Good Tuesday AM,

No data today other than the Richmond Fed Manufacturing Index which came in lowwwww. There was a 7-yr Treasury auction which didn’t go well and I do not expect any movement from that. There is a lot of data out tomorrow (perfect for the day before the Thanksgiving holiday) with jobless claims, durable goods, consumer sentiment and the most important, the Fed minutes. That last piece which comes out at 11am west coast time will be dissected 1000 times for clues to what the Fed may be really thinking.

Today though, bonds are improving, as they should.

I loved the below two charts as they give a great understanding for how quickly and how unprecedented this year’s Fed hikes have been. Very interesting to see that not only is the pace far quicker but the aggregate of hikes is closely approaching its highest level as well. This picture is really all that is needed to understand why real estate sales have seized up. On a positive note, the hiking will slow, end, and reverse.  On Monday, San Francisco Fed President Mary Daly pointed to the risks that officials raise interest rates too high, which could cause unnecessary damage to the economy. So far, higher rates have shown up in financial markets in the form of higher mortgage rates and tighter financial conditions but they have yet to fully percolate down to the real economy, she said. “The real economy takes longer to adjust,” she said. “Overlooking this lag can make us think we have further to go when, in reality, we just have to wait for earlier actions to work their way through the economy.”

Investor buying of homes fell 30% in the third quarter as higher mortgage rates and home prices start to affect these buyers just as they’ve held back traditional buyers, Will Parker reports. Companies bought around 66,000 homes in 40 markets tracked by Redfin during the third quarter, down from 94,000 in the same quarter a year ago.

And last, a piece form Bloomberg. I don’t know many people who lump mortgage and crypto into the same basket but for those that do… Here’s a difference between crypto right now and the mortgage disaster of 2008: Whereas people always need housing and are willing to pay money to live in a home, there’s no equivalent fundamental human need (or even want) that is currently satisfied by cryptocurrencies, and the financial structures that have been built around them.

In the wake of the ongoing FTX-related meltdown, there’s all kinds of talk about lessons to be learned.

There are lessons about regulation. Lessons about what happens if you don’t have a central bank. What happens if you rely on centralized intermediaries in an industry that prides itself on decentralization. And all of that is fine and maybe interesting. But the big elephant in the room is that crypto is a closed loop. Its only source of “revenue” is speculation on coins. To the extent the value of coins can be modeled in ways that are similar to equity (and some can be), that future revenue is only a function of desire to speculate on coins. And then when coin values fall, and desire to speculate goes down (because that’s what happens in a bear market), then the “fundamentals” fall as well, and down the spiral goes.

There’s no obvious circuit breaker or curb to stem the decline. This isn’t to say all the coins are going to zero. It’s doubtful that the desire to speculate on crypto’s future will be expunged entirely, in part because the promise of decentralized finance (or a decentralized internet more broadly) is too tantalizing. But until there’s some kind of service delivered that’s the equivalent of how the mortgage market helped people get in homes, then the future will be more spirals such as this one. I guess I feel we are vindicated in some way but not really.  

Please remain safe and stay healthy,  make today great!