No Longer Transitory
Fall Update 2026
To our Families, Clients and Friends:
Our apologies on the length of this missive. There is a LOT going on in markets, and accordingly we have lots of thoughts.
Fall has arrived in Richmond, and with it a market that seems determined to test everyone's conviction. In March, we warned of Higher for Longer as the war with Iran ripped through the energy complex, though we still expected cuts in rates. In July we wrote that the Exponential Age was accelerating and that the "AI kills everything" narrative was overdone. Seven and a half months into the conflict, we want to tell you plainly where we were right, where we were wrong, and how we are positioned from here.
The short version: the current wave of AI anxiety is a misread, and we remain constructive on tech and crypto; the war is not ending, oil remains elevated and our economy needs more energy, which we prefer to own in private markets rather than public ones; interest rates are likely headed higher over time; and we are stepping aside from real estate and traditional fixed income.
Where We Were Wrong
We'll start with the miss. We thought the 10-year Treasury would trend toward 2%–3%, giving the Treasury room to refinance its debt at lower cost, and as recently as July we wrote that a Warsh-led Fed would not raise rates. That has not happened. On September 16 the Fed raised its benchmark rate a quarter point to 3.75%–4.00%, its first hike under Chair Warsh, and policymakers penciled in one more before year-end.[1] Yesterday’s September CPI report showed headline inflation running 3.7% year over year, with gasoline alone up 9.1% for the month.[2] The 10-year Treasury closed at 5.19%.[3]
Two forces did us in.
The war: an energy shock of this size and duration feeds directly into inflation and keeps the Fed from easing.
Inflation: persists having never fully cooled after the pandemic. History matters here. For most of the decade after the 2008 financial crisis, and again in 2020, the Fed held short-term rates near zero, and real (inflation-adjusted) rates were negative for years, yet inflation stayed subdued. It was only after more than $5 trillion of pandemic-era fiscal stimulus flowed into the economy in 2020 and 2021 that inflation took hold[4], and that excess has not fully worked its way through.
A war-driven oil shock on top of sticky inflation has turned ‘higher for longer’ into simply ‘higher.
Not everyone agrees. Andreas Steno Larsen of Steno Research, a regular on Real Vision's Macro Mondays, noted after the CPI report that live measures of rents and used-car prices are running softer than the official numbers: "The BLS prints hot, the live data prints soft. The Fed trades the BLS."[5] He expects "a short-lived hiking cycle."[6] We hope he is right on timing. But between war, deficits and sticky energy costs, we think the long-run direction for rates is up. That is why we are being patient with fixed income. Except for bonds bought to defray a known future expense, we will likely look to bonds later in the future, especially once the 10-year crosses 7%.
The War That Won't End
We had hoped this conflict would prove transitory. It has not. Absent a ground campaign which carries enormous costs of its own, there is no clear path to a quick end, and Iran is digging in. Tehran has expanded naval surveillance around the Strait of Hormuz, and attacks on merchant shipping in early October reached the worst levels since the war began. Gulf oil flows that had recovered to more than 80% of pre-war levels in September fell sharply again last weekend.[7] Mikkel Rosenvold, Steno Research's head of geopolitics, wrote this morning: "If Iran can't get a deal soon (which seems very unlikely), they have to deepen and broaden the war effort. They are moving into 'total war' territory."[8]
Brent crude settled Monday at $106 a barrel and WTI at $95.[9] Steno, who has been notably skeptical of the "$200 oil" crowd, makes an important distinction: "There is enough oil. The issue remains products."[10] Refineries and energy infrastructure across the region have been damaged, and the International Energy Agency warned Monday that diesel constraints could last well into 2027.[11] Whether the bottleneck is crude or refined product, the result for consumers and businesses is the same: energy costs stay high.
Oil: Own It Privately
Energy has been a core thematic allocation for us since the early days of the AI buildout, and the war has only strengthened that case. How we own it matters. Public energy stocks have historically disappointed investors beyond modest dividend yields, and today they trade on every headline out of the Gulf. Private-market energy lets us own production, generation and real assets directly, is less exposed to the daily swings in public-market sentiment, and has delivered strong cash distributions. Our preferred vehicle remains the CAZ Energy Evolution Fund, and we continue to add to it to client accounts who are qualified purchasers.
AI: The Volatility Is the Misread
Rising yields and a narrowing rally have revived the "AI bubble" chorus, complete with dot-com comparisons. We think that's wrong, and we're in good company. Jordi Visser of 22V Research put it bluntly in a recent video: "It is insane to me that people are sitting there saying that this is going to be like the dot-com bubble."[12] His point is that bubbles form when supply gets ahead of demand, and that isn't happening. Compute remains scarce, and the new source of demand is AI agents, whose numbers he expects to grow from thousands today to billions. In his words, "The true bubble that does exist is in the old economy: companies that only survived because rates stayed near zero."[13]
That fits our view. Higher rates are a problem for heavily indebted, rate-dependent businesses, not for the cash-rich leaders of the digital economy. Visser notes that big tech now makes up roughly 56% of the S&P 500, compared with just over 10% in 2008, and that these companies rely far less on borrowing. He would only worry about rates long-term if yields rose well above 7%, with nominal GDP growing near 6.5%.[14] Raoul Pal of Real Vision, who gave us our Exponential Age framework, said it best after the Fed's September hike: "The Fed can set the price of money, and it just did, but it can't set the price of intelligence."[15]
Inflation, PPI and the Neocloud Wobble
Andreas Steno Larsen's note to Real Vision members added useful detail to the CPI picture.[16] Inflation is getting narrower, not broader. The share of CPI components rising faster than 3% annualized fell from roughly half to about 40% in September, back to its long-run average, on the breadth measure Chair Warsh is said to prefer. Core CPI rose 0.33%, but most of the heat came from two lagging, consumer-only categories: used cars (+0.67%, while Manheim's wholesale index is down year over year) and shelter (+0.39%, while Zillow shows rents up 2.5%). Strip those out and core is closer to 0.2%, plus energy feeding through. Even so, Steno does not think it changes the Fed's decision on October 28, because the committee acts on the number in front of it. In other words, another hike is the base case. That is consistent with our view that, for now, inflation is about energy and the war.
This morning’s Producer Price Index was hotter still. Wholesale prices jumped 1.3% in September, the biggest monthly rise since March 2022 and more than double expectations, and are up 6.3% from a year ago. Core producer prices rose 0.7% against a 0.3% forecast. The PPI doesn’t include the shelter and used-car categories that pushed core CPI higher, so this one is harder to explain away. Energy costs are now feeding into goods prices more broadly.
After the PPI, CME FedWatch put the odds of an October hike below 30% and a hold at about 71%. Markets price better than 95% odds of at least one hike by year-end. And contrary to Steno’s opinion the day before, PPI seems to mitigate against the narrowing idea.
The sharpest move this week came in the "neoclouds," the former Bitcoin miners that now rent data-center capacity to AI companies. The group fell 7–13% on Monday. The largest fell 13% after the yield on one of its bonds touched 15% and it announced plans to raise new equity and convertible debt. Steno sums up their business model in one line: "Fixed revenue, floating cost, and the cost just moved."[17] With the 10-year trading above 5.3% at times this week, financing for capital-heavy AI landlords got more expensive overnight.
Importantly, the demand for compute did not change. This distinction is the heart of our AI view. This selloff is about financing, not demand. One quarter ago, the hyperscalers said they would use more outside capacity, not less, signing contracts worth $9.7 billion and $19 billion, partly because renting keeps the debt off their own balance sheets.[18] We will hear from Microsoft, Alphabet, Meta and Amazon on October 28–29. As Steno puts it, "the group has priced the dilution, the hyperscalers have not yet spoken, and the gap between those two is the trade."[19] He still likes semiconductors, and his regime model now favors the dollar, oil and uranium, with gold holding up and long-duration bonds lagging. That fits our positioning: constructive on tech and semis, bullish on oil, wary of duration.
Liquidity, Debasement and Crypto
In January we exited crypto entirely and in July we expected the bear market to continue. We have changed our view, and we are gradually moving back into crypto and blockchain. The macro backdrop that drives crypto, global liquidity, is still growing. Pal estimates global liquidity at roughly $144 trillion, up about 6% from a year ago,[20] and reads the ISM manufacturing index (54.5 in September, its ninth straight month of expansion)[21] as "mid-cycle, not late."[22] He also makes a sobering point about debasement: global liquidity grows at roughly 8% a year to service the world's debts, and "add around 3% inflation and you're facing an 11% hurdle rate just to break even."[23] Few asset classes clear that bar. Tech and crypto are two that historically have.
Both Pal and Visser see AI agents as the next driver of crypto adoption, because machines that transact with each other need fast, programmable payment rails. "My guess is they'll get more adoption over time as AI uses them," Pal said of Ethereum and Solana.[24] Jamie Coutts, Real Vision's chief crypto analyst, puts the scale in perspective: "This market is roughly $3T today. Over the next 5-10 years I think it gets to $10-20T, and that capital has to come from somewhere."[25]
None of them expects a smooth ride. Pal says the dollar is the swing variable: "If they can engineer the dollar lower, then we get a green light for further movement in crypto."[26] Coutts warns that debt has grown faster than liquidity since 2021 and that stress is showing in the dollar, bond-market volatility, long-term yields and credit. Even so, he notes that Bitcoin has already been through a deep reset without the leverage usually seen at this stage, and "I think Bitcoin will surprise if there is a risk-off period."[27] We agree with both of them: tech and crypto are headed higher over time, with plenty of volatility along the way.
Real Estate: Stepping Aside
In March and July we described a possible housing-led rebound driven by lower rates. With rates headed higher, we no longer expect it. We see little upside in real estate for the foreseeable future and are not making new allocations to the asset class.
What We Are Watching
The war and Hormuz. Any credible path to a deal, or escalation toward ground operations. Energy remains the swing variable.
The Fed and inflation. PPI, then the Fed's October 28 decision, where marketreat another hike as the base case.
Hyperscaler earnings, October 21–28. Whether Microsoft, Alphabet, Meta and Amazon confirm their demand for outside AI capacity.
The 10-year yield. Now above 5%. A move toward 7% is where fixed income gets interesting for us again.
The dollar. "green light" for crypto and global liquidity.
The November midterms. Politics and military outcomes have rarely been more closely intertwined.
As always, our focus remains on compounding long-term value through thoughtful allocation, disciplined portfolio construction, and opportunistic deployment amid volatility. We were wrong on rates, and we would rather tell you so than pretend otherwise. But the Exponential Age is not a quarter or a year. It is a decade-plus regime, and we intend to be positioned for the whole ride.
We look forward to seeing many of you this Fall. Please reach out with any questions or concerns.
Warmest regards from Richmond,
Jeff & Biff
October 15, 2026
CrossGrain Family Investments, LLC (CrossGrainFI) is a federally-Registered Investment Adviser. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Please contact us at (804) 217-2561 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from CrossGrainFI with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request, and on the SEC website, https://adviserinfo.sec.gov. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis.
[1] Board of Governors of the Federal Reserve System, "Federal Reserve issues FOMC statement," Sept. 16, 2026, https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm; Reuters, "Fed policymakers forecast one more rate hike this year," Sept. 16, 2026, https://www.reuters.com/business/fed-forecasts-see-latest-hike-followed-by-another-before-end-year-2026-09-16/
[2] CNBC, "CPI inflation report September 2026," Oct. 14, 2026, https://www.cnbc.com/2026/10/14/cpi-inflation-report-september-2026.html
[3] U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates, Oct. 14, 2026, https://home.treasury.gov/resource-center/data-chart-center/interest-rates/daily-treasury-rates.csv/2026/all?type=daily_treasury_yield_curve
[4] Committee for a Responsible Federal Budget, COVID Money Tracker, https://www.crfb.org/project/covid-money-tracker
[5] Andreas Steno Larsen (@AndreasSteno), post on X, Oct. 14, 2026, https://x.com/AndreasSteno/status/2110371519440282102
[6] Andreas Steno Larsen (@AndreasSteno), post on X, Oct. 14, 2026, https://x.com/AndreasSteno/status/2110302091893715207
[7] Priyanka Shankar, "Iran steps up Hormuz surveillance: Attacks soar, oil flows crash again," Al Jazeera, Oct. 14, 2026, https://www.aljazeera.com/news/2026/10/14/iran-steps-up-hormuz-surveillance-attacks-soar-oil-flows-crash-again
[8] Mikkel Rosenvold (@RosenvoldGeo), post on X, Oct. 14, 2026, https://x.com/RosenvoldGeo/status/2110268269995200884
[9] CNBC, "Oil rises amid growing tensions between Saudis and Iran-backed Houthis," Oct. 14, 2026, https://www.cnbc.com/2026/10/14/oil-rises-amid-growing-tensions-between-saudis-and-iran-backed-houthis.html
[10] Andreas Steno Larsen (@AndreasSteno), post on X, Oct. 13, 2026, https://x.com/AndreasSteno/status/2110093502722040003
[11] CNBC, "Oil rises amid growing tensions between Saudis and Iran-backed Houthis," Oct. 14, 2026, https://www.cnbc.com/2026/10/14/oil-rises-amid-growing-tensions-between-saudis-and-iran-backed-houthis.html
[12] Piero Cingari, "Forget the AI Bubble: Jordi Visser Says the 'Bankpocalypse' Has Begun," Benzinga, Oct. 8, 2026 (republished by Yahoo Finance, Oct. 12, 2026), https://finance.yahoo.com/markets/stocks/articles/forget-ai-bubble-jordi-visser-143008078.html
[13] Jordi Visser, "Climbing the AI Bubble Wall of Worry," YouTube (video description), Oct. 11, 2026, https://www.youtube.com/watch?v=I37HGwosZgA
[14] Piero Cingari, "Forget the AI Bubble: Jordi Visser Says the 'Bankpocalypse' Has Begun," Benzinga, Oct. 8, 2026 (republished by Yahoo Finance, Oct. 12, 2026), https://finance.yahoo.com/markets/stocks/articles/forget-ai-bubble-jordi-visser-143008078.html
[15] Raoul Pal, "Portfolio Update," The Exponentialist (Substack), Sept. 25, 2026, https://theexponentialist.substack.com/p/portfolio-update
[16] Andreas Steno Larsen, RV Alpha, Real Vision, Oct 14, 2026 (subscriber note).
[17] Andreas Steno Larsen, RV Alpha, Real Vision, Oct 14, 2026 (subscriber note).
[18] Andreas Steno Larsen, RV Alpha, Real Vision, Oct 14, 2026 (subscriber note).
[19] Andreas Steno Larsen, RV Alpha, Real Vision, Oct 14, 2026 (subscriber note).
[20] Raoul Pal, "Portfolio Update," The Exponentialist (Substack), Sept. 25, 2026, https://theexponentialist.substack.com/p/portfolio-update
[21] Institute for Supply Management, Manufacturing PMI Report, September 2026, https://www.ismworld.org/globalassets/pub/research-and-surveys/rob/pmi/baby202609pmi.pdf
[22] Raoul Pal, "Portfolio Update," The Exponentialist (Substack), Sept. 25, 2026, https://theexponentialist.substack.com/p/portfolio-update
[23] Raoul Pal, "Global liquidity grows at roughly 8% a year," post on LinkedIn, Sept. 2026, https://www.linkedin.com/posts/raoul-pal-real-vision_global-liquidity-grows-at-roughly-8-a-year-activity-7500641164392321024-MTET
[24] Yohan Yun, "Capital starting to rotate back to crypto from AI: Raoul Pal," Cointelegraph Magazine, Oct. 6, 2026, https://cointelegraph.com/magazine/weaker-dollar-crypto-green-light-raoul-pal-trade-secrets
[25] Jamie Coutts (@Jamie1Coutts), post on X, Sept. 14, 2026, https://x.com/Jamie1Coutts/status/2099647381247779161
[26] Yohan Yun, "Capital starting to rotate back to crypto from AI: Raoul Pal," Cointelegraph Magazine, Oct. 6, 2026, https://cointelegraph.com/magazine/weaker-dollar-crypto-green-light-raoul-pal-trade-secrets
[27] Jamie Coutts (@Jamie1Coutts), post on X, Oct. 2, 2026, https://x.com/Jamie1Coutts/status/2105836633824371014
