• US Midterm Election
• CPI Inflation October
• University of Michigan Consumer Sentiment Index November
• The layoffs
• US-China relations
• The bankruptcy of the crypto exchange – FTX
C Thomas: Happy Hump day! Welcome back to Looking Backwards Looking Forwards. I’m C Thomas. I’m here with Austerity Jones.
Austerity: Happy Wednesday C Thomas.
Austerity: Let’s start with the US midterm election. The counting of the votes continues, and we have Georgia heading to a run-off election in December. But overall, it looks like the Democrats were able to defend. What’s your take on the elections?
C Thomas: Well, I think you always have to be careful when you read polling. Polling is educated guesses and guesses are wrong sometimes. I have a sneaking feeling that the Supreme Court decision to reverse Roe versus Wade probably drove a few more women and people sympathetic to that cause to vote. I think that’s one of the factors. And second factor is gas prices had come down. Biden had released energy from the strategic petroleum reserve and gas prices had come down. And then in the last few days, the inflation numbers had starting to come down just a touch. And maybe people felt like they were getting a little bit of relief there. Maybe that was planned by the Democratic Party that this was a good opportunity for us to step in and have the election at this time. And I think you’ll see the strategic petroleum reserve that’ll turn back around. All things being equal, I think you’ll see gas prices go higher.
Consumer Prices Rose Last Month at the Slowest Annual Rate Since January (investopedia.com)
Austerity: The CPI Inflation October figure was released. The core inflation year-on-year came out to be 6.3% but it was expected to hit 6.7%. To remind, last month it was 6.6%. Some commented that this slow-down of the inflation rate suggests that the Fed is having success in its fight against inflation. Do you think so?
C Thomas: I think that if you look back year over, we will start to see some easing of inflation as measured. You have to remember that this is measured on year over year numbers for the most part, and last November is kind of when the numbers started to jump last year. So we’re measuring from a higher standard as inflation had picked up steam last year, and I think you’re seeing certain segments, like used car prices come crashing down. Not everybody needs a used car every single month, right? The problem is, the things that are in continuous use, like food and energy, those prices were still stubbornly sticky. Used cars are like one time purchases. But I am going to eat food and I’m gonna put fuel in that car every single week. If you look at the segmented numbers, they weren’t quite as good as everyone was thinking. But any relief right now, the market’s going to view as positive and they probably should because the numbers overall have come down just a little bit.
Consumer sentiment weakened sharply in November, survey shows (cnbc.com)
Austerity: Last week we were talking about the expectation on the University of Michigan Consumer Sentiment Index for November. A slight improvement to 60 points was expected but the contrary happened. The index posted a 54.7 reading, down 8.7% from the previous month and well below the estimate. Were you surprised?
C Thomas: As we talked last week, I would only be surprised if it was above or below dramatically that number, and it was dramatically below that number 🙂 And I think I even used the example of 56, and this was even more dramatic than that. What the market is doing is one reflection, but that’s based on Wall Street and future prices. These types of surveys are out there in the real world and they reach people a lot more and and kind of give you an underlying feeling of how things are happening in the real world. And I think what you’re starting to see is not much good is happening, right? These slow downs have worked, as they say, with slow and predictable lags while the lags are starting to affect. Right. Whether it’s sentiment like the Michigan survey, whether it’s expected orders for Christmas, whether it’s ordering from businesses for Christmas, all of these things are slowing down at rates that we’re unaccustomed to seeing, and you’re gonna see these surveys be more leading indicators than the lagging indicators that maybe the Fed is looking at, like unemployment and they’re saying, well, it’s still low. Yeah, but you’re looking at the slowest of the things to move. Sentiment is one of the first things. “Ooh, these fuel prices are high, these food prices is high, I’m not very positive about the economy because I don’t have as much money in my pocket at the end of the week”.
Amazon reportedly plans to lay off about 10,000 employees starting this week (cnbc.com)
Daily Job Cuts – Your Source for Job / Business / Economy News
Austerity: The layoffs. When we were talking the other day you told me about dailyjobcuts.com. We hear a lot of company names on the news, planning labor force cuts. How can we be prepared?
C Thomas: Well, like we talk in our financial tips each week, the first thing we have to do is create an emergency fund. I think we have to prepare ourselves. For the possibility of something that can happen that we don’t think can happen. That’s part of being prepared. That’s part of using history to our advantage as we go about our lives. We look at things like Pearl Harbor. They were not prepared and therefore it was much more, dramatic and detrimental than it could have been had they been prepared. Same thing in our lives, if we have a Pearl Harbor type surprise attack from the market, from our bosses laying us off, we need to be prepared for those scenarios, which means we need to curtail savings. Maybe instead of taking that vacation, maybe we have a little padding in our savings account. Maybe we’ve networked and we’ve put our resumes up to date. Just in case things happen, because you never know what’s gonna happen, and you never know what forces will hit the market. Amazon is going to lay people off. Silicon Valley is going to lay people off. These are white collar jobs. These are going to trickle into other companies, but these are often coming from companies that over hired during the pandemic, and now they’re making an adjustment back to what had been historically the norms.
Biden sees no need for ‘new Cold War’ with China after meeting with Xi Jinping (cnbc.com)
Austerity: What does the future hold for US-China relations, bearing in mind the 3 hour meeting between Biden and Xi held on Monday?
C Thomas: Well, if the moments of the handshake are any indication, I didn’t think Xi was nearly as enthused to be there as Biden was. I thought that was quite interesting. It’s good that we’re trying to keep open channels and open communication, but quite frankly, I think we have some very philosophical differences right now. That’s just kind of obvious. Whether it was Pelosi’s trip to Taiwan, whether it was the continued tariff, or restrictions on Chinese access to computer chip technology, we’re just kind of waiting for China to make a response to some of these things, and I think they are looking long term. We are the big kid on the block and they don’t necessarily want to provoke us but they also have their own thoughts and their own ambitions. I keep hearing that Xi is going to have a trip to Saudi Arabia or at least meet with the leaders of Saudi Arabia, and I think that one is going to be much more insightful of future relations because if they’re able to start purchasing oil in Chinese yuan, that’s going to affect things far more than Biden going over at a meeting of the G20 and sitting down for three hours with Xi.
FTX and SBF Saga Explained: What Happened in Crypto and What It Means (businessinsider.com)
Austerity: One of the most discussed news of last week was FTX. I know that you have always been cautious when it comes to crypto C Thomas, what are your comments on the bankruptcy of this crypto exchange?
C Thomas: Wow, that’s all you can say there “wow”. Um, you know, I think Bernie made off with a billion dollars, and could be up to 10. Putting your money in a token or an exchange and letting somebody hold it for you, and then that person was taking that money out, moving it to their own personal hedge fund, Alameda, and then they were investing, and they had bad investments that were levered and they lost the money and the money’s gone. And now the depositors into the crypto exchange are now holding nothing. Sequoia Capital was a big investor in this, and they marked their positions down to zero. So they think that it’s just gone. And when I think about this, I think of fiat money. And crypto is just another form of fiat money – saying “here, I trust in this little token that has no utility and it’s only as good as the counterpart holding it”. On the back of the United States currency, it says “backed by the full faith and credit”. That’s what backs ours, and we have a stronger reputation right now than SBF, Sam Bankman-Fried and FTX, because everyone was calling him the JP Morgan of crypto. Well, JP Morgan saved the United States a couple times, but Sam Bankman-Fried didn’t last a decade. And how he’s done, he will never do business again. He’ll be lucky if he doesn’t end up in jail or dead because he probably stole 10 billion from people. He should be in prison for that. And that is something that’s just inexcusable and I think it’ll set the crypto space back quite a while cuz this is not the first time this has happened. And so what people are saying “Hey, these are exchanges and they’re safe, and we have stable coins that back this”. It’s just backed by computer fiat versus regular printed fiat… So, these are the lessons that industries gonna have to go through and learn and see if they can overcome, if they’re gonna move forward. Otherwise, it’ll just be a flash in the pan and we’ll move on without the industry.