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 the hardest 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 announcement. 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 before reality hits and big pullback comes. 

Financial Planning: The real cost of financial mistakes

When it comes to financial wellbeing, avoiding mistakes can be even more powerful than chasing great decisions. Too often, people lose ground not from lack of opportunity, but from unforced errors. Drawing retirement income without tax strategy can quietly cost thousands in extra taxes or Medicare premiums. Holding too much cash or being overly aggressive both expose you to risk, one to inflation, the other to unrecoverable losses.

Maintaining investing discipline sounds simple but emotional reactions like selling when markets fall or chasing what’s hot can destroy more wealth than poor returns ever could. Many homeowners also miss out by not structuring their mortgage correctly resulting in more short-term fees, long-term interest, and missed investment returns. The key isn’t perfection; it’s recognizing that protecting yourself from big mistakes is often the best investment you can make. When making a financial decision, do your best to get your information and advice from accurate and unbiased sources so you can fully understand the impact of the decision.

What signals you should watch if you are holding gold.

Wouldn’t it be nice if there was a flashing red light that came across your phone saying this is the peak for gold and now is the time to get out. Obviously, that never happens on any investment so investors have to watch for signs that could cause the investment to decline. There are many signs that could arise, and it might be one or a few of them that could cause gold to turn and begin dropping.

One area that could bring more stability is President Trump has been trying and trying to get a peace deal between Russia and Ukraine. I know that he is meeting again, I believe in a couple of weeks and if peace is reached with the Russian and Ukraine, it could be a negative for gold. Another thing that could derail gold from its increasing value is for the first time in 45 years silver hit a record high. Many times, investors of gold will buy silver as well and they may decide rather than buying more gold to diversify they will buy silver instead since they have so much gold already. This could hurt the demand for gold, which could stall the rally.

Higher oil prices can also take away gold demand. Currently there seems to be a glut of oil on the market, but the Middle East is never a stable area of the world and any disruption there could cause oil to turn around and climb 10 to 20%. Currencies are currently weak and if we were to start seeing currencies like the yen or the dollar start to get stronger along with higher interest rates, this would also not be good for gold. Placing a value on an ounce of gold is difficult to say the least. So, it does make it hard to value, but hopefully these points we have laid out assist you in trying to attach some value to the price of gold.

Gen Z is turning their back on buying a home and investing more into stocks.

This is good news and bad news at the same time. It is nice to see younger investors have interest in stocks, but they seem to not understand the risk they’re taking. Young investors have only seen stocks average around 14% per year and believe that will happen over the next 40 to 50 years. Since they have been priced out of the housing market, they feel they might as well invest their money, which is wise, but I worry that when we have a long downturn, which will happen someday, these young investors will sell their stocks at a low price and have nothing to fall back on since they don’t own a home.

The home ownership rate for Gen Z, which are those between 13 and 28 years old, is just 16%. This is on the low side compared to history. A study from JPMorgan Chase showed in the last ten years, 25-year-olds with investment accounts has risen from 6% in 2015 to now 37%. I’m all for investing in equities if people understand how to invest properly and not gamble. I always love the stories about how somebody bought a house back in the 1970s, they’re now up 1500%. Which means a $25,000 house is not worth $375,000, what could be better?

How about if you had your money invested in stocks, you would be up over 6000% and that same $25,000 would be worth $1.5 million, which is four times as much. Just imagine if you put those stocks in a 401(k) and received a tax deduction, your employer matched some of your deposits and it grew tax deferred, wow. The problem is they all want to buy the next hot tech company and make 1000% over the next couple years, rather than focusing on the long term. Unfortunately, that is a formula that will fail for many of the young investors, leaving them without a home and a small amount of investment savings.

Lays potato chips will become healthier

Because of the campaign to make America healthy again that has gained traction in Washington and with consumers, artificial colors and seed oils are becoming a thing of the past. Lays potato chips are a top selling brand and have been around for 80 years, but because of the switch to healthier foods, the potato chips are switching to olive oil or avocado oil from seed and corn oils. The new chips will be easy to recognize because Lays, which is owned by PepsiCo, is changing the packaging from that shiny crinkly bag we have become so used to, to a heavier matte finish displaying potatoes and chips.

With consumers buying less snacks and their preferences changing faster than anyone expected, Pepsi had to change course. It’s surprising that back in 2021 research revealed that 42% of people didn’t know that Lays chips were made out of real potatoes and Pepsi will need to do a better job with their messaging so consumers know what they are actually eating. Having more natural ingredients will be a challenge for the company because colors that come from plants, vegetables, or other natural products don’t behave the same as artificial ones and are more sensitive to light and temperature.

The shelf life of potato chips with natural ingredients may also be shorter, which could be a problem for PepsiCo. Sales of potato chips increased dramatically during the pandemic and PepsiCo increased prices substantially during that timeframe. To get consumers to try the new improved healthier chips, the company might need to lower prices to bring consumers back. I personally can’t wait to try the new chips. I hope that they’ve also reduced the sodium content as well.

The government thinks it’s OK for some fees in your investments to be hidden

Your first reaction to that may be that there’s no way that could be possible. Why would the government allow investment funds to hide their fee? I can’t give an answer why, but a bill that was recently passed by the House and is now waiting for approval from the Senate would authorize portfolios to skip reporting expenses of certain funds they may invest in.

I read this stuff and I can hardly believe it, but what they are trying to allow is if a fund owns BDC's, which are Business Development companies, which have very high expenses and can range anywhere from 1% to 5%, Congress is saying it’s OK not to disclose those expenses. BDC's are very high-risk investments but over the last five years their assets have grown from $127 billion to over $450 billion.

What is concerning for me is if this does pass in the Senate, will it also be ok to hide fees for private equity, venture capital, private debt, and other alternative vehicles that would want the same treatment as BDC’s. I’m not a big believer in big government, but I do believe that the government should have rules and regulations for investors like they have rules for speed limits on highways.

With more young people renting, the furniture market is changing

Furniture stores like Ethan Allen and RH do well when people buy new homes. New homeowners will generally have to fill entire rooms and change many things in the house to personalize to the way they like. But now with the price of homes becoming nearly unaffordable, many young people are shopping differently to make their long-term rentals feel comfortable and personalized.

When I’m talking about young people, I’m not talking about those just in their early 20s because according to the National Association of Realtors, the average age of the first-time homebuyer in 2024 climbed to 38 years old. So, until home prices become affordable again, which may be a while, some major furniture stores will probably suffer. Those that serve renters such as Wayfair and Williams Sonoma will probably continue to do well though. Renters are generally more practical about shopping for their apartments and in many cases will buy single items at lower prices from different vendors. However, don’t think that means they’re spending only $10-$15. Since they know they will be in that rental for a while, they are still spending sometimes thousands of dollars to buy multiuse products like folding tables and pullout couches with built-in storage.

Business has always fascinated me following consumer trends, this is the new trend for younger people as they try and make these long-term rental homes and apartments a place they are proud of. This trend will change someday, but I believe it is probably down the road at least a few years.

Are the best days for packaged food companies over?

With the diet drugs, and the campaign to "Make America Healthy Again" from RFK, your packaged food companies are struggling. They’re also fighting inflation and tariffs, which is making the environment even more challenging. But consumers, whether they are high or low income, if they like a certain product, they’ll pay a premium for it even if it is not the cheapest thing on the shelf. One may think the best thing for these companies is to really become healthy fresh food companies, but they may be able to have some other options that are healthier than before. What they need to do as time passes is to get creative at what they’re good at and not try to be something they're not.

There are many companies in this category like Mondelez, Hershey’s, Kraft Heinz and Conagra. Some of these companies have seen their stocks drop 30, 40 or even as much as 50%. Even with that drop many of their dividends have remained the same, which means the yield for that dividend is much higher. I think for long-term investors there may be some opportunities here as the companies become more creative and the tariffs just become part of doing business. Also, these companies will change their products somewhat to meet consumers expectations, and eventually some consumers will still want to have some good cookies or a hotdog as a treat.