Holding cash feels comforting – like a safety blanket when markets or headlines get noisy. But that comfort often comes with a hidden cost.
Right now, many savers are sitting in money markets, CDs, or high-yield savings accounts earning roughly 3.8%. That sounds decent on the surface… until taxes and inflation get involved.
If you’re in the 22% tax bracket, that 3.8% yield shrinks to about 2.96% after taxes. With inflation hovering near 3%, your “safe” money is barely keeping up – if it’s keeping up at all.
And the challenge doesn’t stop there. The Fed has signaled rate cuts over the next year, meaning today’s yields may quickly become tomorrow’s disappointment. What feels secure now can become obsolete faster than most investors expect.
We recently spoke with a client with $50 million in cash who insisted, “This can’t lose money.” To him, “losing” meant a 30% decline – something he understandably wanted to avoid. But when we asked if he was comfortable with a small potential dip – maybe 5% in an extreme market – in exchange for potentially doubling his income, he immediately reconsidered.
Because once you see the real math behind idle cash, the bigger risk is often standing still.
The Fed’s High-Stakes Decision
All eyes are on Jerome Powell as the Federal Reserve heads into one of its most unusual meetings in years.
Markets see almost a 90% chance of a rate cut. Powell, however, has emphasized that the committee is far from unanimous. October comments revealed stark differences of opinion, and he warned that a cut is not guaranteed.
To make matters more complicated, the Fed is operating without fresh data. A government shutdown delayed key inflation and employment reports, meaning policymakers are making a major decision using information that’s weeks old.
The last available data showed unemployment rising (a reason to cut rates) and inflation rising (a reason not to cut). With new numbers arriving after the meeting, the Fed must choose whether to act preemptively – or risk repeating July’s misstep, when it held rates steady two days before extremely weak jobs data landed.
Could Nvidia Fall 50% Again?
Nvidia has been one of the standout investments of the AI era. We own it. We believe in AI’s long-term future. But the stock’s history is impossible to ignore.
Even after an extraordinary run, Nvidia has already pulled back nearly 20% from its peak – and historically, its corrections have been vicious:
– Five separate 50% declines
– Four drawdowns greater than 60%
– Two crashes of 85%
Why does caution matter now? Because the competitive landscape is changing rapidly.
Just months ago, Nvidia appeared poised to dominate nearly all AI-related spending. ChatGPT — which relies heavily on Nvidia hardware — was the undisputed leader. Investors priced in a path that could make Nvidia the world’s most valuable company.
But momentum has shifted:
– Prediction markets now show Google’s Gemini overtaking ChatGPT
– Gemini uses Google’s own chips, not Nvidia’s
– Meta has hinted at leaning more toward Google’s chip ecosystem
– Nvidia-linked suppliers have stumbled while Google’s ecosystem has strengthened
If Nvidia’s monopoly-like status fades, so does the case for sky-high margins and market share.
A 50% drop is not a forecast — but based on its history and the evolving AI landscape, it’s a scenario investors should be mentally prepared for.
What to Watch Next Week
🔹 Federal Reserve Announcement (Wednesday)
Markets expect a cut, but the committee is split. Any surprise could spark volatility.
🔹 New Inflation & Jobs Data
Fresh numbers arrive right after the Fed meets, offering clarity on the economic path heading into 2025.
🔹 AI Chip Spending Updates
Meta, Google, and Microsoft may provide insights into their chip orders — a key signal in determining the real winners of the AI hardware race.
🔹 Year-End Market Movements
Tax-loss harvesting, institutional rebalancing, and light holiday trading can all amplify market swings.
