Weekly Reflection for November 11, 2022

Market Update in Charts

It was not the elections that led to one of the biggest single-day rallies in the stock market but rather lower inflation. October's annual inflation rate to 7.7% from 8.2% in September. While stocks soared, the dollar and bond yields fell. Investors are expecting, or hoping, that the Federal Reserve will slow the pace of interest rate hikes in the near future, even if interest rate cuts are quite a ways off.

The U.S. is not alone in inflation woes. While we saw it here earlier and stronger upon "reopening" in 2021, most of the rest of the world is catching up. The Eurozone looks better until you add in food and energy, which are excluded in this chart. All in, E.U. inflation is over 10%.

Around the world, tight labor is leading to higher wages to lure employees, lending to the aforementioned inflation.

Given where the economy appears to be headed, Morningstar, Vanguard and Research Affiliates are making the case for better returns for bonds andforeign markets than U.S. equities over the next 10 years. Bonds will be on par with U.S. equities but with less volatility. International, developed and emerging, markets present the best opportunity for reward. These securities have been beaten down in a world where technological dominance has been the strongest market force over the last 20 years.

Headlines and eyeballs are all on the cryptocurrency world after one of the world's largest exchanges, FTX, lent its customers' money to its sister company that needed to pay off some bad bets. Read below for more information but note that this chart was created during the few hours that Binance agreed to save the day. They have since reneged on that.

Crypto in Crisis, Again

FTX was one of the world’s largest cryptocurrency exchanges before it just collapsed. In a matter of days $30 billion

of wealth evaporated, causing a cascading decline amongst all digital assets. Whiz-kid and seemingly genuine nice guy Sam Bankman-Fried was the CEO and personally lost his $16 billion digital fortune in the blink of an eye. For those who have been predicting full crypto implosion, they are reveling in this “I told you so” moment. They never believed in the purpose of digital money or understood what problem it was seeking to solve. From the highest point a year ago, the market value has fallen from $2.9 billion to under $800 million today.

FTX reportedly lent $10 billion in customer assets to its sister trading firm, Alameda Research. Alameda needed to the money to back up risky market bets which were not panning out as expected. On Tuesday FTX struck a deal to be acquired and bailed out by rival exchange Binance. By Wednesday Binance nixed the deal, citing FTX’s problems as too large to be overcome.

Cryptocurrencies' problem is that beauty is in the eye of the holder. The value on any given day balances precariously on the enthusiasm of its investors and that enthusiasm has a tendency to evaporate. None of the 9,317 different digital coins listed on exchange Coinbase as of today are backed by anything other than investor demand. The downturn in the world economy and the fall in the price of Bitcoin, the original crypto, has rocked cryptocurrency's founding purpose which was, at inception, the desire to use the internet to send payments free of regulation. Speculation and bad actors have burnished the beauty and with no other backing, like that of a government ornon-digital asset, anathemas to digital coins, these are dark days. By comparison, the foundation and appeal of other investments is easily definable. U.S. Treasuries are backed by faith in our government’s ability to generate income via taxation. Stock prices are based on the value and viability of the businesses they represent. Real estate values are based on a building, location and, or, topography of the property. While valuations of all assets shift and move based on innumerable characteristics, crypto assets remain for now extremely vulnerable to the mood in the room and the standards of beauty on any given day.