Week InReview

Friday | Nov 11, 2022

What a relief it was.

Stocks skyrocketed in a buy-everything relief rally after slower-than-projected price growth spurred bets that the Federal Reserve can downshift its aggressive rate-hike path. The S&P 500 climbed 5.5% and Treasuries soared, sending the rate on two-year notes, more sensitive to monetary policy, down 25 basis points.


Rates traders downgraded the odds of another three-quarter-point rate increase in December almost to nil. The stocks rally is set to roll on in Asia, with futures for for Hong Kong, Japan and Australia all pointing to large gains.


US inflation fell in October by more than forecast, perhaps giving the Federal Reserve room to maneuver as it considers smaller interest-rate hikes, something it has said was possible in the coming months. More importantly for the central bank, the core measure that excludes food and energy also slowed more anticipated.

let's recap...

Illustration: Tracy Alloway | Bloomberg

The Shadow: How the Fed helped spawn a $23.7 trillion market

America, early fifties. From these dark times, a hero – of sorts – emerges: The Shadow. Now distrusted by many and vilified for its role in the Great Financial Crisis, shadow banking was birthed seven decades ago to solve economic dilemmas that have eerie parallels with 2022. And this murky entity may yet hold the key to the future smooth functioning of the $23.7 trillion market for US Treasuries, and by extension all of global finance. (Bloomberg | Nov 7)


Supreme Court signals it may allow court challenges to SEC, FTC

The US Supreme Court signaled it may open a new avenue for companies and people to fight off complaints by the Securities and Exchange Commission and Federal Trade Commission, hearing arguments in cases that could undercut the clout of two powerful market regulators. The justices are considering whether those facing agency claims can go straight to federal court with constitutional challenges — including attacks on the use of in-house judges to handle cases. Critics say the system gives agencies an unfair home-field advantage. (Bloomberg Business | Nov 7)


Wall Street's alchemists turbocharged wild swings in Treasuries

Over the last decade, as rock-bottom interest rates depressed returns on fixed-income assets, the alchemists of Wall Street came up with a solution for investors who needed fatter yields: a whole series of complex products that spun extra basis points out of comatose markets. Now, amid the worst bond rout in at least five decades, firms have been scrambling to hedge their positions, piling into derivatives that benefit from higher volatility as they seek to limit the damage. (Bloomberg Markets | Nov 8)


Big hedge funds shop for bargains in corporate debt markets

Big-name hedge funds are snapping up bargains in junk bonds and other corners of the corporate debt market, as they bet a sell-off sparked by the darkening global economic outlook has gone too far. Corporate debt has been hard hit this year by fears that steep increases in borrowing costs will lead to a wave of defaults at groups that have grown accustomed to years of easy money. Interest rates for risky borrowers have soared. (Financial Times | Nov 8)


Nagging U.S. Treasury liquidity problems raise Fed balance sheet predicament

The U.S. Federal Reserve's ongoing balance sheet drawdown has exacerbated low liquidity and high volatility in the $20-trillion U.S. Treasury debt market, raising questions on whether the Fed needs to re-think this strategy. Intended to drain stimulus pumped into the economy during the Covid-19 pandemic, the Fed's quantitative tightening (QT), as it is commonly referred to, has been running for the last five months. The Fed's balance sheet though remains at a lofty $8.7 trillion, down modestly from a peak of nearly $9 trillion. (Reuters | Nov 8)

the cyber cafe

Illustration: Daniel Pudles | Financial Times

Cloud computing dependence imperils banks

Cyber specialists are warning that cloud migration is exposing companies to a greater risk of cyber attacks and data breaches — as well as the fines and reputational damage they can bring. In July, the Bank for International Settlements said that the financial sector’s increased reliance on cloud computing was “forming single points of failure” and “creating new forms of concentration risk at the technology services level.”

— Financial Times


Cyber-insurance premiums to double to $23 billion in three years

The cyber-insurance market is expanding at a rapid clip, with global written premiums set to more than double to $23 billion by 2025, according to Swiss Re AG. While insurers worldwide wrote $10 billion in cyber premiums last year, that amounted to “just a fraction of total losses from cyber attacks,” the Zurich-based reinsurer said in a study released Monday. Only 55% of businesses have cyber policies, with less than 20% having limits that exceed the median ransomware demand, Swiss Re said, citing a recent survey.

— Bloomberg Law


CISA releases SSVC methodology to prioritize vulnerabilities

Today CISA published its guide on Stakeholder-Specific Vulnerability Categorization (SSVC), a vulnerability management methodology that assesses vulnerabilities and prioritizes remediation efforts based on exploitation status, impacts to safety, and prevalence of the affected product in a single system.

— Cybersecurity & Infrastructure Security Agency

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binge reading disorder

Some National Park visitors have tried licking so-called hallucinogenic toads. But maybe keep your tongue off the toads, the Park Service said in a cheeky Facebook post alongside a creepy night-vision photo of a beady-eyed toad.

National Park Service asks visitors to please stop licking toads

Tempting as it may be, please don’t lick the toads. The U.S. National Park Service made the plea last week to help protect the Sonoran desert toad, which secretes a toxin unlike any other found on the planet. The effects of the toxin depend on your perspective. Some call it a dangerous poison that can make people sick and can even be deadly. Others call it the “God molecule,” a hallucinogenic so potent it is often compared to a religious experience.

— The New York Times


Boost your career with a personal board of directors

Many people work with mentors or executive coaches to get support in their professional lives. A personal board takes this a step further; it’s a network of people who are there not just to support you, but to offer a critical check on your thinking and provide pushback when needed. Together, they act as a conduit not only for honest feedback, but they can help you practice self analysis and healthy communication.

— Financial Times


Proposed SEC rules could change how you invest

The Securities and Exchange Commission has proposed several rules aimed at ensuring the liquidity of open-end funds, especially if there is a financial crisis. The SEC's proposals would oblige fund managers to adopt specific liquidity risk management measures, including having most open-end funds adopt "swing pricing" and keeping at least 10% of their assets liquid. The proposals are controversial, both because of the rationale for the measures and for the effect it will have on retail investors as well as mutual fund sponsors.

— Smart Asset

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