1 December 2022 — The First Crack: Inflation Turns, and FTX Collapses Overnight

For almost the whole of this year, almost everything investors own has been falling at the same time. The reason is inflation: prices have been rising at their fastest pace in roughly forty years, and the U.S. Federal Reserve has been raising interest rates at the quickest pace in decades to bring them back under control. Higher rates cool spending but also make shares and bonds less attractive. The question dominating every trading desk has been: when will the Fed stop?

On 10 November, U.S. inflation came in at 7.7% — below the 8.2% of the previous month and a touch lower than expected.¹ The S&P 500 jumped 5.54% that day, its best session since the early pandemic, and the Nasdaq leapt 7.35%.² Yesterday, Fed Chair Jerome Powell confirmed the shift at the Brookings Institution: “It makes sense to moderate the pace of our rate increases.”³ In plain English: still raising rates, but in smaller steps. He added a caveat: “History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”³

Meanwhile, something entirely different has collapsed in the crypto world. FTX, an exchange worth roughly $32 billion a month ago, has disappeared in ten days. A CoinDesk article on 2 November revealed that its sister trading firm held most of its “assets” in a token FTX had itself created. Customers panicked, withdrawals were halted, and on 11 November FTX filed for bankruptcy.⁴ John Ray III, the restructuring expert brought in to clean up, has written that he has “never in [his] career” seen “such a complete failure of corporate controls.” Bitcoin has fallen below $16,000.

The FTX lesson is simple and worth remembering. When a business grows too quickly, operates across offshore jurisdictions with little regulation, and relies on its own in-house currency to prove its solvency, the risk is not that it underperforms — it is that it disappears overnight, taking its customers’ money with it.

November may come to be seen as the month the direction of travel began to change. Inflation is cooling. The Fed is slowing. Europe is, so far, dodging the worst-case winter scenario. China has started to reopen with a 20-measure easing of its zero-COVID policy. And the most dangerous pockets of speculative excess are being forcibly cleared out. The full effects of rate rises take six to twelve months to feed through, so the worst of the pain on mortgages and small-business loans is still ahead. But for investors who have endured a brutal year, November has offered the first real flicker of a turning point.