Amid the ongoing war between Russia and Ukraine, the mid-term election drama in the U.S., and escalating tensions in China as a result of severe COVID lockdown policies, a number of markets experienced impressive moves in the month of November.
For example, the S&P 500 index rallied roughly 5.4 percent in November and closed the month up 13.8 percent from its mid-October low. In addition, the yield on the 10-year U.S. Treasury Note fell from 4.10 percent to 3.68 percent, with 30 basis points (0.30%) of that taking place on one day.
The catalyst for the large moves was an inflation report. After a 9.1 percent year-over-year increase in the Consumer Price Index (CPI) in June, the CPI increased “only” 7.7 percent year-over-year in October. While obviously still high, there is evidence that deflationary forces are having the desired effect. As a result, the U.S. dollar index has declined roughly 6 percent over the past four weeks.
Oil prices are well off their peak, trading around $80 a barrel compared to more than $122 a barrel in June. And many other commodities such as aluminum, lumber, steel, soybeans, and wheat, to name a few, are also down significantly since the summer. The price direction is a welcome sight.
Meanwhile, the cryptocurrency world was rattled by the bankruptcy of FTX, a company that was run by Samuel Bankman-Fried. Earlier this year FTX raised a funding round with a valuation of about $32 billion. One prominent Silicon Valley company invested $150 million and published an over-the top glowing article about FTX on its website on September 22, 2022.
Unbelievably, the article stated:
- “FTX will be the super-app. Banking will be disrupted and transformed by crypto.”
- “Crypto is money that can audit itself, no accountant or bookkeeper needed.”
- “The FTX competitive advantage? Ethical behavior.”
On November 11, 2022, FTX filed for bankruptcy. In front of a bankruptcy judge, John Ray, FTX’s new Chief Executive Officer and the person who was in charge of Enron following its bankruptcy scandal said, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
Another attorney for FTX estimated the number of creditors to be “more than 1 million,” up from the previous estimate of 100,000, and told the judge a substantial amount of assets are either missing or stolen.
The Silicon Valley fund was forced to write down its $150 million investment to zero and issued an apology as details emerge about what appears to be massive fraud. Remarkably, Samuel BankmanFried testified in front of Congress twice in the past 12 months and was a very large donor, seemingly in an attempt to buy influence at the highest levels of government. Unfortunately, a lot of that money may have been stolen, but there is a lot we still do not know.
In his December 7, 2021 testimony in front of Congress, Samuel Bankman-Fried said, on FTX “there is complete transparency about the open interest, there is complete transparency of the positions that are held, there is a robust, consistent risk framework applied.” In contrast, it appears that up to $8 billion of FTX client assets are missing.