November 16, 2022|Commentary

Commentary from the Desk: November 16, 2022


This week, all eyes continue to be focused on the FTX saga, retail sales numbers and U.S. midterms election outcomes.

The Crypto Front

  • The FTX fallout has been extensively covered, and continues to play out in real-time. (NB: For further color, SBF gave an exclusive interview to the New York Times on Sunday.) The situation is rapidly developing, and there remains considerable uncertainty around the future of the exchange itself, and also what other knock-on effects will unfold.
    • Given FTX’s prominence in the industry, the path forward will be a bumpy one for the crypto ecosystem, but this situation also amplifies the need for immutable, transparent, and decentralized systems.
  • On Cumberland’s end, we experienced record volumes last week. While we had virtually no exposure to FTX, our operational controls enabled us to provide deep liquidity to a market in search of it.
  • Ethereum is still producing blocks, and while we’ve experienced high volatility, DeFi protocols are functioning as they should.
  • By far, the most affected ecosystems are the ones that were nurtured by Sam Bankman-Fried, FTX, and Alameda.
    • Both SOL and SRM are down ~63% since the weekend of the first week of November
    • While this is devastating for the Solana community, its builders are plentiful, resilient, and resolute.

The Macro Front

  • On the flip side, equities have performed exceptionally well over the last week due to positive macroeconomic news.
    • Consumer prices at the wholesale level rose 7.7% in October from a year ago, the fourth straight decline and the latest sign that inflation pressures in the U.S. are easing from painfully high levels.
    • The annual figure is down from 8.4% in September.
  • The Commerce Department released retail spending numbers this week showing sales at retailers jumping 1.3% in October. The data signals U.S. consumers are still spending plenty of money despite efforts by the Federal Reserve to slow the economy.
    • Receipts rose a robust 0.9% if auto dealers and gas stations are excluded. Auto and gasoline purchases can exaggerate the ups and downs in overall retail spending.
  • Retail sales are a big part of consumer spending and offer clues on the strength of the economy. Sales rose in almost every major retail segment in October.
  • The U.S. midterm election results, while not 100% finalized, are indicating the Republicans will take the House and the Democrats will hold the Senate. Three main takeaways include:

    1. Republicans vastly underperformed expectations;

    2. The election wasn’t all about the economy. While the economy mattered to voters, other issues—from abortion rights to threats to democracy—simply mattered more; and,

    3. A split Congress with weak majorities will be wrestling over must-pass legislation such as passing a federal budget and raising the country’s borrowing limit.

  • We are looking at a divided government, which increases the chance of gridlock and limits legislative action. This is typically a net positive for markets as it reduces policy and regulatory risk.


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