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What caught my eye this week.

Last week the major US exchanges went bananas on a strong signal that US inflation might be turning.

And that was very good news.

You know that old adage about it being important to remain invested at all times – because if you miss a handful of days you will miss most of the return?

Here’s what that looks like in practice:

These look like somewhat mediocre returns for a whole year. But they happened in 16 hours of trading.

Admittedly, I have a love/hate relationship with the old “don’t miss the best days” schtick. As a very active investor who watches the markets like most people follow their favourite football team, I feel the rollercoaster ride of a year like 2022 in my guts.

So I sometimes ponder how missing out on the best days might be worth it if you miss the worst days too. The optimal – but to be clear, hugely inadvisable – thing to do this year was to sit out the whole shebang out in cash.

(Inadvisable, sadly, because the books about successful investors who have consistently got in and out of markets wholesale for a profit would be welcome on any ultra-minimalist’s bookcase.)

Begone foul pestilence

Anyway, the inflation news is a big deal. Much bigger for markets than the US mid-term elections, which dominated the US media for fortnight.

From CNBC:

The consumer price index rose less than expected in October, an indication that while inflation is still a threat to the U.S. economy, pressures could be starting to cool. The index, a broad-based measure of goods and services costs, increased 0.4% for the month and 7.7% from a year ago, according to a Bureau of Labor Statistics release Thursday.

Respective estimates from Dow Jones were for rises of 0.6% and 7.9%.

Excluding volatile food and energy costs, so-called core CPI increased 0.3% for the month and 6.3% on an annual basis, compared with respective estimates of 0.5% and 6.5%.

Regular readers will recall I’ve been expecting inflation to ease for months. It didn’t happen. Indeed rates have gone higher than almost anyone predicted this time last year, as market expectations have been repeatedly confounded.

The result has been a brutal 12 months for pretty much everything. Stock-picking has been brutal. Some of the car crash US growth shares already down 80%-90% this year found it in themselves to drop another 10% in a day earlier this week. The proximate cause was yet another crypto crash (see the links below). But it is inflation and rates that have driven most of the de-rating in shares and the crushing of bonds this year.

And so if – and we still can’t be sure – US inflation really has turned, then we could have seen the bottom of this bear market.

US rates lever the (un)attractiveness of US markets. That sets the tone for markets around the world. The rapid pace of US rate rises also sent the dollar to lofty levels, dragging up rates around the world. All this could unwind if the threat of ever-higher inflation has been defeated.

Markets – which look forward – could move more than you’d think in response.

Leave your chickens uncounted

None of this means the interest rate rises are over – in the US or anywhere else.

Market interest rates moved far faster than official rates, as traders bet on the direction of travel. Higher rates from central banks still playing catch-up are baked-in, over there and over here.

But again, the top for rate expectations would be in if inflation is rolling over.

Mortgage rates – much higher than I believe central bankers would prefer – should start to ease too.

On the other hand something dumb1 could happen again and throw this all off course. Or the CPI numbers could get revised. It’s an unpredictable world, and investing is all about uncertainty.

Which is why, despite everything, it’s best to stay mostly invested.

Have a great weekend all.

From Monevator

Our updated guide to help you find the best online broker – Monevator

Rich friends, poor friends – Monevator

From the archive-ator: Gagadom and the Grim Reaper – Monevator

News

Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.

Jeremy Hunt expected to lower the threshold for the top 45% tax rate – Guardian

Recession looms as UK economy starts to shrink – BBC

House price rises ‘grind to a halt’ as lettings market grows, says RICS – Housing Today

UK interest rates predicted to peak next year at lower-than-expected 4.5% – This Is Money

Treasury discussing raising the energy price cap from April – Guardian

London’s new lord mayor calls for UK wealth fund to back businesses [Search result]FT

Stolen $3bn Bitcoin mystery ends with a discovery in a popcorn tin – BBC

Couple on £84,000-a-year benefits let girl sleep covered in poo next to dead dog – Metro

Looking for alternatives: the investment trust route [Search result]FT

Products and services

Gifts, food, and travel budgeting tips for Christmas 2022 – Which

How to join Mastodon, the open-source Twitter replacement – Cnet

Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor

Is now a good time to buy your first home? – Which

Regular savings accounts explained – Be Clever With Your Cash

Why are so many energy smart meters in Britain turning dumb? – Guardian

Eco-homes built for biodiversity for sale, in pictures – Guardian

Comment and opinion

Vanguard: the alpha disrupter [Podcast] – Business Breakdowns via Apple

Three excuses editors give for not featuring index funds – Evidence-based Investor

How should you choose your asset allocation? – A Wealth of Common Sense

Is now the time to rebalance? – Vanguard

Yield is for farmers [Note: Fund tax stuff is only US relevant]Fortunes & Frictions

Sequence of returns risk and retirement – Evidence-based Investor

A reminder of the virtues of A Random Walk Down Wall StreetCityWire

There’s method to the madness – The Motley Fool

Are bonds a better bet than stocks right now? [US but relevant]Morningstar

Stealth wealth – Financial Imagineer

Crypt o’ crypto, aka crypto is FTX-ed mini-special

Cryptocurrency giant FTX collapses into bankruptcy – BBC

FTX collapse is looking a lot like crypto’s Lehman moment – Felix Salmon

…as Coinbase reiterates why it believes its customers are safe – Coinbase

The FTX collapse is an incredibly stupid catastrophe for crypto – Slate

FTX, RIP [Binance takeover since failed, but it’s a great take]The Diff

Another good [pre-deal failure] take on how FTX failed – Amy Castor

Crypto prices plummet as the FTX contagion spreads – Kitco

Naughty corner: Active antics

When the moat is in your mind – Intrinsic Investing

Do the cheapest active funds beat index funds? – Humble Dollar

Growth may be ephemeral. Profitability is not – Verdad

Varied valuations for TikTok owner ByteDance [US but Scottish Mortgage also owns]Morningstar

RM is not a good stock for dividend investors – UK Dividend Stocks

Kindle book bargains

No Rules: Netflix and the Culture of Reinvention by Reed Hastings – £1.99 on Kindle

How Will You Measure Your Life? by Clayton Christensen – £0.99 on Kindle

Why the Germans Do it Better: Notes From a Grown-up Country by John Kampfner – £1.19 on Kindle

Your Next Five Moves: Master the Art of Business Strategy by Patrick Bet-David – £0.99 on Kindle

Environmental factors

Visualizing changes in CO2 emissions since 1900 – Visual Capitalist

Coastal dwellers not being warned of risk to property prices of rising sea levels – Sky

Greenland’s melting ice sheet brings an unexpected flow of wealth potential – Hakai

Mild with a chance of catastrophe – Klement on Investing

10 reasons why ESG won’t be stopped – Morningstar

Off our beat

Twitter is cigarettes – The Reformed Broker

Where we’re at with macroeconomic forecasting – Noahpinion

Andor is what Star Wars is meant to be – Wired

Will Amazon’s huge HQ2 office in the US prove to be a white elephant? – Protocol

There’s an awful lot going on at Elon Musk’s Twitter – The Scoop

Warnings over the rise of 3D printed firearms – BBC

Using your tickets – Seth’s Blog

And finally…

“Spending money to show people how much money you have is the fastest way to have less money.”
– Morgan Housel, The Psychology of Money

Like these links? Subscribe to get them every Friday! Note this article includes affiliate links, such as from Amazon and Interactive Investor. We may be compensated if you pursue these offers, but that will not affect the price you pay.

Like the war in Europe.

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Like a kid cramming their homework, the markets raced this week. Plus the best reads from around the web…
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