By: Jeff Anderson
|Close||Weekly return||YTD return|
|US Treasury 10yr Yield||3.829%|
Source: Wall St. Journal
After an explosive week in the markets last week, it was no surprise to see the markets take a bit of a breather this week. We did get some more encouraging inflation data this week, with the US Core Producer Price Index dropping below 7% for the month of October. On Friday, we got US Existing Home Sales numbers, and, as expected, they were lower. Sales were down almost 6% for October and nearly 30% for the year. These are not prices, just sales of actual homes. With mortgage rates near 7%, the market has all but frozen over in many parts of the country. Both buyers and sellers seem to be in a holding pattern, with neither willing to budge.
Equity markets have had a nice bounce from the end of September, with the S&P 500 gaining a little over 10%. US Small caps fared slightly better, nearly notching a 11% gain. Even the fixed income markets have been in positive territory, with the US Bond Aggregate Index returning a little over 1.25% since October 1st. Investment Grade Corporate Fixed Income securities did even better, returning nearly 4%. Part of this can be attributed to the declines seen in the 10 Year US Treasury Note, which have seen their yields decline from the 4.3% area down to roughly 3.8%. That seemingly small move in yield is meaningful, both for longer maturity bonds and equities.
We are a solid week and half past the mid-term elections, and there were some surprises. The Democrats seemed to defy the odds and retain control of the Senate. It will either be 50 or 51 seats, depending on the Georgia election runoff results. But that won’t matter, as the Vice President has the deciding vote in the Senate. Many of former President Trump’s endorsed candidates didn’t fare very well. The Republicans will have an interesting decision to make when it comes to who will represent the party in the next national election. Governor DeSantis of Florida had a monster victory and looks poised to be a potential candidate. Mr. Trump announced that he’ll be running again. We shall see.
We haven’t mentioned much about crypto currencies, but the sudden unraveling, and subsequent bankruptcy, of FTX this week has splattered the headlines and warrants a paragraph. Pushing aside your thoughts on crypto, what we should focus on is this pervasive defect in our DNA that continues to get people into (financial) trouble. Part of it is greed yes, but more importantly is the assumption that successful people who are investors have done the due diligence to vet the investment and that should be good enough for the rest of us. From what we know at this point, there appears to be a fair amount of fraud. How some of this was overlooked by some heavy hitters is always amazing to me. According to Forbes, at least 20 billionaires got caught up in it. Once one person has apparently “done the work”, the next person says they have too, but its really basing their opinion from what they heard from that person. As the chain of these people grows in length, it appears that everyone has vetted it, and, if its good enough for the first 10 billionaires then it should be good for the next ten. It reminds me of the fraud that happened in San Diego last year. Gina Champion-Cain ran an enormous Ponzi scheme, purportedly investing in liquor licenses and promising a rate of return that was much better than was available from other types of private lending. Some smart people got left holding the bag. I know this firsthand because her investment opportunity was shown to me while I was at my previous firm. I had spent months trying to vet her business. I met her twice. She didn’t seem like a fraud. But then again, who does until they’re caught?! She couldn’t answer some very basic questions of mine, so my due diligence just kind of hit a wall and I had pushed it to the sidelines until she and her team provided the information. Well, it never came. The next time I heard her name was on local TV one morning announcing her arrest. I’d be happy to share the story in greater detail at our holiday party if any of you get bored (which you won’t! Ha-ha).
China Continues to Struggle with Covid:
New Daily Cases Jump as the Government lifted some restrictions. Without a vaccine, lockdowns have been the main line of defense. They seem to be, according to a Wall Street Journal article, in a battle between excess measures and irresponsible loosening of those excessive measures. There is just no easy answer. It is tough for Americans to imagine that the pandemic still exists. We’ve emotionally moved on from it, but it is very real in other parts of the world.
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