DIASTOLE ECONOMIC AND MARKET COMMENT
November 14, 2022
What a week! The election that keeps giving, a better-than-expected inflation report, a market rally, and a crypto collapse. Hand me the popcorn.
First, the election, or “why can’t they count faster?” As of this morning, the Democrats will retain control of the Senate with one more seat to be determined. The House of Representatives is likely to move to Republican control, although results are still coming in. Investors, in general, like divided government - so that nothing extreme can be accomplished in Washington.
Markets fell on Wednesday, and many blamed the resurgent Democrats, but Sam Bankman-Fried was far more responsible. The now-former Chairman of FTX - a major cryptocurrency exchange - was taken down by Binance (a rival exchange), which first announced that it would sell all of its holdings in FTX’s FTT tokens, causing a run on the exchange. Then, when FTX was facing a major liquidity crisis, Binance swooped in and said, well, I think we’ll bail out FTX. But one day later it decided that FTX was in too much trouble to be helped. Oops. The bottom fell out of FTX, crypto of all kinds dropped in price, and FTX finally filed for bankruptcy on Friday. At the time, it was reported to have held just $900 million in liquid assets, versus $9 billion in liabilities. And THEN there was an unauthorized withdrawal [read: hack] of about $477 million from FTX. Bigger oops. Bankman-Fried is being investigated and keeps having to verify that he hasn’t escaped to South America. His once-massive $30 billion fortune has turned to dust, and people are trying to decide if FTX is more like Lehman Brothers, or more like Enron. But of course, crypto in general is more like tulips or musical chairs. Beware when the music stops.
FTX is a victim of mismanagement, but also of the Fed raising rates. A lot of companies that shouldn’t succeed can keep going when money is cheap, but fall apart when they actually have to pay interest on their loans. The question is, who is next?
In a related story, Bitcoin is now worth about $17,000 apiece, down from a high of $64,000 one year ago. Meanwhile, the high-end most-efficient bitcoin-mining computers available have fallen in price by 77% over this past year. Supply and demand at its most efficient.
Then there was Thursday, The Consumer Price Index (CPI) for October was released, and while still bad, it was much better than expected. Prices in general rose 7.7% annualized, versus expectations of 7.9%. (CPI was 8.2% in September.) Core CPI, which disregards food and energy, rose 6.3%, down from September’s 6.6%. This does not mean that prices are falling - only that they are rising more slowly.
But markets went wild. Investors took the CPI news and extrapolated that it would cause the Federal Reserve to raise rates more slowly in the future. (The Fed is raising rates to stomp on demand and fight inflation.) On Thursday alone, the Standard & Poor’s climbed 5.5%, the Dow Jones Industrials rose 3.7%, and the Nasdaq Composite Index rose 7.4%. The Nasdaq, which has been the most beaten-down index because higher yields weigh heaviest on debt-heavy tech stocks, was the biggest climber as investors, momentarily, returned to growth stocks.
Money also flowed into Treasurys (aka Treasuries), pushing prices higher and yields lower. Investors were quick to think they should lock in yields before the higher yields were no longer available.
For the week, the Nasdaq was up 8.1%, the S&P was up 5.9%, and the Dow rose 4.2%. Perhaps the biggest indicator of investor optimism was Friday’s market results. Instead of profit-taking after Thursday’s big rally, we saw markets up slightly more.
I am not saying that we have bottomed in equity markets. I don’t know that. But the S&P has risen more than 11% in the past month, which means that SOMEONE believes it. If you’re thinking about either getting back into the market, or taking gains or losses in your portfolio, call your advisor.
Hidden somewhere in last week’s positive news was the very good report from Ukraine that Russian forces abandoned the city of Kherson, which they had occupied since the beginning of the war. At first wary that the Russians were trying to trick them, the Ukrainian forces eventually swept into the city without facing Russian counterattacks.
Jeff Bezos and his long-term girlfriend Lauren Sanchez have awarded a $100 million Courage and Civility award to Dolly Parton, for her to use in any charitable way that she sees fit. Already known for her philanthropy, Ms. Parton responded by saying, “I will do my best to do good things with this money.” Awwwww. We love Dolly!
For the week ending on November 11th (Veterans Day), the S&P closed at 3,992, the Dow at 33,747, and the Nasdaq at 11,323. The yield on the ten-year Treasury Note closed on Thursday at 3.829% (the bond market was closed on Friday). New York gold cost $1,769.40 per ounce, U.S. crude oil cost $88.96 per barrel, and one Euro was worth $1.04.
Elizabeth E. Cook
Partner, Diastole Wealth Management
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Insider, Yahoo Finance, Bloomberg, The New York Times, The Wall Street Journal, The Washington Post, USA Today, CNN, CNBC, The Economist, Barron’s, Fortune, Forbes, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220.
If you’ve always wanted a 1967 Mustang, but wished it were exorbitantly expensive, your opportunity is here! Charge Cars, an electric-vehicle startup, is making an electric replica of the ’67 Mustang Fastback that will only set you back $450,000. Yay? The car has four motors and will travel 0 to 60 in 3.9 seconds. Deliveries will start next year. Charge Cars was founded in 2016, and this is their first classic-car replica, although it is not expected to be their last. Of course, that will depend on their remaining in business. What could go wrong?
And finally, the National Park Service has warned visitors not to lick the Sonoran desert toad. Which will no doubt give some people the idea to lick the Sonoran desert toad. The toad is known for its toxic secretions, which can cause euphoria and auditory hallucinations WHEN SMOKED, but causes serious illness when ingested. Also, tell your dogs not to lick the toads, as the toxins could be fatal to them. My questions: how do we know this, and WHO DID IT FIRST?