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Good news about inflation | financial times

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good morning. We thought the market was going to explode to the upside after the great US CPI numbers. But Standard & Poor’s closed up less than 1 percent. Is soft landing fully applied in prices? Let us know what you think: robert.armstrong@ft.com And the ethan.wu@ft.com.

From a slow grind to an easy glide

The first thing to say about yesterday’s inflation data is that it was good. Inflation is very high and we’re glad it’s low. The second is that we got this report Wrong – wronged – wronged. We (and most forecasters) didn’t expect many anti-inflationary surprises in yesterday’s CPI numbers. And the third is that the hard part – for the Fed, the economy and the markets – is yet to come.

The same data showed a broad-based slowdown in inflation, with the core consumer price index falling month-on-month to less than 0.2 percent (or 2.4 percent annually). Commodity prices fell 0.5 percent, reflecting increased retailer inventories and normalization in the new and used car markets. Cheaper energy Also help with the address number. The happy trend is clear:

Line chart of core CPI, 3-month average annual percentage showing the quiet period

A few quirks flatter the numbers. Aircraft prices, a volatile component that has swelled transportation services since the coronavirus pandemic, have fallen but could easily rebound next month. Hotel rates, other a little noisy We discussed last month after it spiked preposterously, and it came back down to earth, sending monthly shelter inflation down to 0.6 percent from 0.8 percent. However, in terms of components of central housing inflation, November does not look weak at all (graph by Carl Riccadonna of BNP Paribas):

Rent inflation chart and open educational resources

These are quirks, though. Overall, the good news outweighed the bad, making us a little less confident in our “slow slow” view of inflation. Our argument was contingent on shelter inflation in CPI which took some time to roll over and the remaining transportation services Volatile. Both could still prove correct, but the headwinds to inflation seem stronger than we thought. (Of course, two data points that aren’t a trend and we’ll need to see what the coming months hold.)

What will the Fed, which meets today, do from yesterday’s data? to remember Jay Powell’s 3D magnification frame, where he laid out the terms for the Fed’s decline. This is a progress report:

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  1. Commodity prices must continue to fall. This is what happens.

  2. CPI and PCE housing inflation needs to follow private rent indices down. It’s too early to tell.

  3. Inflation of basic services for former housing needs to decline decisively. This is starting to happen! Excluding rents, inflation for essential services rose just 0.1 percent in November, Omair Sharif, CPI expert at Inflation Insights, estimated.

On the last point, Powell claims that basic housing inflation is linked to wages. The November numbers indicate fragmentation of this idea. besides shelter, Very strong wage growth They don’t appear in many pricing for services, which makes it difficult to know how seriously to take the Powell Chart. someone Please ask him about this at presser today.

Zooming out, a nice inflation number would probably reduce the likelihood of a recession, but only slightly. And the Fed rightly fears capitulation too early and an inflation rebound. It will continue, although perhaps slower. And as we wrote, the biggest problem will come when inflation is low, but still high, and activity data is deteriorating. How the central bank balances its dual mandate right now will be critical. Yesterday’s inflation numbers suggest that we are approaching that crucial point more quickly and in better shape than expected. They are not suggesting that we will avoid it. (Ethan Wu)

Security Belt allegations

Before reading the civil and criminal article complaints Against Sam Bankman-Fried, it was my opinion that great financial frauds and scandals develop incrementally. Someone is pushing some ethical, prudential, or legal constraint a bit. This small infringement is so successful that it is repeated, or requires bad/dangerous/illegal activity to cover up. A spiral follows. I think of both the Enron accounting fraud and the Wells Fargo fake accounts scandal this way, for example.

In other words, things go to hell in baby steps. But if the SEC, DOJ, and CFTC allegations are true, that’s not what happened at FTX. FTX has been hell from the start.

from the Securities and Exchange Commission complaint:

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From the inception of FTX operations in or around May 2019 until at least 2021, FTX clients deposited fiat currencies (for example, US dollars) into bank accounts controlled by [FTX’s affiliated hedge fund] Alameda

. . . Alameda did not segregate this client money, but rather mixed it with its other assets, and used it indiscriminately

And the:

Alameda has managed to maintain a negative balance on its FTX client account. . . No other FTX customer account was allowed to maintain a negative balance

And the:

. . . On or around May 2022, as crypto-asset prices have been dropping sharply, many of them. . . The lenders demanded repayment from Alameda. Since Alameda did not have enough assets to cover all of these liabilities, Bankman-Fried directed Alameda to draw down on its “line of credit” from FTX. Thus, billions of dollars of FTX clients’ funds were transferred to Alameda

FTX has not told its investors or clients that this is the way things work. exactly the contrary:

FTX Terms of Service. . . Assure FTX clients that their assets are safe, providing: “You are in control of the digital assets held in your account;” “[t]Itle to your Digital Assets shall remain with you at all times and shall not be transferred to FTX; and “None of the digital assets in your account are the property of FTX trading or may not be loaned to FTX trading.” FTX explained that it “segregates clients’ assets from their own assets across our platforms.”

From the beginning – according to the allegations – when you put money into your FTX exchange trading account, it went straight into the hedge fund’s bank account that did what it liked with it. In the meantime, this hedge fund can accumulate unlimited losses at your expense, and do anything. You were told that none of this was allowed to happen.

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No raises here. The whole setup was ridiculously unsustainable and completely dishonest back in the day Bankman Fried & Co first hung planks.

The SEC’s complaint does not focus on FTX clients who can’t get their money back, but rather on the venture investors who provided the equity capital. Joseph Hall, a partner at the law firm Davis Polk and an expert on both securities and cryptocurrencies, says the SEC case is a “diverse securities fraud complaint in the garden” and is not about cryptocurrency per se. “It was about a capital-raising deal that deceived investors, and it’s a story as old as time.”

But the same underlying allegation — that Bankman-Fried and FTX told investors their money was segregated and then used to engage in their own risky speculation — turns into allegations of wire fraud, commodity fraud, money laundering and campaign finance violations in the US. Ministry of Justice indictment, when some additional facts, transactions, transfers, and donations are added. In the CFTC complaint, the same corrupt setup becomes a Commodity Exchange Act violation.

What do we do with all of that? Three points come to mind:

  1. The allegations are so insane that it makes me wonder if Bankman Fried and his associates are even out there. This is it at all Not to say that they should not be fully held accountable under the law, if the charges against them are proven. It is important that this happen. But a pure criminal mind will not create a shameful organization like the one described in the complaints. It may be true that “this is just plain old embezzlement,” John Ray, FTX’s new court-appointed CEO, said yesterday. However, the whole thing smacks of pathological narcissism, self-deception, and dogmatism.

  2. This makes the charge sheet complaints more fading against mutual funds that put client or corporate money into FTX. If the allegations are true, can we avoid concluding that (for example) Sequoia Capital, Ontario Teachers Pension Plan, and Tiger Global are a bunch of buffoons?

  3. All that said, i resident Think The SEC should not treat cryptocurrencies as securities, or set up a special regulatory body to deal with them. This gives crypto a lot of credit. They look more like baseball cards, lily bulbs, or sports bets than investment products. Of course the SEC can prosecute cryptocurrency companies for lying to investors, as they did with FTX. But they should not treat cryptocurrency buyers as investors. This gives cryptocurrencies a lot of credit. (Hall of Davis Polk, by the way, adopted my baseball analogy, but he thinks it points the other way. “If people take out all their retirement savings and start trading Topps baseball cards, maybe the government should step in and say ‘Let’s make sure the market for baseball cards is fair.’) Your objective view of the asset class is not the problem.”

Good read

Howard Marks in the Markets Sea change.

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Economic

We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

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International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

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The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

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However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

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Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

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David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

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BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

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Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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