☀️☕️ “Don’t Fight The Fed”?

📝 Focus

• “Don’t Fight The Fed”?

📊 In the Markets

• Heavy Meta Poisoning

• WeBankrupt

📖 MoneyFitt Explains

🎓️ The Fed

📝 Focus

“Don’t Fight The Fed”?

It’s an old market saying dating back to 1970, but investors seem to be ignoring warnings of further interest rate hikes from the Federal Reserve.

Last week's market optimism regarding the potential end of the Fed's rate hikes continues. 

The bullish narrative seems to have been built to explain bond market moves that may have just started with some simple short covering and then gained momentum. 

The combined stock and bond market rallies last week effectively eased financial conditions by the equivalent of a 0.5% rate cut, according to analysts at Goldman, which is close to the opposite of what the Fed wants at this stage.

..... ▷ Fed Governor Christopher Waller called the 4.9% third-quarter GDP a "blowout" performance that needs close watching. 

Fellow Governor Michelle Bowman said the economy not only "remained strong" but might have gained speed, requiring a higher Fed policy rate, particularly given higher energy prices.

And, as we said yesterday, longer-term bond yields, whose sharp rise represented a tightening of financial conditions that led her and her fellow rate-setters to leave rates on hold last week, have fallen.

..... ▷ Dallas Fed President Lorie Logan supported the November pause but said inflation remains too high. 

Minneapolis President Neel Kashkari and Chicago Fed President Austan Goolsbee refused to rule out rate hikes, with Kashkari saying he sees little evidence that the economy is weakening. 

..... ▷ Fed Chair Jerome Powell is set to speak on Thursday.

📚 What We’re Reading

📊 In the Markets

South Korean stocks on Tuesday gave up more than half of the 4.5% that the KOSPI made on Monday after the 8-month short-selling ban was announced, dropping 2.3%. 

China's exports for October were disappointing, with a 6.4% drop in U.S. dollar terms, worse than the anticipated 3.3% decline. Surprisingly, imports increased by 3% compared to the previous year, contradicting expectations of a 4.8% decrease, according to China's customs agency.

Over in the US, the S&P 500 and Nasdaq enjoyed their lengthiest winning streak in two years, driven by a drop in US Treasury yields that bolstered mega-cap growth names like Apple and Microsoft. 

The 10-year Treasury note yield declined again for its fifth drop in six sessions, as expectations continued to grow that the Fed had finished its rate hike cycle (above). The yield on the 10-year Treasury note fell to 4.55% after a successful $48 billion auction of 3-year notes, with additional auctions this week. Markets now price in a 90% chance that the Fed will keep rates unchanged in December. 

Oil prices fell due to concerns over global demand, and weak data from China and Germany contributed to these concerns. The US Energy Information Administration predicted the lowest per capita gasoline consumption in two decades in 2024.

Heavy Meta Poisoning

Meta's top executives, including CEO Mark Zuckerberg, reportedly ignored warnings for years about the harm to teens on platforms like Instagram, according to a company whistleblower who testified before the Senate Judiciary Committee. 

The whistleblower, Arturo Bejar, accused Meta of fostering a culture of indifference to internal evidence of harm while presenting carefully crafted metrics to downplay the issue publicly. 

Bejar's allegations included that more than 25% of 13-to-15-year-olds reported receiving unwanted sexual advances on Instagram, 13% of them in the past seven days. 

Sen. Marsha Blackburn said Big Tech is “the next Big Tobacco.”

WeBankrupt 

WeWork finally filed for Chapter 11 bankruptcy protection and entered into a restructuring support agreement with the majority of its stakeholders to “drastically reduce” the company’s debt. 

It will also terminate some of its US commercial office lease portfolio, increasing the financial stress on commercial landlords that rushed to rent them space in their buildings and their bankers. One-fifth of offices across the United States are already vacant. 

The company was once valued at nearly $50 billion and was seen as a Wall Street darling despite having a business model that made no sense. 

That’s not just our judgment. It explicitly said in its 2021 IPO prospectus that it did not see a “path to profitability”, warning that it had a history of losses and may be unable to achieve profitability at a company level for the foreseeable future. 

..... ▷ Still, the promise that it would upend the way people went to work around the world with a hipster aesthetic and free Flow beer was enough to suck in a total of $18 billion from SoftBank over the years. It also got the SPAC merger away at a valuation of $9bn, far below the valuation of $47bn it tried to IPO at in 2019 and about $9bn above what it’s worth today. 

..... ▷ To clear the way for the SPAC merger, co-founder Adam Neumann received a payout of $445 million in his exit package made up of $245 million in company stock (now $0) and $200 million in cash. 

..... ▷ Cash that he is using towards a new real estate technology venture named Flow that aims to create an apartment brand stocked with amenities. 

Rather than running for the hills, venture capital firms have been lining up to throw their LPs’ money at it. 

Andreessen Horowitz (“a16z”), a prominent A-list player known for its early investments in Twitter and Airbnb, invested about $350 million at a valuation of more than $1 billion, writing the largest individual check the firm has ever written for any startup.