The latest inflation data will be out by the time you’re reading this. That data informs how the Fed will treat further rate rises. The Fed recently stated their preference for raising rates too far and fixing the ensuing damage with stimulus. In the meantime, I think we’ve all got the message that the Fed wants to slow the economy. There’s not a single sector that doesn’t feel an incoming slowdown.
Markets at this stage will rally at any whiff of a Fed pivot. At some point the Fed will lower rates, and for now that’s expected to be in December 2023. Markets are forward looking and at some point this inflation saga will be behind us.
Layoffs are an important indicator to watch. We mentioned last week that if Elon Musk can successfully operate twitter with -50% to -75% fewer staff that private equity and venture capital as well as some public companies will look to use the same playbook.
Meta just laid off 11,000 workers, but their headcount after layoffs is still up 35% since the start of the pandemic. Pre-pandemic comparisons are important because Meta would not have increased headcount by 60% without Covid stimulus.
December’s inflation numbers may send some misleading negative signals. Many commodity prices dipped from November to December in 2021, which makes the y/y inflation prints next month look higher. For example, oil is up +6% from November 2021, +28% from December 2021 and just +8% from January 2022. The most dramatic number gets the headline.
The overall immediate trends have not changed: inflation is slowly falling and rate hikes are slowing to a stop over the next few months. The next hike is December 14th and is split between .5% and .75%.
FTX – Crypto & The Blockchain
This week one of the largest and most respected crypto exchanges, FTX, essentially vaporized overnight. The founder SBF (Sam Bankman-Fried) had the fastest ever rise in wealth from zero to $30 billion over four years to what appears to be bankruptcy and -$600 million in debt. FTX had many notable institutional backers who collectively invested billions to fund the future of the business and used it to custody billions of crypto assets. They were on track to redefine the business model of exchanges. It’s too early to assess the extent of the damage with any confidence but their downfall was essentially the same as every catastrophic business failure – excessive use of leverage where it shouldn’t be used. Lehman brothers failed under the same leverage related issues, as did Long Term Capital Management and many others.
We used FTX as one of the custodians for our crypto fund because they were considered one of the best exchanges in the business. Fortunately we withdrew all FTX funds two months ago because they were not paying interest on cash deposits and treasury rates were getting too high to ignore. I feel awful for those who were impacted by this because the failure of FTX was considered unthinkable. This is now the second major bullet we dodged this year, the first being avoiding the crash altogether as we’ve held the fund almost entirely in cash since the start in November 2021. The future of blockchain technology is by no means over, but it is still very much in its wild west stage.
We generated this week’s image by googling an image of Icarus flying too close to the sun and telling Dall-E 2 to replace Icarus with a bitcoin logo. The entire process took about five minutes. I’m interested to see how these AI tools evolve from static images and into videos, like Google’s latest InfiniteNature.
delivered to your inbox
This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”
“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.
Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.
Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.
This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.
While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.
Adviser does not endorse the statements, services or performance of any third-party vendor.
Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.
Any IPO alerts are purely informational and should not be construed as recommendations to invest.
Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.
Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.