What it will take for the Fed to start slashing interest rates in 2024

 It is likely that the Fed will start cutting aggressively in 2024 against a backdrop of a slowing economy and rising unemployment, resulting in lower inflation.

It is unlikely that central bank policymakers will cut simply for the sake of cutting. The Fed will need a compelling reason to start easing, and even then, rate decreases are likely to be gradual unless something breaks, forcing it into an aggressive response.

“The market keeps trying to front-run these rate cuts, only to be disappointed,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “In a different cycle, when inflation hadn’t spiked so much, I think the Fed would have been cutting rates already. This is a very different cycle. There is going to be much more caution on their part.” 

According to the CME Group, Fed funds futures now anticipate five quarter-percentage-point rate cuts next year, one more than before the latest speeches. In anticipation of lower interest rates, stocks have rallied since then.

New AI Chip Announced by Amazon

 New AI Chip Announced by Amazon

In seeking to remain a big, if not the leading, name in the cloud service market, Amazon Web Services has revealed big news for the future. Amazon’s AWS cloud operations unit just announced brand new chips for clients to create, build, and operate AI applications on, as well as steps taken to offer customers access to various Nvidia’s latest chips. This latest Amazon Cloud will offer a variety of top-of-the-line GPUs from AI chipmaking giant Nvidia and highly sought-after products from different companies. 

Nvidia’s GPUs experienced significantly increased demand after the launch of OpenAI’s groundbreaking ChatGpt chatbot around a year ago. Following ChatGPT’s release, Nvidia started experiencing shortages due to companies seeking to implement similar generative AI technologies into their own products. Within this situation, Amazon saw an opportunity and has begun an approach that includes both allowing consumers access to Nvidia’s products and building its own chips. Amazon’s top competitor, Microsoft, similarly announced its inaugural chip, the Maia 100, and plans to give clients access to Nvidia H200 GPUs. 

Amazon made this announcement on Tuesday in Las Vegas at the Reinvent conference. AWS said it will now offer access to Nvidia’s new h200 AI GPUs, as well as its new Trainium2 AI chip and the general-purpose Graviton4 processor. Amazon’s Trainium2 chips are designed and built for training AI models, models similar to OpenAI’s ChatGPT. Amazon-backed OpenAI competitor Anthropic and startup Databricks intend to construct models utilizing the new Trainium2 chips, which reportedly boast four times improved performance. 

The Graviton4 processors are based on Arm systems and use less energy than chips from AMD or Intel. Graviton4 ensures 30% improved performance compared to previous Graviton3 chips, allowing for what AWS says is better output for the price. As a result of increasing inflation rates, organizations that wish to remain with AWS and, at the same time, lower cloud expenses will most likely move to Graviton. This movement is seen as Amazon reported over 50,000 AWS customers have quickly moved to using Graviton chips. 

Amazon opened up early access to customers who want to test Graviton4 virtual machine instances before they become commercially accessible within the upcoming months. Amazon is a highly competitive company that is constantly developing, and this announcement is another example of that. 

Mark Cuban is selling majority stake in the Dallas Mavericks to the Adelson family

 Mark Cuban, a multi billionaire recently announced he is selling his majority share in the Dallas Mavericks, hours after speculation coming that Cuban may be leaving shark tank soon. Cuban however will still own a stake in the team, and keep control of all basketball operations. 

Cuban will be selling his majority stake to the Adelson family. The Adelson's who are worth billions, reported they are selling $2 billion of LVS stock to free up money to buy majority ownership of the Mavericks. Along with cash on hand, and the proceeds form the sale of LVS stock, they will have enough money to buy the majority stake.

Cuban will remain governor of the team, and keep control of basketball operations even though he is selling majority stake. Cuban bought the Mavericks for $285 million in 2000, and even though the finalized amount of the sale is not published the Phoenix Suns, another basketball team, were recently sold for $4 billion. 

Cuban is known as one of the most exciting owners in all of the NBA, with a passion and love for the game of basketball. Cuban was also one of the most fined owners, racking up just over $4 million in fines. As well, Cuban has led the Mavericks too two finals appearances, including a finals win in 2011 over the Miami Heat.

The Fed's Impact On Stock Prices

 With The Fed continuing to increase interest rates it has shown an effect on stock prices. These companies, especially tech companies, run off credit. When interest rates increase, it slows investment and therefore slows the growth of these companies. In addition to companies slowing down borrowing, savers (or investors in finance terms) receive a higher rate of return through bonds. Many savers would rather receive the high rate of return on the bonds instead of taking chances on the stock market. With the large hikes in the federal funds rate, savers do not know when it will stop so many would rather put their money into something with a guaranteed return like a bond. 

Looking at the stock prices as of November 27th, the S&P 500 is down .19%. NASDAQ is also down .07%. These are not huge changes although when your portfolio gets to a high amount, these drops could be considered detrimental. Although there is not a direct link to the federal funds rate and the stock prices, there is a trend, specifically a negative relationship. In times like these when the yield on a 6 month treasury bond is 5.466%, many savers are stepping away from the stock market to get these guaranteed returns. 

CNBC. (n.d.). Check out 6 month US Treasury last Price’s stock price (US6M) in Real time. CNBC. https://www.cnbc.com/quotes/US6M 

How do rising interest rates affect the stock market?. U.S. Bank. (2022, February 16). https://www.usbank.com/investing/financial-perspectives/market-news/how-do-rising-interest-rates-affect-the-stock-market.html 

Yahoo! (n.d.). Yahoo Finance - Stock Market Live, quotes, Business & Finance News. Yahoo! Finance. https://finance.yahoo.com/ 

Investors Are Hungry for Risk- and Holding Record Cash Sums

 There is currently a record setting $5.7 Trillion in money market assets from both investors and institutions combined. This, combined with a very bullish month, the Nasdaq being up 11% and the S&P 500 up 8.7% respectively, is leaving analysts confused as to what the current trajectory of the market is. 

    On one hand, there are analysts who view the current growth as unsustainable, and view the market as rapidly approaching a contraction. Part of the reason that there is so much money in money market funds is because the current yields are currently above 5% for many of them. These analysists think these rates are due to tick down and subsequently cause people to move their money to other investments. On the other hand, there are analysts who the large supply of money in the market as a bullish signal.

Firms are also trying to stay competitive in the current money market as it is easy for people to decide to move their money elsewhere due to the high rates currently being paid. For example, the brokerage webull just began offering 5% to all funds that are being held within a brokerage account. Webull claims that there was a large inflow of cash into their brokerage over the last 6 months, and much of it began to be invested this month as the stock market turned around. 

Article: https://www.wsj.com/finance/stocks/investors-are-hungry-for-riskand-holding-record-cash-sums-6fe43275? imod=hp_lead_pos1

How do elections affect the stock market?

 Every four years, the U.S. presidential election can have a substantial impact on monetary and fiscal policy. The markets are significantly affected as well so how does this affect the common shareholder?

Over the past 90 years, it has been detected that both equity and bond markets had more stagnant performance in the year leading up to the election. For example, in a typical 12-month period there is generally a 8-8.5% return on the S&P 500, but in the year leading up to a presidential election, gains are only around 6% on average. Bond markets yield around 6.5% leading up to the election whereas 7.5% in a typical 12-month period.

It is important to pay close attention to specific market sectors in election years. Government healthcare policy seems subject to change depending on the party in power as well the energy sector.

There is reason to be wary about your portfolio, but returns are made over a a full business cycle rather than a single presidential term. The biggest advice is to pay attention to how certain policies enacted may affect your portfolio in a positive or negative way. 

Funflation in Sports Events

“Funflation” is a term used by economists to explain the increase in ticket prices for live events as consumers eagerly seek the experiences they missed out on during the pandemic.

Last month, the cost of attending sports events went up by 25.1% compared to October 2022, according to the Bureau of Labor Statistics' consumer price index. This increase in admission prices for sports events marked the highest annualized inflation rate among the numerous categories included in the inflation basket (CPI only showed a 3.2% annualized increase). The surge in prices is evident across the entire leisure and hospitality sector as people are returning to activities they enjoy and are willing to pay more for these experiences.

One of the possible factors contributing to higher prices for sports events is the growing use of dynamic pricing models. Such models allow ticket-selling platforms to adjust prices based on the demand for a particular event at any given moment. Ticket prices might also be influenced by notably sporting events, like the recent Formula One race in Las Vegas and the announcement of the soccer player Lionel Messi's move to the Inter Miami team, which have contributed to heightened enthusiast spending. A substantial factor behind this surge is the contrast with the unusual low prices in 2022. Sports teams had reduced ticket prices significantly to attract back fans who got used to watching games from home on a television.

The interest in attending sports games is expected to remain relatively steady even in the face of economic challenges. This is because a significant portion of the consumer base is financially well-off enough to afford professional sports tickets and is likely more resilient in economic downturns due to their financial condition. However, a substantial shift in the economy’s situation could lead fans with less financial stability might spend less on things they don't really need, possibly affecting the demand for sports tickets. Some people with money constraints might justify spending more on sports tickets this year by telling themselves they didn't treat themselves to such things during the pandemic. The financial strain also affect the resale market for tickets, as some sports fans pointed out. Additionally, the rising costs of parking and food inside the stadium add to the overall money concerns for fans.

    In the post-pandemic world, sports have gained a new meaning. With more people working from home, the desire for in-person social spaces is higher, and those with the money are more willing to spend on these experiences. The sports world creates this sense of togetherness, which is more than ever appreciated considering the loss of such experiences during Covid-19 time.

Source: https://www.cnbc.com/2023/11/21/funflation-drives-sporting-event-ticket-prices-up-a-whopping-25percent.html

Home prices are poised to drop as the frozen housing market thaws, 2 top experts say

     Recently, after a long period of high home prices and high mortgage rates, there has been a predicted shift in the housing market. It is foreseen that there could be a substantial drop in housing prices in the future spurring a reinvigoration of the housing market, which has been on the decline since the height of covid in 2020. Mark Zandi, Moody's chief economist, had stated in interviews the direction in which the housing market would need to continue to get back to relatively normal price ranges as compared to pre covid. Zandi stated "I don't expect the housing market to come roaring back here, certainly not in 2024," he said. "Probably won't be until 2025, 2026 before we see sales levels that are more consistent with what we've enjoyed historically." However, there are a few with more optimistic views on the future of the housing market.

    Redfin CEO Glenn Kelman believes that the housing market is already reigniting. Stating that the amount of housing inventory has already begun to increase. He mentioned that more homes were being listed and those not sold are being listed again at lower prices. He ends with the observation that prices that had originally frozen the housing market are now being pried open and buying and selling will continue to increase as the year progresses.

Cited Source

https://markets.businessinsider.com/news/commodities/home-prices-housing-market-forecast-zandi-kelman-mortgage-affordability-rates-2023-11

Gary Shilling's 8 best quotes from a new interview.

American financial analysis and commentator Gary Shilling, a regular figure in publications including The Wall Street JournalI, The New York Times, and Forbes recently completed an interview and the following is a series of my takeaways from Shilling's 8 quotes from the article regarding the current stock market, the possibility of a recession, and commercial real estate (CRE) bubble. Shilling was credited with correctly forecasting economic events including the housing crash in 2008. 

Quote 1) Most forecasters on Wall Street are brought in to make bullish predictions. Even if a forecaster makes a correct bearish prediction, its has a negative impact on job security.

Quote 2) Shilling has a firm opinion that stocks will decline from 30%-40%, peak to trough. Shilling's forecast indicates a 2,900 point fall for the S&P 500.

Quote 3) The Fed's credibility problem is a strong reason why they are going to kill inflation. If the Fed fails to kill inflation then their credibility will be impaired heavily. 

Quote 4) If the Fed is going to kill inflation then a recession will be the price of that decision 

Quote 5) Shilling says that there will be a recession coming in the near future. The inverted yield curve, LEI's and the Fed's battle with inflation are all points Shilling referenced for an upcoming recession.

Quote 6) It will be well into the next year before the weak economy expresses itself and inflation is cut back. 

Quote 7) Shilling references the mid-2000s housing bubble and crash and says that the major banks had to be bailed out as well as the mortgage lenders and so on. 

Quote 8) The biggest bubble right now is CRE. It is a bubble beginning to crack and many buildings have been stifled by the remote working boom. 

Article: https://markets.businessinsider.com/news/stocks/stock-market-outlook-crash-recession-commercial-real-estate-bubble-shilling-2023-11

The Haitian-Dominican Republic Water Dispute

    Two countries riddled with contentious history have developed a new feud to add to their everlasting list. Haiti and the DR share one island in the Caribbean, but that is where the sharing ends. The two countries fought in the 1800's in which the DR was able to gain independence over the French backed Haitians. Since then, the two have developed vastly different cultures, a passionate hatred for one another, and have gone completely different paths. Haiti is a nation experiencing everything that go wrong in a country including a presidential assassination in 2021, gangs overrunning the streets, and poverty sweeping the nation. The Dominican Republic on the other hand continues to be a tourist hot spot as 16% of their total GDP comes from the tourism industry. 

    Recently in September, the Dominican Republic sealed its borders and froze Haitian visas over a dispute involving the Massacre River, a river that stretches 220 miles of the countries borders. The DR claims full use of it, however the Haitian government says they also have full right of use. The two countries met for negotiations but after 11 hours, nothing was resolved. An arising issue that comes with this closure of the border is Haitians rely greatly on trade with the DR. As the DR is Haiti's third largest trading partner, Haiti's already high starvation rate could increase. 

    The conflict stems from a 1929 agreement between the countries in which they are both granted access to the water. The problem is the Haitian government has begun an excavation of the river which Dominican officials say will severely affect their countries farmers. The Massacre River is already home to 11 canals on the Dominican side, so many wonder if this response was somewhat of an overreaction. Since then, the DR has partially opened their borders but the water dispute persists. Haitians continue to worry about their current and future food supply as the lack of water greatly hinders their agricultural industry. 

https://www.nytimes.com/2023/09/14/world/americas/dominican-republic-haiti-border-water.html