’t turn into a freefall as that would be problematic considering our reserve currency status. I don’t believe you will see this happen though since the United States is still one of, if not the strongest economies in the world. I personally will continue to invest in the United States as we go through these difficult few months of uncertainty. I believe we will see much better times going forward that could come by early to late summer. 

Bitcoin is back above $90,000

I always hate writing about Bitcoin and cryptocurrencies, but I do stay up to date on it and it still makes no sense to me. I would still rather have a US dollar backed by the taxing authority of the United States government than Bitcoin that is backed by speculation of hopefully a higher price in the future. For a currency I would like to have a relative stable value not the 3 to 4% daily moves up or down that can occur with Bitcoin. With that said, Bitcoin has risen over the last few days apparently because crypto is pushing deeper into the banking system.

There are crypto firms such as Circle and BitGo that are looking at applying for a US bank charter. They’re looking at a national trust or an industrial bank charter so they could take deposits and make loans. I think this could be a situation to buy the rumor and sell the news because when a crypto firm obtains a bank charter, they would then be subject to far stricter rules and regulations. This could expose many concerns in the future. It was only just a few years ago when we saw the downfall of Silvergate Capital and Signature Bank. If you remember, that was a rather scary time and the federal government had to step in and cover bank deposits well above the insured limit of $250,000.

It is hard to tell what direction cryptocurrency or Bitcoin is going, but I still put it in the highly speculative category where investors can make a lot of money, but also lose their shirt as well. We still recommend that investors stay away from cryptocurrency unless you view it as a gamble, but I still think Vegas is more fun if you are looking at gambling. 

Is the curtain closing on the Magnificent Seven?

In case you’re not sure of what these seven stocks are, the list is: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. As a group year to date, they are down around 20%, nearly double the S&P 500’s decline. Like all great things, eventually the curtain comes down and the show comes to a close. I am not predicting the end of the seven companies, but rather the excessively high valuations on their stocks that should come down to more reasonable levels. Only at that time would I recommend to buy these companies. Each one of these companies have their own headwinds and some of them are facing multiple headwinds.

Just to give you some idea, starting off with Alphabet, also known as Google, for a second time in eight months, a US judge has labeled Google an illegal monopolist. Keep in mind that they also pay $20 billion a year to Apple to be on the Safari browser default engine. From all that I have read on this case, I do have to side with the judge here. Amazon has been somewhat flying under the radar, but within the next few months, you will hear more about Amazon maintaining a monopoly as they are accused of using strategies to maintain its dominance. This includes price inflation, overcharging sellers, and stifling competition.

The Federal Trade Commission does have a lawsuit against them, which will start ramping up within the next few months as a trial is scheduled for October 2026. Apple, in addition to headwinds with China and tariffs, has a lawsuit from the United States Department of Justice alleging that it monopolized the smartphone market and used its dominance to stifle competition. Meta Platforms is fighting with the Federal Trade Commission in court currently after being accused of purchasing Instagram and WhatsApp to fend off competition in the social media arena. This case from the FTC looks a little bit weaker to me. I would say there is probably a 50-50 chance it goes away, but if Meta were to lose, it could cost them 50% of their advertising revenue from Instagram.

Microsoft appears to be in the clear from any government lawsuits for now, but their forward price/earnings ratio is still around 24 to 25 times and the amount of capital expenditures they have spent on artificial intelligence will likely cut into their forward earnings. There are also concerns with the lack of innovation in AI and the potential growth prospects.

Nvidia was the do-nothing wrong company of 2024, but now people who thought the growth on their earnings could grow 50% for years to come have been rather shocked by the 34% decline in the stock from a high $153 to around $100 a share. We have talked about this in the past, but it appears that many companies that have over ordered chips for artificial intelligence have now backed off on buying more going forward.

Lastly, Tesla has seen its stock drop from a high of $488 to around $240 per share, which is over a 50% decline will be hit hard by not only the tariffs, but also declining sales in China. Some US consumers are not happy with what Elon Musk is doing for the government and they could also weigh on US sales. This large drop in the Magnificent Seven reminds me of 25 years ago during the tech boom and bust. If history repeats itself, do not expect to have a 20-30% gain at year end if you are buying these stocks at these levels. I do believe you’ll be disappointed, not only over the next 6 to 7 months, but perhaps for the next few years to come.