2025 Bank Earnings, DeepSeek News on AI, Custodians are not Fiduciaries, GDP Growth, Tax Time, US Energy Landscape, Corn on the cob, Meme Coins, 2025 Summer Vacations & The Housing Market

What bank earnings reveal for 2025

Most big bank earnings are out now and the news and the guidance did lean on the positive side. A concern was revealed, which was no surprise to us that loan growth was only up 1.1% from a year ago. It is expected to see loan growth for 2025 of around 2.6%. Bank of America was the big winner here reporting loan demand grew 5 % from last year, but regional bank KeyCorp disappointed investors with their guidance as they are estimating loan balances would drop 2 to 5% in 2025.

A positive in their report was net interest income would rise 20%. That was not good enough for the analyst community as the stock sold off following the report. Net interest income, also known as NII is the difference of what a bank pays for money and what they loaned it out at. This is a big factor when one is investing in banks considering it is such a large part of their profits. We have talked before that we do expect to see more mergers and acquisitions, also known as M&A going forward. This could help banks like KeyCorp and other smaller banks that go on sale as their stock drops, as there may be a floor to the fall with bigger banks potentially having some interest in scooping up the smaller banks as they go on sale.

There are over 4500 banks in the United States, that is a lot of potential for bank M&A. Expected reductions in regulations for banking would also be a great benefit to Wells Fargo and some other banks as well. I do believe in having a strong balanced portfolio and if you don’t have some type of financial bank or financial institution in your portfolio, I believe you are missing out. 

DeepSeek news sends US AI stocks into freefall!

DeepSeek AI is a Chinese artificial intelligence start up that rivals US companies like ChatGPT, Anthropic, and several others. DeepSeek has seen it’s popularity surge after releasing its reasoning model known as R1. This model apparently tops or is in line with the US competition and on Monday the DeepSeek app took over OpenAI’s spot for the most downloaded free app in the US. Many of you can probably guess my thoughts on this after my concerns with TikTok, but I do feel this is extremely dangerous and users must be careful in understanding what type of data they are giving to China.

The main reason this news sparked panic in the markets was DeepSeek was apparently able to launch its free, open-source large language model in just two months at a cost of under $6 million. That is million with an M and that is important considering all these US businesses that are spending billions and billions of dollars on AI. The first big question here is was all that money a waste and is there a more efficient way to achieve AI success like DeepSeek? Also, there have been curbs to insure China didn’t receive the best chips. Did they steal trade secrets, find a way to get their hands on the chips, or most troubling would be, did they create their own technology that would rival a company like Nvidia?

Personally, I was not too troubled by the decline on Monday considering we have no exposure to the AI space. I continue to believe it is just way too early to invest in this space and there could be other future competition that comes in that we don’t even know of yet. I do also believe this points to how fickle the market can be and with a news story like this being able to take down some of the most beloved winners from 2024, the extremely high valuations for the market should concern investors in the broad-based S&P 500 or Nasdaq. I am still looking for value stocks to do well in 2025, but could this be the beginning of a decline for these overpriced tech names? 

Custodians are not Fiduciaries, why that’s important to you?

Your financial advisor may be a fiduciary, but their custodian might not be and it could cost you money. Being a fiduciary registered with the SEC for around 20 years now, we take seriously our obligation to always do what’s best for our clients. That also includes choosing a custodian to hold our clients’ assets. We spent a lot of time looking for the right fit to make sure our custodian doesn’t charge any unnecessary fees. This may come as a surprise to you, but not all custodians are the same. There are custodians that advisors use that may charge little fees like trading fees or maintenance fees that are passed on to you the client, that the advisor should make you aware of.

Something recently came to light called an asset shift where some custodians encourage investment advisors to switch out of certain funds so that the custodian will make more money off of the assets they recommend. Unfortunately, this may not be best for the client and they may receive a lower yield. Keep in mind this is not illegal because the custodian does not have a fiduciary responsibility to do what is best for the client.

Also, if the custodian forces the investment advisor to switch some funds into funds where the custodian will make more fees off of the new recommended fund, it could also cause a taxable situation for the client. This may be more prevalent in your smaller advisory firms with maybe fifty to hundred million dollars in assets under management. The custodian could tell the advisor either you need to increase your assets with us or begin paying an annual custody fee of anywhere from $200-$400 a year. That fee could really hurt the advisor, as an example if the advisor had 100 clients and they were charged $400 a year per client that would cost them $40,000 a year.

More than likely, the advisor would probably have to raise their management fee to their clients to help offset the expense. Investors should ask their financial advisor, even if they are fiduciary if any of their recommendations are being forced by their custodian, which would cost you the client more money. I’m happy to report at our firm the custodian that we have chosen and have used now for ten years puts no pressure on us at all. This could be perhaps because we do have nearly $700 million in assets under management.

GDP growth shows the consumer was still strong in Q4

Gross Domestic Product or GDP missed expectations for 2.5% growth in the fourth quarter, but the growth rate of 2.3% was still ok. For the full year we did see a small deceleration in growth as GDP growth fell from 2.9% in 2023 to 2.8% in 2024. While none of this sounds overly optimistic, the consumer really carried the GDP growth in Q4, which I see as positive. Personal consumption expenditures saw growth of 4.2% in Q4 thanks to growth of 6.6% for goods and 3.1% for services. It was surprising to see durable goods really saw nice growth of 12.1% in the quarter, which compared to nondurable goods growth of 3.8%.

The miss compared to the expectations can largely be attributed to the change in private inventories as that subtracted 0.93% from the headline GDP number. This category is quite volatile and considering it subtracted 0.22% from the headline number in Q3, I would not be surprised to see it actually benefit the headline number in the first quarter of this year. Considering the strength of the consumer, I was actually quite pleased with this report and I believe it is a good sign for our economy as we look forward. I do believe we will see some bumps in the road this year, but I still think we should see GDP growth in the 2-3% range for the full year. 

Get Organized for Tax Time

Tax season is upon us which means you are probably starting to receive tax documents that will be used to file your taxes. Whether you file taxes yourself, or work with a tax preparer, make sure you gather all the information needed and have at least some understanding of what it means. The tax documents alone do not always provide the information required to complete a tax return. For example, contributions to a traditional IRA can either be tax deductible or non-deductible, such as when making a backdoor Roth contribution. However, no tax form is generated to tell the tax preparer that a contribution was made at all which means the tax deduction would be missed, or your basis in the IRA would not be reported. In both cases you would be paying more tax than necessary.

With tax-deferred retirement accounts anytime money is distributed, a 1099-r is generated, but it is not always clear whether the distribution is taxable or not. If the tax preparer is not aware that the 1099-r is from a direct or indirect rollover, a qualified charitable distribution, or the conversion from a non-deductible IRA, they may incorrectly report the distribution as taxable income. When you are gathering your documents, make sure you are gathering everything. If you have a taxable brokerage account, even if you didn’t withdraw any money, you will still receive a 1099 because any interest, dividends, or realized capital gains are reportable.

If you have a mortgage, you will receive at least one 1098 and you may receive multiple. If you refinanced during the year or even if your mortgage was sold from one lender to another, which is quite common, you will receive a 1098 from each lender. If you don’t include all of them, you won’t receive your full interest deduction. Most people don’t like dealing with taxes and everyone hates paying them, but take the time to understand your situation enough so you don’t pay more than you need to.  

The US energy landscape for 2025

We believe 2025 should be a good year for energy investors. US government agencies have been directed to support the development and transportation of fossil fuels and the build out of electricity transmission and infrastructure to advance uranium production and geothermal energy. Climate change was yesterday’s major concern, going forward high energy prices are the new enemy and the groundwork is being laid to eliminate the environmental protection agencies findings about greenhouse gases threatening public health.

Permits for energy developers should be far easier to obtain and come much quicker than recent years. The National Environmental Policy Act, which imposes federal reviews and the environmental impact on projects will be weakened in 2025. If you need a permit in 2025 for pipelines or transmission lines, the door should be wide open. I’m sure there will be some pushback on opening Federal land to oil and gas and mining minerals, but look for progress here as well. Wind power will probably take a blow this year and it is likely no new projects will be started. It seems to be the area of clean energy that is most likely to falter.

Oil and gas companies are still a little bit hesitant, but should start drilling as they feel the coast is clear. The profit margin for energy companies will probably drop, but they should be able to make that up with higher production and less expenses on regulations and less time to get projects started.

Corn on the cob at the summer picnic may cost more this year

Since late August 2024, corn futures have seen the price of barrel of corn climb from under $3.90 per bushel to nearly 5 dollars a bushel. This is good news for farmers who have lost money on producing corn for the last year, but that would mean buying corn for your table at home would cost the consumer more. Here in the US, the Corn Belt area went through a season of hot and dry weather, which hurt the final production of corn. It’s hard to look at any investment related to commodities this year without tariffs coming up. Mexico and Canada beginning February 1st could see a 25% tariff.

This is where tariffs can work against you since Mexico is generally the leading buyer of US corn. Other noteworthy buyers include Canada and China. What may help US corn producers is difficult weather in Brazil and Argentina because their corn crop competes against the US on the world export market. Over the past month rainfall is a small fraction of what they normally receive, which could hurt final production numbers for corn.

It is important to know that corn is not just used for the dinner table, but also use for fuel and very important for animal feed. We need to find that fine balance between enough production where consumers can purchase corn for a reasonable price and also where farmers can make a profit on their production of corn.

Meme coins, a great way to lose money

I cannot believe the popularity of meme coins, which have no economic value. There have been millions created and most have lost money. Dogecoin, which became popular because of Elon Musk had a peak value of $80billion in May 2021 and today it trades around $.32 with a value around $48 billion. By the time you see this, it could be worthless or back up to the $80 billion. The value of a meme coin is based on how many people want to buy it, it is a true supply demand pricing model.

Anyone can create a meme coin by simply going to many of the websites that specialize in one stop token creation. All you need to do to get your own meme coin is put in the desired name on the website give it a ticker and description of the token then pay a fee and you’ll have your very own meme coin. Another concern with meme coins is that they could be victims of an old fashion pump and dump where large holders sell all their tokens as a price gets ridiculous and then the little guy loses all their money.

I think your odds are far better in Vegas if you go and play blackjack or poker, at least the chips you’re using have some value. I think I’m going to start a meme coin and name it “buy me lose money” I think an appropriate ticker would be “DUMB”. 

2025 summer vacations will cost more

The US consumer overall is doing well and they still are spending on experiences like travel. Your major hotels are doing very well and if you’re flying somewhere this summer, be prepared to pay more, maybe a lot more. In past cycles as demand increased, airlines would do everything they could to fill their planes with discounted seats and they would even offer more flights.

Airlines this time around have become smarter and have kept firm on not putting more planes in the sky. For the first quarter of 2025, domestic flying capacity is only expected to be 1.6% higher than the first quarter of 2024. Comparing the first quarter of 2023 to the first quarter of 2024 airlines did increase their capacity by 3.5%. Also hurting the supply of planes in-the sky is delayed plane deliveries from the manufacturer. This is causing a slowdown in airlines increasing their fleet. With the increase in demand, going forward airlines will be charging higher prices for those valuable seats and their profits are expected to rise as expenses stay roughly the same.

Who is really going to get hurt? The average traveler. The discount airlines have realized they can make more money increasing ticket prices by increasing seat space and giving bundles that also include better snacks and early boarding. The days of discount of flights from companies like JetBlue, Spirit and Southwest are becoming a thing of the past.

There are cracks in the housing market

Housing prices have held rather steady in the first month of 2025, but there is concern because pending home sales are declining. Year over year pending home sales fell by 5.5%, with the worst decline occurring in the western region as it was down 10.3%. This was followed by an 8.1% decline in the northeast and the Midwest fell 4.9%. Pending home sales looked the best in the south but still declined 2.7%. The lack of demand is causing houses to sit longer.

The typical home that went under contract sat for 54 days before the seller accepted an offer as of the four weeks ending January 26th. This was the longest time span since March 2020 and it was a week longer than this time last year. What is giving buyers concern and causing them to stay away from buying homes? A big problem is that magic 7% mortgage rate as the Covid era low rates are still too fresh in buyers minds to ignore. If the mortgage rate continues to climb that could push buyers off the fence because of feelings that they could see the rates go even higher, the problem is affordability would become even more challenging. The better alternative is for mortgage rates to drop, which makes higher housing prices more affordable.

Keep in mind that the Federal Reserve cutting interest rates does nothing for long-term mortgage rates, that is based on the supply and demand of long-term bonds and notes like the 10-year treasury. Buying a house at these rates is challenging as your expenses will be high and I think you’ll be disappointed on future returns as real estate does not appear to be on sale. With that said, there could be some opportunities with inventory expected to rise. According to Realtor.com, the number of newly listed homes jumped just over 37% in January compared with December. More inventory and struggling demand could cause prices to reset.