October 24th, 2025 | Fed Rate cut looks likely after inflation report, last week bank earnings surprise, risky investing behavior continues to amaze me! The real cost of financial mistakes & More

Inflation report likely solidifies Fed rate cut this month 

The September Consumer Price Index, also known as CPI, showed inflation climbed 3% year over year for both the headline and core numbers. Core CPI, which excludes food and energy, came in better than both the estimate and the previous month's reading; both stood at 3.1%. It was a surprise to get this data with the government shutdown, but since it is used as a benchmark for cost-of living adjustments in benefit checks by the Social Security Administration it was a rare economic point in an otherwise quiet period. Energy, which provided such a benefit to the headline number for many months, has started to reverse course as it climbed 2.8% compared to last year. Gasoline was a small benefit as it was down 0.5%, but energy services climbed 6.4% thanks to an increase of 5.1% for electricity and an increase of 11.7% for utility gas service. What I would look to as tariff impacted areas, has still remained quite muted considering apparel prices fell 0.1%, new vehicles were up just 0.8%, and food prices had maybe thehardest hit with an increase of 3.1%. Much of this came from food away from home, which was up 3.7%. Food at home saw a more muted increase of 2.7%. Shelter inflation remained above the headline and core numbers at 3.6%, but it is much less problematic than it was in prior periods. Another positive was owner's equivalent rent climbed 0.1% compared to the prior month, which was the smallest month over month increase since January 2021. Overall, this report likely produced enough evidence for the Fed to cut rates at this month's meeting as odds stood above 95% after the inflation annoucement. The likelihood for a December cut also initially climbed to 98.5% following the report. 

 

The bank earnings from last week had some surprising undertones.

Overall, the third-quarter report from the big banks showed things are pretty much going along OK. But then a couple of the big banks brought up the issue of private credit and some bankruptcies that led to write-downs. Jamie Dimon, the CEO of JPMorgan Chase, pointed out that even though he said he probably should not say it that "if you see one cockroach, there are probably more." Some smaller financial institutions like Zions Bancorp and Alliance Bancorp took a $50 million charge and $100 million charge respectively due to potentially fraudulent loans. The issue here is commercial banks have been making loans to nonfinancial depository institutions or NFDIs and I point out that this type of funding is not very transparent for investors to see what is going on behind the scenes. I was surprised to learn that these NFDIs now account for roughly 1/3 of commercial and industrial loans originated by large banks. One may think if you’re invested in AI companies, you’re safe but research has shown that even your deep pocket players of AI are funding investments with these private loans. As time passes, the more I read, the more I become concerned about what we don’t know about leverage in this economy.

Risky investing behavior continues to amaze me!

Many people will point out that we have missed the boat on crypto, but I continue to worry about the space long term as there is no true way to value what these cryptocurrencies are worth. While this is a major concern for our firm, I would say leverage in the space is another major risk. A big problem is the rules and regulations and ultimately the transparency in the space is not as clear as when you invest in public equities. I was blown away reading an article on CNBC by how crazy the leverage can be, and I bet most investors have no clue about it. While there are ways to leverage crypto in the US, the offshore market is where things get wild! Offshore, decentralized exchanges Hyperliquid offer maximum leverage of 40-times for bitcoin and 25-times for ether and Binance Labs-linked Aster offers as much as 100x leverage, depending on the token. Leverage is so dangerous because if a decline comes and investors need to unwind a position it can create a cascade of selling that leads to massive losses. It is not just the crypto market where people are gambling though. We saw a return to meme craziness with Beyond Meat producing massive gains of 128% Monday and 146% Tuesday. On Wednesday, the stock at one point produced another triple-digit intraday gain, but it ended up closing down 1% on the day. I also saw a nuclear power development company by the name of Oklo have a sizeable pullback after the Financial Times noted the 500% advance in 2025 and $20 billion market value has come despite “no revenues, no license to operate reactors and no binding contracts to supply power.”  These are examples of pure gambling and examples like these typically come during frothy times