Election, Inflation, Crypto….What a Week

The election is behind us (sort of).

And the election was not even the biggest market moving event of the past week. The Consumer Price Index (CPI) that measures the rate of inflation came out on Thursday morning and it didn’t increase as much as expected. And the market was up 1200 points as interest rates on bonds dropped over ¼ of 1%.

So, what is more important- the composition of Congress or the rate of inflation and interest rates? The market seems to have answered that question this week.

Also last week, the dollar had one of the biggest down days in years versus other currencies. The dollar has been very strong for the last year or so. This has helped and hurt.

It has helped U.S. tourists travelling overseas and has kept import prices down. But the strong dollar has also been a headwind for U.S. companies making sales overseas. When Coke sells a Euro’s worth of Coke this year, it translates today into approximately $1.00. For most of the last 10 years, that Euro worth of sales translated into $1.20-$1.40- a significant difference.

Below is a chart showing the how the value of the Euro has fallen versus the strong dollar.

Another headwind the strong dollar has created is the return that U.S. based investors have received on their investments in international markets. If overseas markets are up 10% but their currency is down 10% versus the dollar, U.S. investors earn a big zero.

But as we know, markets tend to run in cycles and the U.S. dollar has been very strong as the Federal Reserve has increased rates at torrid pace this year. But the lower-than-expected CPI number has led some investors to think the Fed may be close to the end of raising rates. This could lead to a decline in the value of the dollar versus other currencies. This could help the return on international investments and help the earnings of many U.S. international companies.

The other big news last week was a bankruptcy declaration of one of the biggest crypto exchanges, which was “valued” at $30 billion dollars the first of this year. How this will play out is still to be determined, but apparently it has hurt a lot of “sophisticated” investors and celebrities.

Below is a chart of the NYSE Bitcoin index for the last 12 months.

One of our most important responsibilities as fiduciaries responsible for the management of your funds is not just what is in your portfolio, but what is NOT in your portfolio. Chasing the hottest new fad is not a strategy for preserving and growing wealth. We may seem out of step with what is new and due to our conservatism may miss some opportunities. But we are responsible for what you own here and if we can’t understand an “opportunity”, we won’t invest in it.

A lot to cover in a short period of time, but we wanted to touch base with all the news.

And with Thanksgiving around the corner, we also want to take this time to say “Thank You” for the most valuable asset we have in this business- which is the trust you have placed in us.

Thank you again and Happy Thanksgiving to you and your family.

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