What caught my eye this week.
Last week the major US exchanges went bananas on a strong signal that US inflation might be turning.
And that was very good news.
You know that old adage about it being important to remain invested at all times – because if you miss a handful of days you will miss most of the return?
Here’s what that looks like in practice:
These look like somewhat mediocre returns for a whole year. But they happened in 16 hours of trading.
Admittedly, I have a love/hate relationship with the old “don’t miss the best days” schtick. As a very active investor who watches the markets like most people follow their favorite football team, I feel the rollercoaster ride of a year like 2022 in my guts.
So I sometimes wonder how missing out on the best days might be worth it if you miss the worst days too. The optimal – but to be clear, hugely inadvisable – thing to do this year was to sit out the whole shebang out in cash.
(Inadvisable, sadly, because the books about successful investors who have consistently got in and out of markets wholesale for a profit would be welcome on any ultra-minimalist’s bookcase.)
Begone foul pestilence
Anyway, the inflation news is a big deal. Much bigger for markets than the US mid-term elections, which dominated the US media for a fortnight.
The consumer price index rose less than expected in October, an indication that while inflation is still a threat to the US economy, pressures could be starting to cool. The index, a broad-based measure of goods and services costs, increased 0.4% for the month and 7.7% from a year ago, according to a Bureau of Labor Statistics release Thursday.
Respective estimates from Dow Jones were for rises of 0.6% and 7.9%.
Excluding volatile food and energy costs, so-called core CPI increased 0.3% for the month and 6.3% on an annual basis, compared with respective estimates of 0.5% and 6.5%.
Regular readers will recall I’ve been expecting inflation to ease for months. It didn’t happen. Indeed rates have gone higher than almost anyone predicted this time last year, as market expectations have been repeatedly confounded.
The result has been a brutal 12 months for pretty much everything. Stock-picking has been brutal. Some of the car crash US growth shares already down 80%-90% this year found it in themselves to drop another 10% in a day earlier this week. The proximate cause was yet another crypto crash (see the links below). But it is inflation and rates that have driven most of the de-rating in shares and the crushing of bonds this year.
And so if – and we still can’t be sure – US inflation really has turned, then we could have seen the bottom of this bear market.
US rates deliver the (un)attractiveness of US markets. That sets the tone for markets around the world. The rapid pace of US rate rises also sent the dollar to lofty levels, dragging up rates around the world. All this could unwind if the threat of ever-higher inflation has been defeated.
Markets – which look forward – could move more than you’d think in response.
Leave your chickens uncounted
None of this means the interest rate rises are over – in the US or anywhere else.
Market interest rates moved far faster than official rates, as traders bet on the direction of travel. Higher rates from central banks still playing catch-up are baked-in, over there and over here.
But again, the top for rate expectations would be in if inflation is rolling over.
Mortgage rates – much higher than I believe central bankers would prefer – should start to ease too.
On the other hand, something stupid could happen again and throw this all off course. Or the CPI numbers could be revised. It’s an unpredictable world, and investing is all about uncertainty.
Which is why, despite everything, it’s best to stay mostly invested.
Have a great weekend everyone.
Our updated guide to help you find the best online broker – Monevator
Rich friends, poor friends – Monevator
From the archive-ator: Gagadom and the Grim Reaper – Monevator
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Jeremy Hunt expected to lower the threshold for the top 45% tax rate – Guardian
Recession looms as UK economy starts to shrink – BBC
House price rises ‘grind to a halt’ as lettings market grows, says RICS – Housing Today
UK interest rates predicted to peak next year at lower-than-expected 4.5% – This Is Money
Treasury discussing raising the energy price cap from April – Guardian
London’s new lord mayor calls for UK wealth fund to back businesses [Search result] – FT
The stolen $3bn Bitcoin mystery ends with a discovery in a popcorn tin – BBC
Couple on £84,000-a-year benefits let girl sleep covered in poo next to dead dog – Subway
Looking for alternatives: the investment trust route [Search result] – FT
Products and services
Gifts, food, and travel budgeting tips for Christmas 2022 – Which
How to join Mastodonthe open-source Twitter replacement – Cnet
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
Is now a good time to buy your first home? – Which
Regular savings accounts explained – Be Clever With Your Cash
Why are so many energy smart meters in Britain turning dumb? – Guardian
Eco-homes built for biodiversity for sale, in pictures – Guardian
Comment and opinion
Vanguard: the alpha disrupter [Podcast] – Business Breakdowns via Apple
Three excuses editors give for not featuring index funds – Evidence-based Investor
How should you choose your asset allocation? – A Wealth of Common Sense
Is now the time to rebalance? – Vanguard
Yield is for farmers [Note: Fund tax stuff is only US relevant] – Fortunes & Frictions
Sequence of returns risk and retirement – Evidence-based Investor
There’s method to the madness – The Motley Fool
Are bonds a better bet than stocks right now? [US but relevant] – Morningstar
Stealth wealth – Financial Imagineer
Crypt o’ crypto, aka crypto is FTX-ed mini-special
Cryptocurrency giant FTX collapses into bankruptcy – BBC
FTX collapse is looking a lot like crypto’s Lehman moment – Felix Salmon
…as Coinbase reiterates why it believes its customers are safe – Coinbase
The FTX collapse is an incredibly stupid catastrophe for crypto – Slate
FTX, RIP [Binance takeover since failed, but it’s a great take] – The Diff
Another good [pre-deal failure] take on how FTX failed – Amy Castor
Crypto prices plummeted as the FTX contagion spreads – Kitco
Naughty corner: Active antics
When the moat is in your mind – Intrinsic Investing
Do the cheapest active funds beat index funds? – Humble Dollar
Growth may be ephemeral. Profitability is not – True
Varied valuations for TikTok owner ByteDance [US but Scottish Mortgage also owns] – Morningstar
RM is not a good stock for dividend investors – UK Dividend Stocks
Kindle book bargains
No Rules: Netflix and the Culture of Reinvention by Reed Hastings – £1.99 on Kindle
How Will You Measure Your Life? by Clayton Christensen – £0.99 on Kindle
Why the Germans Do it Better: Notes From a Grown-up Country by John Kampfner – £1.19 on Kindle
Your Next Five Moves: Master the Art of Business Strategy by Patrick Bet-David – £0.99 on Kindle
Visualizing changes in CO2 emissions since 1900 – Visual Capitalist
Coastal dwellers not being warned of risk to property prices of rising sea levels – Cloud
Greenland’s melting ice sheet brings an unexpected flow of wealth potential – Hakai
Mild with a chance of catastrophe – Klement on Investing
10 reasons why ESG won’t be stopped – Morningstar
Off our beat
Twitter is cigarettes – The Reformed Broker
Where we’re at with macroeconomic forecasting – Noah pinion
Andor is what Star Wars is meant to be – Wired
Will Amazon’s huge HQ2 office in the US prove to be a white elephant? – Protocol
There’s an awful lot going on at Elon Musk’s Twitter – The Scoop
Warnings over the rise of 3D printed firearms – BBC
Using your tickets – Seth’s Blog
“Spending money to show people how much money you have is the fastest way to have less money.”
– Morgan Housel, The Psychology of Money
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