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Burnt stock is the only thing that works for the Fed

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(Bloomberg) – Inflation is showing few signs of a slowing economy. The same cannot be said of the markets, which are starting to look like the only thing the Fed is doing these days.

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Even with Thursday’s big bounce, the S&P 500 has lost a quarter of its value this year. Shocking as it was for investors, it’s one of the few things happening anywhere that actually aligns with the Fed’s goal of draining an economy of bloat. Recently, losses in terms of destroyed wealth – about $15 trillion to date – have begun to approach the 2008 financial crisis, when measured against US GDP.

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And while the stock market is not the economy, it is a signal and input into it, affecting everything from consumer sentiment to private corporate prices. The drop on par with what has already happened in stocks has been a suitable proxy for inflation reversals more than a dozen times since the late 1950s, according to research from Doug Ramsey, chief investment officer at Leuthold Group.

“The impact of wealth has played a greater role than ever in inciting the inflation spiral, and it will play a huge role in reducing it,” Ramsay said in an interview at Bloomberg’s headquarters in New York. “When you think about the stock market’s decline in terms of the traditional percentage on the index, that underestimates the amount of wealth you’re erasing.”

Buoyed by easy money policies and massive fiscal stimulus, the S&P 500 has more than doubled between its pandemic lows and highs this year, making Americans who own stocks feel richer, only on paper. That all changed in 2022, as the Federal Reserve raised interest rates at the fastest pace in decades.

Falling stock prices wiped out 4.1% of Americans’ total net wealth to $144 trillion in the quarter ended June 30. This was the second largest drop since 2008.

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This has not significantly affected consumer sentiment so far, as Thursday’s reading of September consumer prices showed a rise in inflation. By Ramsey’s logic, this will one day help the central bank achieve its goals. The more frugal consumer won’t be the only force behind moderate inflation – which also depends on interest rates and moves in the dollar – but it could help.

It became difficult to ignore the scale of striking wealth into this ruin. Between the record high set in November and late last month, the Wilshire 5000 fell about 27%. Expressed as a percentage of gross domestic product, the loss is equal to 54%, close to the 61% that evaporated during the financial crisis, according to data compiled by Leuthold.

Historically declining asset prices have a track record of either easing inflationary pressures or signaling a decline.

Between 1957 and last year, the S&P 500 recorded 15 corrections of 19% or more. In 10 of the cases, inflation was lower after 12 months, declining by an average of 2.3%, according to data compiled by Leuthold.

It is not just a stock market. Rising borrowing costs have alarmed aspiring homebuyers, making home ownership – a major source of wealth for Americans – out of reach for some. Housing affordability is deteriorating faster than at any time in the past three decades, according to estimates compiled by Morgan Stanley.

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“A significant portion of Americans’ wealth resides in home equity portfolios and the financial markets, both of which have been very successful this year,” Ed Yardeni, founder of his namesake research firm, said in a note to clients. “We see red flags in housing market weakness, negative wealth impact, and a stronger dollar.”

Bob Prince of Bridgewater Associates LP charted a somewhat extreme scenario over the summer, saying that the Fed’s attempt to achieve two goals – lower inflation while avoiding an unacceptably deep recession – could cause policymakers to pause the rate-raising cycle, leading to The end to do two rounds. Instead of pulling one.

The company’s chief investment officer said that this scenario, currently off the market charts, “presents the greatest risk of massive wealth destruction.”

While it hurts in the short term, a lower stock market size relative to the economy can be seen as a healthy development for market bulls.

Lower asset prices eventually pushed stock market capitalization relative to national gross domestic income out of the top quintile of historical readings, which preceded stock declines next year, three and five years, according to data compiled by Ned Davis Research.

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“The impact of wealth is not only affecting stocks and financial markets, but also housing prices,” said Mona Mahajan, chief investment analyst at Edward Jones, in an interview. “The dwindling wealth effect is what could be a self-fulfilling cycle: Consumers may clamp down on their wallets, and that has a ripple effect on the economy. We may be getting there.”

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MicroStrategy is at its lowest level since 2020 after the sales were revealed

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(Bloomberg) — Shares of MicroStrategy touched their lowest level since August 2020 after the enterprise software company, which in recent years has been known as the largest buyer of bitcoin, revealed its first sale of the token.

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The stock fell 1.1 percent to $136.63 on Thursday, down 75 percent this year. Bitcoin rose less than 1% to around $16,590 and is believed to have fallen 64% since the start of the year.

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In a filing on Wednesday, MicroStrategy said it acquired approximately 2,395 Bitcoin between the beginning of November and December 21 through its subsidiary MacroStrategy, and paid out approximately $42.8 million in cash. It then sold 704 of the tokens on Dec. 22 for a total of about $11.8 million, citing tax purposes, before buying another 810 of them two days later.

Matt Malley, chief market strategist for Miller Tabak + Co. Step down as CEO. This news means they don’t seem to want to do that anytime soon.”

Overall, MicroStrategy held about 132,500 bitcoins worth over $4 billion USD as of December 27th. The company paid an average purchase price of $30,397 per bitcoin.

“Given MicroStrategy’s $2.4 billion in leverage, we believe the company may have a lot of leverage over Bitcoin, and may face some liquidity risk,” Jefferies analyst Brent Thiel wrote in a note on Wednesday. Thill has an “underperform” rating on the stock and a price target of $110.

Over the years of the pandemic, MicroStrategy has become well known for its Bitcoin takeovers, largely led by Saylor. Earlier this year, Saylor stepped down from that role and now serves as CEO at the company and continues to lead its bitcoin strategy.

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MicroStrategy was trading around $120 before Saylor first announced the company’s Bitcoin purchases in 2020. The stock reached an all-time high of $1,315 in February 2021.

(Updates to include the stock’s closing price in the second paragraph.)

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Bankman-Fried May File Petition in New York Federal Court Next Week Before Judge Louis Kaplan By Cointelegraph

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Former FTX CEO Sam Bankman-Fried is set to appear in court on the afternoon of January 3 to enter a lawsuit over two counts of wire fraud and six counts of conspiracy against him related to the collapse of cryptocurrency exchange FTX, according to Reuters. mentioned on December 28, citing court records. Bankman-Fried will appear before District Judge Lewis Kaplan in Manhattan.

Judge Kaplan was appointed to hear the case on December 27 after the original judge in the case, Ronnie Abrams, Resigned herself because of connections between FTX and the law firm Davis Polk & Wardwell, where her husband is a partner. The company provided advisory services to FTX in 2021.