Private Equity in 401K’s, Bitcoin Strategic Reserve, Inflation report, Inflation Front, State and Local Tax (SALT), Housing Prices in 2025, Job Openings, Chinese Exports & Trump and Crypto

Should private equity be allowed in your 401(k)?

70 million Americans have roughly $12 trillion in retirement accounts and the high fee private equity firms want a piece of that. Private equity comes with higher risk than traditional stocks and bonds that are found in retirement accounts. The big difference with private equity is they are generally illiquid investments in companies that are too small or risky to issue publicly traded shares. The businesses they invest in don’t issue quarterly reports on earnings and the valuations can at best be called questionable. It should be noted that private funds can tie up investors’ money for years and may give you some type of loose valuation of what your investment is worth.

The fees that these funds charge is around 2 1/2%, which is well above the average fund of a half percent or so in current 401(k)s. Private equity tries to claim their investments far outperform the stock and bond markets, but a study from Boston College in 2024 found that long-term returns for pension funds, which allow alternatives, generated about the same investment return as a 60/40 split of stocks and bonds. Wall Street and the owners of these private equity funds just want to generate more fees even if it means putting your 401(k) in danger with high-risk investments with little to no liquidity. I’m in hopes that private equity’s pursuit of trying to get their hands on your retirement accounts hits a brick wall and the regulators protect your retirement plan. 

A bitcoin strategic reserve is a terrible idea

Last week there was an executive order signed to create a strategic bitcoin reserve for the United States. Crypto enthusiasts were pleased by the action, but disappointed that the order did not specify a buying schedule or clear strategy to buy more bitcoin. In the current fashion, the reserve will include coins that are already owned by the government that it seized from past law enforcement actions.

The US currently owns more than 198,000 bitcoins that are worth about $17 billion. Given our large debt and the current deficit, I think it is just silly to borrow money and buy a volatile asset like bitcoin. The government is not here to make investment profits with our taxpayer dollars, if that were the case why wouldn’t they also buy individual stocks? Something like the Strategic Petroleum Reserve makes sense as that commodity plays such an important part in our day to day lives.

Bitcoin has no impact on our day to day lives and I just can’t see what the strategic benefit would be outside of shooting for investment gains. We should be focused on paying down debt and reducing deficits rather than trying to generate investment returns with taxpayer money. I think even the action of keeping seized bitcoin is a mistake as that could be used to reduce debt. As for the price of bitcoin, I believe it could keep falling. There seems to have been a lot of catalysts that took place last year including the launch of ETFs and a more crypto friendly administration taking office. I don’t see many new catalysts in the near future, which could lead to steeper declines. For me, I don’t want my own dollars or my tax dollars in bitcoin or any other cryptocurrency for that matter. 

Inflation report puts stagflation risks at ease

The headline Consumer Price Index (CPI) for February came in at 2.8%, which was below the estimate of 2.9% and less than January’s reading of 3%. Core CPI, which excludes food and energy came in at 3.1%, which was also below the estimate of 3.2%. This reading was less than January’s reading of 3.3% and it marked the lowest increase since April of 2021 when we saw inflation rise 3%. That was really the beginning of the inflation problems as the March 2021 core CPI rate was 1.6%.

I’ve said it before, but with inflation at these levels I really don’t see it as a problem. There are some areas like eggs that increased 59% compared to last year, but outside of that most categories are quite tame. Shelter also continues to lift the inflation numbers as the index rose 4.2% in the month of February. This was the smallest increase for the shelter index since December 2021, but it still remains above both the headline and core numbers, which means it is putting upwards pressure on those reports.

This report would have shown limited impact from the recent tariffs, so it will be interesting to see in the coming months what the numbers look like as the tariffs work their way through supply chains. I still believe inflation will not be a problem in 2025 and that the Fed will be able to cut rates a few times this year. 

Another win on the inflation front

The February Producer Price Index (PPI) showed no change in the pricing level when compared to January. For the 12-month period it rose 3.2%, which was much better than last month’s reading of 3.7%. Core PPI, which excludes food and energy actually fell 0.1% from January and the annual increase of 3.4% was down from last month’s reading of 3.8%.

This report helps us breathe a sigh of relief as December and January produced hotter readings. As we’ve been saying, inflation will not go down in a straight line and month to month the readings will be bumpy, but the general trend should be lower. As we said with CPI, it will be interesting to see how the tariffs impact these inflation reports in the coming months. One thing that does not get much coverage is that we had tariffs back in 2018 and inflation did not see a major spike. Hopefully that will be the case again and we can move on from this battle against inflation that has lasted a few years now. 

Who Benefits from Repealing the “SALT” limit?

One of the more controversial changes in the Tax Cuts and Jobs Act of 2017 was the $10,000 limit placed on the State and Local Tax (SALT) itemized deduction. Prior to 2018, those who itemized could deduct the full amount of state income taxes and property taxes on their federal tax returns. Under current law through the end of this year, only the first cumulative $10,000 of these taxes is deductible.

This obviously hurts high earners in states like California. Someone making half a million dollars per year and paying $40,000 in California income taxes only receives a deduction on the first $10,000 and receives no additional deduction for any property taxes they pay. While there isn’t as much public sympathy for high-income earners paying more tax, this limit also impacted California homeowners, especially first-time homebuyers. When buying a home in California, property taxes are about 1.2% of the purchase price of that home.

Thanks to Prop 13, property taxes increase minimally after purchase and generally much less than the property value increases. This means the longer you own a home, the lower your property taxes are relative to the fair market value of the property. This also means that property taxes are most expensive when first buying a home. In California, home values are high, mortgage rates are high, insurance costs are high, utilities are high, and because of the high value of homes, property taxes are also high.

Virtually everything about homeownership in California is expensive, so it’s no wonder people are struggling to afford a house. This phenomenon has gotten worse in recent years, but it’s not new. Regarding the SALT deduction, it is common for homeowners to have state income taxes and property taxes that exceed the $10,000 limit even if they’re not really “high-earners” because of the income needed to simply afford a home and its corresponding property taxes.

A young family could easily be looking at $20,000 to $25,000 just in state and local taxes, most of which would not be deductible due to the SALT limit. While the SALT deduction is mainly thought of as a high-earner issue, a lot of normal people in California would benefit from its repeal, especially if federal tax rates do not increase back to their pre-2018 levels.

Will housing prices go up or down in 2025?

There are two schools of thought here, with one saying prices will go up because of the increasing cost to build homes. The other thought is prices will fall because demand is cooling. Those who are on the side that housing prices will increase see the rising costs from tariff increases on Canadian lumber, drywall from Mexico, and higher appliance prices from China that go in new homes.

There has also been limited supply coming onto the market considering over the last five years or so we only built about 1 million single-family homes a year, which has not fulfilled the current estimated need of 3.7 million units. There’s also a concern that many of the workers will be deported and the cost of labor will go up, which would also put upward pressure on home prices.

The other side of the debate is strictly looking at demand. Yes the demand is there, but there’s a price point that demand tapers off and I believe we have surpassed that given the stretched affordability levels we are seeing. Until interest rates on mortgages pull back closer to the 6% range, I believe people will sit on the sidelines and wait. If we see demand fall, no matter how much it costs to build a new home, prices will stagnate.

I do believe 2025 will not be a year of large gains for housing prices, because we’re going through major changes in labor and trade, which hopefully will be ironed out by the summertime. These create uncertainty in the market, which I believe will put a dent in demand. It’s also important to note that even if these are ironed out by summertime, it will still take months for the supply chain to ramp up again and for products like lumber, drywall and appliances to come back onto the market. With all that said, I do believe we will see a better housing market in 2026.

Job openings continue to point to a healthy labor market

We recently talked about the concerns surrounding layoffs and cuts from the Department of Government Efficiency, also known as DOGE. We said while the headlines may sound scary, it is important to see if the private sector will be able to pick up the government layoffs with growth in private payrolls. While there won’t be an exact match for people who worked in government and their skillset now trying to find a job in the private sector, it’s important to know jobs are still there.

Based on the most recent Job Openings and Labor Turnover Survey, also known as the JOLTs Report, there were 7.74 million openings in the month of January. This was an increase if 232,000 compared with the month of December and also topped the estimate of 7.6 million. This kept the ratio of openings to available workers around 1.1 to 1. Since we are coming from such a position of strength in the labor market, I still believe it is possible for the country to avoid a recession in the near term and if we entered a recession, I do believe it would be very minor.

As we move forward, I think we will see more variability in data around the labor market, but again coming from such a position of strength we have enough of a buffer for it to soften before it becomes problematic. 

Chinese exports continue to grow

If it wasn’t for the difficulties in Chinese real estate, their economy would probably be in pretty good shape. It was a reported that for the months of January and February in 2025, they exported $540 billion worth of goods around the world. I don’t know if they can keep that pace up for the rest of the year, that is probably unlikely, but if they did it would result in over $3 trillion exported around the world in one year.

Imports went the other direction for China and fell by 8.4% for January and February, which yielded a trade surplus record for China. If China is exporting more goods around the world and less to the United States, it would make our tariffs less effective and perhaps would result in prolonged negotiations. Unfortunately, I don’t see any other options other than these trade negotiations if the United States wants to see free and equal trade around the world.

Is Trump too close to Crypto?

Trump has received over $100 million either directly or indirectly from the crypto industry, but what makes him even more biased is his personal meme coin $Trump which he created before he was elected. Current pricing has the coin’s market capitalization around $13 billion. In my opinion, it is wrong for the President of the United States to hold any type of investment that benefits directly from his regulation. I’m hoping Congress will step in and put some regulations on cryptocurrencies, which are currently less regulated than stocks on Wall Street.

For many years Trump criticized the industry as a scam and a disaster waiting to happen. It appears now since he is benefiting from it, he has changed his tune. Many family members and even his son Barron, a freshman at New York University, has very close ties to the crypto world. If cryptocurrency is to succeed, it should do it on its own, which I believe would not happen. Having a President of the United States benefiting from something that he has direct control over is dangerous. It would be like if he had a major stake in the public company General Dynamics and gave all the military contracts to them.

No matter how you slice it, cryptocurrency is a speculative investment and the President and the government should have no business being in that area. The government cannot hold stock in public companies and I believe they should not be holding any type of investment, including cryptocurrencies.