by Franklin J. Parker, CFA
The Summary
- The Bottom Line. With slightly lower inflation, investors caught hope that the Fed will slow rate hikes. Earnings are meh, but certainly not recessionary, and this week we get some important data on the fundamentals of the economy. I could see this as the beginning of a meaningful recovery rally. However, I would temper any enthusiasm with the longer-term outlook, which appears tepid at best.
- The big news last week was a lower-than-expected inflation print (7.7% versus 8.0% expected). This lent investors hope that the Fed will slow down their rate increases. Earnings are mostly finished with over 90% of S&P 500 having reported. Earnings growth across all sectors is just over 2% for the quarter, which is not great but not terrible. With revenues up over 10% (and earnings up only 2%), investors are seeing inflation take its bite.
- This week we get data on industrial production, retail sales, and producer prices (a measure of inflation). Each of these are important for insight on the economy. Investors will also listen to management outlooks from retail bellwethers Target and Walmart, especially with the Christmas shopping season rapidly approaching. Consumer spending has remained strong and has lifted the economy, but a slowdown in this would be bearish.
The Details
“It’s only when the tide goes out that you learn who has been swimming naked.”
Warren Buffett
Well… crypto markets have imploded over the past couple of weeks.
After sudden price plunges, one of the largest cryptocurrency exchanges, FTX, went suddenly and dramatically insolvent. Reuters reported that $1 billion to $2 billion was missing from client accounts and, apparently, executives at the exchange had surreptitiously moved about $10 billion to their trading firm to fund risky bets on other crypto businesses and market trades.
First of all, this has all happened before, which is why investors should be students of history as much as of markets. In the 1920s, banks and brokerage houses regularly used client money to fund risky market bets. It turns out this strategy still doesn’t work, but it is good to be reminded of that every century or so.
Second, it was amidst the fallout of those trades in the 1920s that lawmakers formed the FDIC, SEC, and the now-famous Securities Acts of 1933 and 1934, all of which still govern financial businesses and transactions. Crypto markets, of course, haven’t had such regulatory oversight and law, but I strongly suspect this is about to change.
Finally, crypto’s meltdown is a stark reminder of the difference between professionals and amateurs. Amateurs are obsessed with making money. Professionals are obsessed with managing risk. This event is likely to wash amateurs out of the business, making room for professionals to step in.
In the end, I see crypto laws and regulation coming quickly (politicians have already started making some noise about this), and I would expect a more professional class to begin managing these financial businesses. Both of these represent a real maturation of the sector and are very healthy, long-term.
Crypto isn’t dead, in my view, it is just growing up.
Chart of the Week
This week’s chart comes to us from Bloomberg News, and is notable for its historicity. The founder of the exchange FTX, Sam Bankman-Fried’s change in net worth may well be the fastest in the history of mankind—going from $16 billion to $0 in the space of about 36 hours.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.