14 December 2022
H🐪ppy Wednesd🐪y🎄!
US large-cap S&P 500 closed 0.73% UP ▲ Tech-heavy Nasdaq Composite closed 1.01% UP ▲ Pan European STOXX Europe 600 closed 1.14% UP ▲ HK’s Hang Seng Index closed 0.68% UP ▲ Japan’s Nikkei 225 closed 0.4% UP ▲
📊 IN THE MARKETS
Better Inflation, Not too hot vs Not too cold, Twitter not paying rent
📝 FOCUS
FTX: “plain old embezzlement, old school, old school.”
📖 MoneyFitt EXPLAINS
🎓 The Federal Reserve
📊 IN THE MARKETS
Markets reacted positively to news that the consumer price index in the US rose by less than was expected for the second month running in November, though it remains way way above the Fed’s 2% target. The CPI was 7.1% higher than last November (“year-on-year” or YOY), the smallest annual increase since last December, and was slower than October’s 7.7% increase. (The CPI peaked in June at 9.1%, which was the highest since November 1981.) Inflation is slowing partly because the big price increases late last year start to drop out of the calculation, while The Fed’s aggressive interest rate hikes have also dampened demand somewhat, though the vast service sector remains pretty red-hot, as are wages and the job market (1.7 job openings for every unemployed person in October.)
Figures look even better if you look at prices compared to the month before (“month-on-month” or MOM) where prices in November were just 0.1% higher than prices in October (which were 0.4% higher than September.) Economists polled by Reuters had forecast November CPI would increase 0.3%. Core CPI, which excludes the volatile food and energy components, increased 0.2% MOM and 6.0% YOY after increasing 0.3% and 6.3% in October.
There are many adjustments you should make when dealing with inflation, but IF you were to have 12 months in a row of CPI (or any number) going up 0.1% each and every month, after a year it would be 1.2% higher (“year-on-year”).
Mini-explainer: Inflation
Inflation is basically a general increase in prices in an economy over a period of time. When this happens, the value, or purchasing power, of money goes down. Inflation is usually caused by too much demand for something relative to how much is available, or by the cost of producing (or importing) something going up. Both can lead to a vicious cycle of rising prices, usually when higher prices become expected.The Consumer Price Index is a way of measuring inflation in an economy based on the increase in the overall price of a “basket” of items that an average individual would spend on.
But after an initial 2.8% pop on the good inflation number, the S&P500 slumped to close up only 0.7%. Why? Though the CPI came in lower than what highly-paid Wall Street economists were forecasting, “the market” was partially expecting to be surprised. It doesn’t quite sound like it makes sense, but… welcome to markets. There is information in the price, as they say.
In fact, The Fed actually has TWO jobs: low inflation AND maximum sustainable employment.
IMAGE CREDIT: Marvel/Disney via Tenor
Tomorrow’s rate hike from the Federal Reserve 🎓 is almost universally expected to come in at 0.50% (50 “basis points”) after a record four straight hikes of 0.75% this year. In the accompanying statement, Fed Chairman Jay Powell may want to keep increasingly bullish expectations subdued as a strong stockmarket may have a wealth effect on consumers’ spending, and he is still walking a tightrope between letting inflation run away from him (again) and tipping the economy into a steep and painful recession with high unemployment.
Not too hot, not too cold, please, Mr Powell.
IMAGE CREDIT: DALL-E 3 from OpenAI
https://labs.openai.com/e/u7sjZ2OFg3nxbwsBHCaNWevE/ouhcdLExQmIWAij4r426YV5a
Meanwhile in Twitter (Hellscape Version) news, The New York Times reports that the social media company has not paid rent for its global offices or San Francisco headquarters in weeks in an effort to cut costs following Elon Musk’s US$44 billion Leveraged Buyout (LBO) acquisition. This loaded the company with US$1.2 billion of annual interest payments on the debt taken on to finance the deal. Other changes to the company as well as Musk’s own erratic antics at the helm, have caused advertisers to flee the platform, hurting sales and causing what Musk tweeted was “a massive drop in revenue.” (Musk’s team has been trying to renegotiate the company’s leases.)
📝 FOCUS
FTX: “plain old embezzlement, old school, old school.”
On Monday, Sam Bankman-Fried was arrested in the Bahamas and on Tuesday, he was charged in one of ‘biggest financial frauds’ in US history, with an indictment bringing eight criminal counts against the the person who had been the friendly, acceptable face of crypto, one of the good guys working diligently to “democratize finance.”
Charges by US prosecutors included conspiracy to commit wire, securities, and commodities fraud, money laundering, campaign finance violations and “conspiracy to defraud the United States.” He has now been denied bail in the Bahamas and is remanded in custody until early February.
The indictment was filed with the US District Court in the Southern District of New York, which is known for being highly independent and nonpartisan. Because it covers Manhattan, the SDNY is one of the most active and influential federal trial courts in the country and often has jurisdiction over the largest financial institutions. SBF has said he would fight extradition from the Bahamas to the US.
The SEC called the exchange “a house of cards”
IMAGE CREDIT: Tenor
In addition to the criminal complaint, the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) also charged Bankman-Fried with fraud. In all three, prosecutors said SBF took FTX customer funds and used them to pay expenses and debt at his Alameda Research hedge fund, and that he lied to both customers and investors.
In the four weeks (only four weeks!) since FTX filed for bankruptcy, SBF has been on a (legally inadvisable) virtual media frenzy, denying accusations that he defrauded FTX’s customers and trying to cast himself as losing control of a business that got too big too fast.
John J. Ray III, the famed insolvency lawyer who took the helm at FTX on its collapse, pointed to the concentration of power “in the hands of a very small group of grossly inexperienced and unsophisticated individuals” who failed to implement virtually any corporate controls. Ray also said that it is not “remotely believable” that SBF would be able to relaunch FTX and pay back customers.
The key issue for investigators is that “customer assets from FTX.com were commingled with assets from the Alameda trading platform.” FTX (over 50% owned by SBF) and Alameda (90% owned by SBF) are, on paper anyway, separate entities. The billions of dollars that FTX secretly lent to Alameda didn’t come from its own reserves, but rather were from other FTX customers’ deposits, the SEC said. A secret software hack allowed Alameda to keep borrowing funds even if the value of the collateral securing those loans collapsed. It was like an unlimited line of credit drawn on FTX’s customers, and blowing up the way it did was inevitable.
Apologies for the late posting. Technical difficulties.
Thank you for spending a few minutes of your time with us. Remember to take time for yourself and be thankful for what you have.
📖 MoneyFitt EXPLAINS
🎓 The Federal Reserve
The Federal Reserve System is the central bank of the United States. It is independent of the government even though the Chair is appointed by the President at the time and it is accountable to Congress. It’s made up of twelve individual banks, but the main thing you should watch out for is the policy of the FOMC or the Federal Open Markets Committee, which sets the interest rate.It meets eight times a year, regularly sending Wall Street into a speculative frenzy, because the decisions made regarding interest rates can have such large effects on the real economy and on asset markets.The main thing to remember is that, unlike most independent central banks around the world, the Fed has a “dual mandate”, meaning that not only does it have to keep inflation under control (meaning around 2%) through all means necessary, it is also has to seek “maximum sustainable employment”… not meaning zero unemployment, but a level that is neither a boom nor a bust rate of (un)employment. This makes the Fed chairman’s job even harder!
Please do your own research – we create educational and entertaining content so you can start the day understanding the financial and business worlds a little better. However, this is NOT financial advice.
MoneyFitt (Spendolater Pte Ltd) is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. The information contained is not intended to be a source of advice or credit analysis with respect to the material presented. Any ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial, tax or legal professional and independently researching and verifying information. Content is intended to be used and must be used for informational purposes only.
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