The Man with The Golden… oh, I don’t know, earring? Or i-Phone. Maybe that’s better
October 5, 2025
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Sanitization, shattered dreams, student loan garnishment, smaller economy.
First, in the clearest sign yet of the coming apocalypse, “Amazon has decided to remove guns from the key art used on all the James Bond films on Prime.”
Below is a link with the sad picture. Two words. Cracker Barrel.
https://x.com/WallStreetMav/status/1974223969596117086/photo/1
This is better:
Second, there’s a sobering story in the WSJ: LA’s Entertainment Economy Is Looking Like a Disaster Movie. The city’s creative middle class is hanging on by a thread.
Nearly 30% fewer movies and TV shows with budgets of at least $40 million began shooting in the U.S. in 2024 than in 2022, according to data firm ProdPro. The first three-quarters of this year were down another 13%.
The article cites a shift to social media and effects from AI substitution. From the article, Shooting the film in LA costs at least one-third more than doing it overseas…
Third, a couple of things mentioned by Danielle DiMartino Booth. The 150,000 Federal Employees that took the gov’t buyout program just received their last checks and benefits. Perhaps most have already transitioned to new jobs (given strong proficiency in Lotus 1-2-3 and fax machines), but it’s still a large number. Also, wage garnishments for delinquent student loan borrowers (270 days) should be starting this quarter. According to an article in Fortune, 2 million federal loan borrowers are at immediate risk of garnishment. “After 90 days, delinquency is reported to credit bureaus… and the latest gov’t and credit bureau data shows about 5.8 million borrowers are more than 90 days delinquent. That’s a whopping 31% of all student loan borrowers, according to TransUnion.”
I would note that at the start of October in 2018, Powell said the FF rate was “nowhere near neutral”. (The Fed was in a tightening cycle). Additionally, at the Sept 26, 2018 FOMC, the amount of QT was ratcheted up to $50b per month from $40b. In a move similar to this year’s Liberation Day sell-off, SPX topped at a then-record high on Oct 3 and fell 20% into year end. The last hike was in December, and the Fed was forced to shift to a neutral/ease mode. In a speech from Tuesday, Dallas Fed President Lorie Logan suggests the Fed is already near neutral (see comments below). We’re currently in an easing cycle, but could Logan’s remarks change perceptions and spark a re-play of Q4 2018?
Here’s another story that caught my eye because I thought the comments were amusing (Fark.com):
BlackRock private equity firm purchases northern Minnesota’s biggest power company, which totally won’t end up like JoAnn Fabrics, Kmart, Party City, Radio Shack, Sears, Toy R Us, Brookstone, Sports Authority, True Value, Payless Shoe Source, Red Lobster.
This is a story about insatiable demand for electricity. It’s not exactly new; the deal had been in the works but was just approved by MN regulators.
A BlackRock Sub (Global Infrastructure Partners) and Canada Pension Investment Board will buy Allete, parent of Minnesota Power in northern MN. Allete told regulators that MN Power’s ops won’t change and won’t affect electric rates, [which is, of course, bullshit]. Google wants to build a data center up there. Deal was $6.2 billion but they are providing $100m for ratepayer relief. (Why is there a relief fund if rates won’t change?)
Allete argued that BlackRock will have an easier time raising the money that Minnesota Power needs to comply with a state law requiring utilities to get 100% of their electricity from carbon-free sources by 2040. [Rates aren’t going to change but they need money to comply with new laws?]
This is, of course, all about data centers and AI. The “carbon-free sources” clause is likely going away. The Iron Range, north of Duluth with its open pit mines needed power as well. But those operations provided jobs.
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Below are excerpts from Lorie Logan’s speech, ‘Why I’ll be cautious about further rate cuts’. To summarize, she is concerned that financial conditions (rising stocks) currently are supporting growth and consumption and risk feeding inflation, which is her primary focus. She believes further labor market slack is needed to reach the inflation target. Complete rebuke to Miran’s thesis.
… the Federal Reserve Board’s baseline methodology implies that current financial conditions will provide about a 1 percentage point boost to real GDP growth over the next year. More than half of the effect comes from higher equity valuations. This is largely because rising financial wealth tends to support aggregate consumption, and the last year alone saw an estimated increase in U.S.-held public equity wealth of more than $7 trillion. Of course, not everyone benefits equally or at all from increases in stock prices, and financial conditions are less supportive in certain sectors.
Monetary policy can ameliorate [labor market] slack by lowering the policy rate to support demand. But not all changes in economic activity represent changes in slack, and monetary policy can do little to change supply factors. Stimulating demand when it is already in balance with supply will create price pressures without sustainably adding to employment.
Research by my staff shows that a decline in immigration can also reduce demand, which offsets the reduced labor supply and leaves the economy smaller but overall balanced with little effect on inflation.
Adding in the 2 percent inflation target, those figures correspond to a neutral fed funds rate of 2.84 to 4.15 percent. Following the rate cut at the September FOMC meeting, the fed funds rate stands today at 4.13 percent, right at the top of that range.
The gradual increase in labor market slack to date is what I expected and what is necessary to bring inflation down. Non-housing services inflation, in particular, is tightly correlated with wage growth and, ultimately, labor market tightness. With non-housing-services inflation running above the rate consistent with overall 2-percent inflation, a modest further increase in labor market slack is likely necessary to finish restoring price stability.
Here’s the takeaway for me: A smaller economy, especially if paired with lower inflation, will be hard-pressed to service the fixed debt. Stocks vulnerable.
Fed minutes should be released Wednesday. U Mich Sentiment on Friday. Last at 55.1. There were two lower readings this year, April and May, both at 52.2. The lowest of the GFC in 2009 was 55.3. The low in 2022 as the Fed began its hiking cycle was 50.0.
OTHER THOUGHTS/ TRADES
Since 9/22, the Fed Effective rate has been 4.09. A 25 bp cut at the Oct 29 FOMC would imply 3.84% or a price of 9616.0. If one believes in Lorie Logan (no October ease), a sale in FFX5 at 9615 to 9614.5 is an easy conclusion. I would also note that BofA moved their forecast for an ease in October back to December. New sales of FFX5 occurred late last week. Open interest in the contract is 667k, +21k Friday.
January Fed Funds capture both Oct 29 and Dec 10 FOMCs (and three days associated with the Jan 28 FOMC). FFF6 settled 9638 or 3.62%, which currently indicates high odds of 25 bp cuts in both Oct and Dec.
Summary of TYZ covered call buys (not sure this is a complete list, added the 113c from last week):
Monday 9/22:
+50k TYZ5 114.0c covered 112-275, 31d price 33
+50k TYZ5 114.0c covered 112-255, 29d price 32
+25k TYZ5 114.0c covered 112-240, 28d price 31
Tuesday 9/23:
+50k TYZ5 114.0c covered 112-250, 29d price 31
Thursday 9/25:
+50k TYZ5 113.5c covered 112-215, 35d price 38
+50k TYZ5 113.5c covered 112-210, 35d price 38
+20k TYZ5 113.5c covered 112-090, 18d (only) price 32
Tuesday 9/30
+50k TYZ5 113.0c covered 112-190, 42d price 46
+25k TYZ5 113.0c covered 112-220, 45d, price 49
Friday’s settles: (Dec options expire 21-Nov)
TYZ5 112-215
TYZ5 113.0c 40, 249k in total Open Int
TYZ5 113.5c 29, 201k
TYZ5 114.0c 20, 280k
| 9/26/2025 | 10/3/2025 | chg | ||
| UST 2Y | 364.3 | 357.0 | -7.3 | |
| UST 5Y | 376.9 | 370.6 | -6.3 | |
| UST 10Y | 418.3 | 411.7 | -6.6 | wi 411.8 |
| UST 30Y | 476.3 | 471.2 | -5.1 | wi 471.7 |
| GERM 2Y | 202.7 | 201.5 | -1.2 | |
| GERM 10Y | 274.5 | 269.7 | -4.8 | |
| JPN 20Y | 262.2 | 261.1 | -1.1 | |
| CHINA 10Y | 187.4 | 185.9 | -1.5 | |
| SOFR Z5/Z6 | -59.5 | -62.0 | -2.5 | |
| SOFR Z6/Z7 | 9.5 | 11.0 | 1.5 | |
| SOFR Z7/Z8 | 18.0 | 19.0 | 1.0 | |
| EUR | 117.03 | 117.42 | 0.39 | |
| CRUDE (CLZ5) | 65.14 | 60.53 | -4.61 | |
| SPX | 6643.70 | 6715.79 | 72.09 | 1.1% |
| VIX | 15.29 | 16.65 | 1.36 | |
| MOVE | 74.38 | 69.53 | -4.85 | |
