Cool inflation, dizzying markets | Finance times

good morning. The markets loved the inflation report from Thursday, and we too. But we believe that the inflation battle is far from over. The fight for FTX will also take a while. Our thoughts about both below. Send us an email: robert.armstrong@ft.com & ethan.wu@ft.com.

inflation, cooler, but mostly the same

The stock market increases by 6 percent in one day. Yesterday's day delivered one: decisively cooler inflation numbers that aroused hope that the US Federal Reserve could withdraw and finally form a market floor.

The CPI report is indeed a confirmation that the disinflationary trends that are visible everywhere from housing reduction to job cuts are real. As a result, the markets have lost a lot of inflation upward risk. The implicit expectations of the futures retailers, where the interest will be at the end of 2023, fell strongly, while expectations for the next few months only decreased slightly. The market considers higher interest rates to be less likely today than on Monday.

What did the CPI numbers actually say? On the basis of discussions with inflation specialists, we made four predictions for the just published October inflation data (remember that the most important inflation categories for services, from the most important to the most important, accommodation, medical care and transport):

1. core goods (e.g. food and energy) would begin to deflage.

2. The transport services would remain volatile, but gradually decrease if the flight prices calm down.

3. An annual update of the health insurance data that is used to prize the prize design would lead to an inflation brake.

4. Shelter would remain pretty hot.

Yesterday's inflation numbers have delivered in all four points. The following graphic summarizes. The upper four rows are for October, the lower four for September:

The prices for core goods and medical services decrease, while transport prices rise a little more slowly.

Shelter was a bit trickier this month. The most important point is that it was easily slowed down, but there is a complication. As you can see in the graphic above, the category of accommodations in October accelerated. But under the hood, the two most influential subcategories - rent (from 0.8 percent to 0.7 percent) and owner equivalent rent (0.8 percent to 0.6 percent) - gave. This was to blame for the explosive acceleration in a less noticeable subcategory: hotels (5.6 percent more in one month!).

that looks like noise. As Omair Sharif explained to us by Inflation Insights, the hotel component doesn't say much about accommodations:

What is really included in CPI are hotels near holiday destinations, ski gates, beaches and the like. Not the hotel down the street from your parents' house. If there are fluctuations in the resort prices, this can be seen in the hotels.

and since the overall hotel index is exactly at the trend in front of the coronavirus pandemic, we are not worried.

In retrospect, yesterday's report has not significantly changed the picture. Inflation has reached its peak; It comes down; How quickly it comes down depends on the shelter. And the prices for accommodations are likely to fall slowly. As we have already noted, there is a catch -up effect at the rental levels that could raise inflation for a few months.

We are happy that inflation does not run wildly, but the central hypothesis remains the same: inflation causes the fed to keep interest rates restrictively high for a while, which leads to a recession. What happens on the margin - inflation falls a little faster, the interest rates rise slower - is still important. But the overall picture - hot inflation, penalty interest - is more important. ( ethan wu )

again ftx

Published by a Reuters story published yesterday about FTX and its CEO Sam Bankman-Fried:

This May and June the retail company of Bankman-Fried, Alameda Research, suffered a number of losses through shops, three people familiar with its business. . . In order to support Alameda, which held almost $ 15 billion in assets, Bankman-Fried transferred at least $ 4 billion in FTX funds, which were secured by assets such as FTT and shares in the Robinhood Markets Inc. trading platform, the people said. . . Some of these FTX money were customer deposits, said two of the people

Here is the Wall Street Journal, also yesterday, on the same topic:

The crypto exchange FTX gave customer assets worth billions of dollars to finance risky bets of its connected trading company Alameda Research. . . Chief Executive Sam Bankman-Fried said at investor meetings this week that Alameda FTX owe about $ 10 billion and said people familiar with the matter. FTX awarded loans to Alameda with funds that customers had stored on the stock exchange for trade purposes. . . All in all, FTX had customer assets of $ 16 billion, said people, so FTX gave more than half of his customer funds to his sister company Alameda.

I do not know whether it is legal to a person to transfer customer funds from your crypto exchange to your hedge fund because I do not know what a crypto exchange according to the laws of the Bahamas, the Qaiman Islands, the Forest Moon of Endor or wherever the companies involved are based.

undoubtedly such a transmission is extremely risky. It takes assets from an institution that has on-demand liabilities and replaces them with a promise. This increases the risk of a bank. In addition, as the Reuters history states that guilty certificates are largely confirmed by FTT, a token that the lender invented. This is crazy in many ways, I have no place to present it here. Finally and obviously such a transfer implies an icy disregard for the stock exchange customers.

bad things. But it helps to explain what it is about. FTX cannot meet customer withdrawals because Alameda has given customer assets and cannot get it back, at least not in a sufficiently liquid form to be useful.

But this simple story is done by another confused Account published yesterday. It came from Bankman-Fried himself via Twitter. It contained two material claims. The first:

ftx International currently has an overall market value of assets/collateral, which is higher than the customer deposits (moves with prices!). But that is different from liquidity for delivery - as you can see from the stand of the withdrawals.

In other words, FTX is solvent (in the limited sense that he has enough assets to finally make up for his customers), but not liquid (in the sense that he has enough asset to be sold to make up for customers soon). It only takes enough time to sell some assets that are difficult to sell. And which mistake led to this liquidity problem? No large transfer of assets to a hedge fund. Instead, FTX's customers were much more prayed than Bankman-Fried knew. That is the second material claim:

. . . A poor internal labeling of bank -related accounts meant that with my feeling for the user's profit margin, I was considerably wrong. I thought it was much lower.

The user's leverage was 1.7, not 0, as he thought, Bankman-Fried said (this must be on a kind of net base, since obviously many FTX customers had leverage, leverage is something that sells the FTX). Customers borrowed a total of $ 1.70 from FTX for every dollar of customer deposits. And the result was that there was no longer enough liquidity to cope with the rush of the withdrawals at the end of last week.

But why should customers with leverage-in short FTX money-cause a liquidity problem in view of mass withdrawals? The only possibility that occurs to me is if the loans are provided by the exchange to customers were financed by loans from someone else, and that someone else wanted their money back at the same time as customers did.

that could happen, but when it happened, Bankman-Fried's mistakes look much more stupid. He indicates that he owed a third party to several billion dollars, and he didn't even know how high they were.

We still have more questions than answers. Namely:

• can both the news reports and the Twitter thread of Bankman-Fried be true? yes, in the narrower sense. It could be that FTX is solvent and illiquid, and that the leverage of the customer made meeting with the meeting of the meeting than it would have been otherwise, and that ftx alameda was able to do customer assets in billions in billions. It is only that FTX is much less solvent and liquid than it would have been if this loan had not existed. Of course, when Bankman-Fried wrote this long thread about being more transparent and how sorry he is, and simply decided not to mention that he also borrowed billions of dollars of customer assets against the worst of the worst, then he is an idiot of world-historical dimensions. But that's another topic.

• is it not strange that FTX says that it is solvent (in the limited sense described above), but a rich sum needs $ 8 billion of liquidity? You bet your ass that is strange (and FTX could be bankrupt or almost bankrupt).

• If FTX is solvent, why can't it find someone who lends him the necessary liquidity? ? Maybe it can, and it will only take some time. Perhaps the problem is that although it would be a clever financial move, to borrow the money, nobody with 8 billion. In addition, lenders may not believe that the books of FTX are correct, in view of the history of the um, poor internal identification of bank accounts.

• Can Bankman-Fried's assumption that unexpectedly high customer debt led to the liquidity crisis, with withstanding a review? ? Yes, but there is a much simpler explanation: that FTX did not have enough liquidity because it granted Alameda a stupid and grossly immoral loan.

There is a lot that we don't know yet.

a good reading

murdoch against Trump.