WSJ: The Fed now losing money thanks to its own rate hikes: https://www.wsj.com/articles/higher-interest-rates-fuel-losses-at-the-federal-reserve-11667208602 . I commented yesterday that “there were limits” to the Fed’s ability to buy bonds to increase liquidity because of the large amount of bonds already on its balance sheet. This article fleshes out how those limits are currently playing out. But also, every time the Fed raises rates, it devalues the bonds it is already holding. The only way to avoid losses on those bonds is to hold them to maturity, as detailed in the article.
WSJ: Like China, the US has an overvalued real estate sector: https://www.wsj.com/articles/rising-interest-rates-threaten-to-expose-office-buildings-inflated-values-11667213676 . The math here is pretty obvious. If a building is valued according to future cash flows, and interest rates rise, the cash flows (and therefore the building) are less valuable.
Are you convinced yet that a global recession is coming, and the US will participate? Here’s more evidence:
WSJ: China’s manufacturing sector slumps: https://www.wsj.com/articles/chinas-factory-slowdown-worse-than-expected-under-weight-of-covid-policies-11667213933 . More: The iPhone assembly problems at Foxconn: https://www.wsj.com/articles/foxconn-to-shift-some-iphone-production-from-covid-hit-plant-to-other-sites-11667222723 .
WSJ: Japan spent $43 billion in October propping up the yen: https://www.wsj.com/articles/japans-monthly-bill-for-propping-up-yen-comes-to-43-billion-11667220494 .
And the Euro zone is also raising interest rates: WSJ: Euro zone inflation hits 10.7%: https://www.wsj.com/articles/eurozone-inflation-rate-rises-to-10-7-as-recession-looms-11667210401 .
Russia strikes Ukrainian infrastructure: https://apnews.com/article/russia-ukraine-kyiv-black-sea-europe-kharkiv-870091b0922a131aefb2692bb88f5c6d . The Russians continue to strike the electrical grid. This has knocked out water supplies to most of Kyiv.
Typhoon Elon tearing through Twitter: https://www.msn.com/en-us/money/companies/sparks-fly-as-musk-moves-fast-to-remake-twitter/ar-AA13zwD2?cvid=2cb4f64617504e8babfa8c8828f40bff . Forecasters predicted this storm, although its path continues to be unstable. As the article suggests, a “for cause” firing intended to avoid payments under the merger agreement will have a tough road in court. I would guess that these are payments triggered by the change in control (they are described as “golden parachutes”). The firings prove why the payments are justified. Also, why would someone pay $19.99 per month for their blue badge on a shrinking platform? You have to expect a lot of folks will leave, causing further contraction.
More on Musk’s plans: https://www.msn.com/en-us/news/technology/musk-s-inner-circle-worked-through-weekend-to-cement-twitter-layoff-plans/ar-AA13z9pz?cvid=182532377a8749118a00e353a8862b2c . The Post reports that Musk will lay off 25% of employees on Monday. Part of that will avoid the vesting of stock options (tomorrow) which are part of the employees’ compensation packages. In contrast to the executives discussed above, employees serve “at will”, so the legality of this move is a more open question. However, I would argue that the employees have fulfilled their part of the employment bargain, so there is a contractual obligation to vest these stock options. The question will reduce to applicable precedent under California law.
WSJ: Meadows must testify in front of January 6 committee: https://www.wsj.com/articles/mark-meadows-loses-bid-to-avoid-testifying-before-jan-6-house-panel-11667267946 .
Julia Roberts discloses that Martin Luther King, Jr., and Coretta paid the hospital bill for Roberts’ birth: https://www.huffpost.com/entry/julia-roberts-reveals-martin-luther-king-jr-paid-the-hospital-bill-for-her-birth_n_635ec04fe4b07c6cedc43a8a . You cannot make this stuff up …