The Long Term Investor

Back later......off to ship the balance of the Christmas gifts to family members out of state.

 

I am now lingering......after today.....at (-24.5%) for the year. I now have 14 market days left to gain 24.5% and get back to zero. Somehow.....I dont think I am going to make it.

I would settle for a ferocious year end rally to get me back to (-20%) or below. My best bet is some great CPI data and a Santa rally.

As a long term investor I am not worried about this. Having a losing year is just part of the process once in a while.

 

We were out and about today. Anecdotal info.....yes I know......but Home Depot was PACKED. Barnes and Noble and Walmart were also EXTREMELY busy.

In out neighborhood I am seeing about 90% of the homes with lights and Christmas decorations......WAY more than normal.

Seems like people are really getting into Christmas this year. I am looking for some really good retail and online sales information this year when the shopping is done.

 

About time.

FTX founder Sam Bankman-Fried arrested in the Bahamas after U.S. files criminal charges

https://www.cnbc.com/2022/12/12/ftx...-bahamas-after-us-files-criminal-charges.html

(BOLD is my opinion OR what I consider important content)

"FTX founder Sam Bankman-Fried was arrested by Bahamian authorities this evening after the United States Attorney for the Southern District of New York shared a sealed indictment with the Bahamian government, setting the stage for extradition and U.S. trial for the onetime crypto billionaire at the heart of the crypto exchange’s collapse.

Damian Williams, the U.S. Attorney for the Southern District of New York, said on Twitter that the federal government anticipated moving to “unseal the indictment in the morning.”

Bahamas Attorney General Ryan Pinder said that the United States had filed unspecified criminal charges against Bankman-Fried and was “likely to request his extradition.”

In a statement, Bahamian Prime Minister Philip Davis said, “The Bahamas and the United States have a shared interest in holding accountable all individuals associated with FTX who may have betrayed the public trust and broken the law.”

“While the United States is pursuing criminal charges against SBF individually, The Bahamas will continue its own regulatory and criminal investigations into the collapse of FTX, with the continued cooperation of its law enforcement and regulatory partners in the United States and elsewhere,” continued the statement.

FTX testimony this week is going to be very telling, says CEO of Bitfury Group, it sounds like a scheme

Bankman-Fried was expected to testify before the House Financial Services Committee tomorrow. His arrest is the first concrete move by regulators to hold individuals accountable for the multi-billion dollar implosion of FTX last month.

In November, FTX and its affiliates filed for bankruptcy and Bankman-Fried stepped down from his role as CEO. The crypto trading firm imploded in spectacular fashion following a run on assets similar to a bank run.

FTX’s collapse was precipitated when reporting from CoinDesk revealed a highly concentrated position in self-issued FTT coins, which Bankman-Fried’s hedge fund Alameda Research used as collateral for billions in crypto loans. Binance, a rival exchange, announced it would sell its stake in FTT, spurring a massive withdrawal in funds, equivalent to a bank run. The company froze assets and declared bankruptcy days later. Reports later claimed that FTX had commingled customer funds with Bankman-Fried’s crypto hedge fund, Alameda Research, and that billions in customer deposits had been lost along the way.

Bankman-Fried was replaced by John J. Ray III, who had overseen Enron’s bankruptcy. Ray is also scheduled to testify before Congress this week. In prepared remarks released Monday, Ray said that FTX went on a “spending binge” from late 2021 through 2022 when approximately ”$5 billion was spent buying a myriad of businesses and investments, many of which may be worth only a fraction of what was paid for them,” and that the firm made more than $1 billion in “loans and other payments...to insiders.”

Ray also said that FTX customer funds were commingled with assets from Alameda Research, the hedge fund also founded by Bankman-Fried. Alameda used client funds to do margin trading, which exposed them to massive losses, Ray said.

Legal experts told CNBC that if the federal government pursues wire or bank fraud charges that Bankman-Fried could face life in prison without the possibility of supervised release. Such a severe punishment would be unusual but not extraordinary. Ponzi scheme mastermind Bernie Madoff was sentenced to 150 years in prison, an effective life sentence, for his massive ponzi scheme. FTX’s collapse has already triggered the demise of BlockFi Lending, and has thrown the entire space into disarray."

MY COMMENT

Here comes the KARMA. This guy acts like a psychopath......he still thinks he can simply BS his way out of this. Sorry.....not going to happen......all your celebrity and political buddies have now abandoned you. YOU.....are radioactive.

 

The future......as the baby boomers retire?

US worker productivity has tanked this year. What gives?
Expert says several factors are at play, and burnout is definitely one of them

https://www.foxbusiness.com/economy/us-worker-productivity-tanked-year-what-gives

(BOLD is my opinion OR what I consider important content)

"American workers aren't getting nearly as much done this year as they used to.

U.S. labor productivity plunged first quarter in the largest decline since 1947, then dropped by the highest annual amount on record in the second according to the Bureau of Labor Statics. The third quarter data indicates year-over-year output saw three consecutive declines for the first time since 1982.

So what is going on? One expert says there are several factors contributing to the drop in productivity, and the problem is likely to persist for some time.

Julie Bauke, founder and chief career strategist with The Bauke Group, told FOX Business the decline in output from the current workforce was largely inevitable – COVID just sped it up. In short, she says, "The world of work right now is a mess."

The U.S. workforce is stretched thin in this tight labor market – and people are just plain burnt out.

For starters, Bauke noted, the pandemic caused many older, seasoned workers to retire early, and the spots left behind by those "boomers" are being filled by an insufficient number of less-experienced workers from younger generations.

Not only do Gen X and Gen Z workers lack some of the institutional knowledge as older workers, Bauke says, but they are also less willing to put in the long hours their boomer managers might expect.

At the same time, the older workers that remain now tend to be less willing to sacrifice their health or family time to take on loads of extra work.

Adding to the problem, month upon month of persistent talent shortages means workers are being asked to do more than just their own job because employers have been unable to fill many open positions.

With recession fears growing, the problem is getting even worse.

Bauke says the first thing companies do when they are looking at cutting back their workforce is to cancel open positions, and "What message does that send to the people back at work who have been doing two jobs? It says the cavalry is not coming."

She argues companies have been pushing their employees to the point that the workers don't care anymore. But, with fewer positions open and a recession looming, workers are scared to leave their jobs out of fear that they would be the first to be laid off if they took a new position elsewhere.

"People are discouraged," Bauke added. "They are feeling hopeless and helpless.""

MY COMMENT

NO surprise here. Number one is the......unmentioned.........work from home BS. Guess what? We have a record number of people claiming to work from home and productivity tanks to an extent not seen since 1947.

Add in the quickly bailing baby boomers and you have a total lack of institutional knowledge, company culture, and work ethic on the part of many of the "new" workers.

We are also now seeing the......."screen generation"......the "social media generation".....at work and it is a very WEIRD picture. I know a good number of early Millennials......born between about 1981 and 1985. They were NOT raised on phones their whole lives and avoided much of the social media "stuff". The ones that I talk to.....even though they are relatively young.....are seeing some real differences with the younger workers that are in the 24 to 32 age group.

No doubt there is also a lot of older workers and baby boom workers that have decided.....screw it.....if the young people will not put in the extra effort.....I am not either.

People used to take pride in their work. They used to strive to move up the ladder and get ahead. Many people had a work ethic that caused them to strive to work hard. Many workers used to put in effort above and beyond. Those days are quickly coming to an end from what I am hearing.

My kids.....one is a 41 year old National Senior Director in a corporate job. The other is a 38 year old team leader in a critical government job. Both are amazed at the difference they are seeing in the workers that are just 8-12 years younger than they are.

Nothing kills a company/business more than having worker productivity go into the toilet. The corporate world is gong to have some real fun times in the future with a collapse of worker productivity on top of all the other......"stuff"......that is infecting the business world now. It WILL be interesting.

UNFORTUNATELY.....this has the potential to significantly impact investors.

 

We are having a CPI rally today.

Consumer prices rose less than expected in November, up 7.1% from a year ago

https://www.cnbc.com/2022/12/13/cpi-inflation-november-2022-.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• The consumer price index rose just 0.1% from the previous month, and increased 7.1% from a year ago, compared with respective estimates of 0.3% and 7.3%.
• Core CPI rose 0.2% on the month and 6% on an annual basis, compared with respective estimates of 0.3% and 6.1%.
• Stocks roared higher following the report as investors look for signs that runaway inflation is ebbing.
• Inflation-adjusted average hourly earnings for workers rose 0.5% for the month, though they were still down 1.9% from a year ago.

Prices rose less than expected in November, the latest sign that the runaway inflation that has been gripping the economy is beginning to loosen up.

The consumer price index, which measures a wide basket of goods and services, rose just 0.1% from the previous month, and increased 7.1% from a year ago, the Labor Department reported Tuesday. Economists surveyed by Dow Jones had been expecting a 0.3% monthly increase and a 7.3% 12-month rate.

The increase from a year ago, while well above the Federal Reserve’s 2% target for a healthy inflation level, was tied for the lowest since November 2021.

Excluding volatile food and energy prices, so-called core CPI rose 0.2% on the month and 6% on an annual basis, compared with respective estimates of 0.3% and 6.1%.

Stocks roared higher following the report, with futures tied to the Dow Jones Industrial Average up more than 800 points initially before easing a bit.

“Cooling inflation will boost the markets and take pressure off the Fed for raising rates, but most importantly this spells real relief starting for Americans whose finances have been punished by higher prices,” said Robert Frick, corporate economist with Navy Federal Credit Union. “This is especially true for lower-income Americans who are disproportionately hurt by inflation.”

Falling energy prices helped keep inflation at bay. The energy index declined 1.6% for the month, due in part to a 2% decrease in gasoline. Food prices, however, rose 0.5% and were up 10.6% from a year ago. Even with its monthly decline, the energy index was higher by 13.1% from November 2021.

Shelter costs, which make up about one-third of CPI weighting, continued to escalate, rising 0.6% on the month and now up 7.1% on an annual basis.

The easing of inflation pressures helped give workers a lift after months of seeing wage increases fall well short of inflation. Real average hourly earnings rose 0.5% for the month, though they were still down 1.9% from a year ago.

The CPI report comes the same day the rate-setting Federal Open Market Committee begins its two-day meeting. Markets widely expect the FOMC on Wednesday to announce a 0.5 percentage point rate increase, regardless of Tuesday’s CPI reading.

“The Fed could dismiss the better-than-expected October as just one month’s data, but the further slowdown in November makes this new disinflationary trend harder to dismiss,” Paul Ashworth, chief North America economist for Capital Economics, wrote in a post-CPI note titled, “Stick a fork in it, inflation is done.”

Inflation spiked in the spring of 2021, the result of converging factors that took price increases to their highest levels since the stagflation days of the early 1980s. Among the main aggravating circumstances were a supply and demand imbalance brought on by the pandemic, Russia’s invasion of Ukraine and the impact on energy prices, and trillions of dollars in fiscal and monetary stimulus that sent an abundance of money chasing too few goods that were caught up in supply chain problems.

Used vehicle prices, which had been a major contributor to the initial inflation burst, fell 2.9% for the month and are now down 3.3% from a year ago. As recently as February, the used cars and truck index was up more than 40% on an annual basis, the result of higher demand as a microchip shortage caused a backlog in new car production.

Medical care services costs also declined 0.7% on a month basis and were up 4.4% annually.

Headline CPI peaked around 9% in June 2022 and has been on a slow but steady decline since.

After spending months dismissing the inflation surge as “transitory,” Federal Reserve officials began raising interest rates in March. The central bank has boosted its short-term borrowing rate six times in all, pushing the benchmark up to a targeted range of 3.75%-4%.

Fed Chairman Jerome Powell said recently that an important component in determining future monetary policy moves will be looking at services inflation excluding shelter costs. That gauge was little changed in November but is up nearly 7.3% from a year ago."

MY COMMENT

A very good short term boost to the markets. Next step is a 0.50% raise in rates tomorrow. At that point if there is going to be a Santa rally.....all the ducks will be in a row. This might also help to give us a shot at a good kick off to 2023. An early Christmas present for investors.

 

The pieces of the puzzle are starting to come together. With this data....I expect perhaps one or two more 0.50% rate increases and than perhaps 2 or 3 increases of 0.25%. At that point the FED will pause and sit for a while to let things sort out. (assuming they have any sense)

Basically we are going to have to deal with extended inflation as we slowly let the economy recover from the shut-down and all the supply/demand and wage issues that the ridiculous economic shut-down caused.

AND......before you know it.....we will be into 4th quarter earnings shortly after the first of the year. The financial media will frantically fear monger the earnings before they happen. I expect that we will start to see some actual improvement in earnings at that time.....contrary to all the experts......as the economy slowly recovers.

 

The TWIN evils of the investing world.....GREED and ENVY.

Weekly Market Pulse: Envy

https://alhambrapartners.com/2022/12/12/weekly-market-pulse-envy/

(BOLD is my opinion OR what I consider important content)

"Legendary investor and Berkshire Hathaway vice-chair Charles Munger recently stated:

“The world is not driven by greed. It’s driven by envy.”

I think this perfectly encapsulates our current investing era. In a day and age where social media has replaced not only traditional news media but human interaction, where influencers and gamers are top career aspirations for the nation’s youth, where artists (content creators) are paid by the number of followers, likes, and comments, and where keeping up with the Jones’ (or the Kardashians, or the Windsors) is no longer a silent, Sisyphian struggle but a top-rated TV series or Netflix special, it is only natural for this poison to seep into the investing world.

Youtube stars dole out “investment strategies” left and right, extolling the benefits of the newest and coolest money-making venture, as per views, of course. Message boards are full of posts containing stock and option trades that yielded % returns in the hundreds and thousands, over the course of no more few days. Virtually riskless, they say. ATM machines that post your photo along with your balance on a leaderboard for the world to see, meant as an artistic representation of our wealth-flaunting tendencies. It’s not so easy when the bubble pops though as so many in the crypto world are now finding out.

And even if we are skeptical, we become befuddled with amazement, consumed by “why not me?“. We are driven by envy as much as we are by greed. We see that our neighbor is excelling, or so we think, so we change our own course, or regret that we didn’t take the plunge. We see that SHOP and TSLA have PE ratios of upwards of 500 and 1000, respectively, but we dive in anyways and become shocked that they tumble in price. We see that top celebrities are pushing Crypto, from Matt Damon to the Kim Kardashian (again!) to the GOAT Tom Brady himself, so we want to be covered in that heavenly glitter ourselves and open an account at FTX…or Alameda; we’re not sure.

In investing (and in life), we need to stop constantly peering into the lives of others who appear to have what we want. We must try to avoid the siren song of high returns without taking risk into account. We must try to avoid the fool’s gold and the snake oil that cures all.

The best way to do that is to have a strategic, diversified investment plan in place and to stay true to that plan when things go awry or when others claim greater riches elsewhere.


Avoiding envy, and its associated pitfalls, is one of the simple secrets to a successful investment portfolio."

MY COMMENT

EXACTLY. Focus on one thing......yourself and your goals. Ignore everyone else. Your success is NOT dependent on them. Investing is NOT a zero sum game. Your success is NOT dependent on how anyone else is doing. It is not a contest. It is not a sport or a game. It is simply a long term process that should be part of LIFE.

 

HERE is the markets today.......so far a GOOD ONE.

November CPI: Inflation rises 7.1% over last year

https://finance.yahoo.com/news/november-cpi-inflation-rises-71-over-last-year-141704528.html

(BOLD is my opinion OR what I consider important content)

"Consumer prices rose less than expected in November, the second-straight month inflation pressures moderated more than anticipated by economists.

The Consumer Price Index (CPI) for November showed a 7.1% increase in prices over last year and a 0.1% increase over the prior month, the Bureau of Labor Statistics said Tuesday. Economists had expected prices to rise at a 7.3% clip over last year and 0.3% month-over-month, per Bloomberg data.

On a "core" basis, which strips out the volatile food and energy components of the report, prices climbed 6.0% year-over-year and 0.2% over the prior month. Consensus estimates called for a 6.1% annual increase and 0.3% monthly rise in the core CPI reading.

The report propelled U.S. stocks forward and sent Treasury yields lower as Wall Street weighed the implication of softer prints on Federal Reserve policy.

While November’s figures showed a modest deceleration in inflation, the costs of essential items and housing facing U.S. consumers still remain stubbornly high and well above the Federal Reserve's long-term price stability target of 2%.

The Fed has raised interest rates aggressively this year — from a range of 0%-0.25% at the start of the year to 3.75%-4% currently — in an effort to slow the economy and tamp down rising prices. The central bank is expected to lift the target range for its benchmark interest rate by an additional 0.50% tomorrow.

"Another downside inflation surprise not only validates a Fed decision to slow the pace of rate hikes, it also raises hopes that the inflation surge may actually be tamed within the next 12 months," Seema Shah, chief global strategist at Principal Asset Management said in emailed comments.

"Yet, Powell will likely maintain an element of caution in his comments tomorrow," Shah added, pointing to wage inflation from a continuously strong labor market that still poses a problem for Fed officials.

November’s jobs report released earlier this month showed non-farm payrolls rise by 263,000, bringing the three-month average to a robust 272,000 and revising away the moderation in average hourly earnings. The labor force participation rate fell to 62.1%, suggesting a substantial amount of job openings remain — a factor that continues to put upward pressure on wages.

"The difference between inflation at 5% and inflation at 3% next year lies in the ability of the Fed to slow the labor market further, which likely requires further monetary tightening and absolutely no rate cuts," Shah said.

The Fed keeps a closer eye on "core" inflation, which offers policymakers a more nuanced look at inputs like housing. The headline CPI figure, in contrast, has moved largely in tandem with erratic energy prices this year.

The energy index declined 1.6% for the month after a 1.8% rise in October. The downshift was driven in part by a 2% slide in the gasoline category of the measure after gas prices rose 4% in October.

While falling energy prices sent headline inflation lower last month, the shelter category of CPI — which accounts for 30% of overall CPI and 40% of the core reading — was the dominant contributor to the monthly all-items increase and more than offset declines in energy indexes. The cost of shelter rose 7.1% over the last year, comprising nearly half of the total increase in core CPI, the Bureau of Labor Statistics said.

"Housing costs have a unique, symbiotic relationship with inflation," Bright MLS Chief Economist Lisa Sturtevant said in a note.

In a speech at the Brooking Institution in Washington D.C. last month, Federal Reserve Chair Jerome Powell emphasized housing inflation has risen rapidly, while inflation in other core services “has fluctuated but shown no clear trend.”

Meanwhile, food prices rose 0.5%, little changed from the 0.6% increase seen in October.

Elsewhere in the release, the index for used cars and trucks fell 2.9%, the fifth consecutive decline for that component of the report. The cost of medical care also fell 0.5% in November, the same percentage decline seen in October.

In contrast, the indexes for communication, recreation, motor vehicle insurance, education, and apparel all saw increases."

MY COMMENT

The news of the day is the CPI. BUT.....the FED is still lurking in the shadows. Lets see if the markets weaken as we near the close and move toward FED RATE INCREASE day tomorrow.

 

We continue with the negative market view we have seen all year. The markets simply discount and refuse to accept any positive news. Thus....the market fade today from the euphoric open.

EVERY....time we have had any sort of positive news or positive indicator this year.....earnings, the gridlock, CPI, FED statements....the markets simply ignore it and move on as if nothing happened. That is called negative sentiment. It is also called......a tired market that is very shallow......and driven by a negative biased short term trading mentality.

It is a market that is simply looking for any reason to be negative.

It is also a market that is ignoring REALITY. The short term markets can pull this off for a while.....even a year or two....but eventually the IRRATIONAL becomes RATIONAL and the markets EXPLODE to the upside.......and into another leg of the perpetual BULL MARKET.

SO......I watch and wait.

 

TSLA

Tesla stock is trading at its ‘cheapest valuation’ in years, Wedbush’s Dan Ives says

https://finance.yahoo.com/news/tesl...n-years-wedbushs-dan-ives-says-190147306.html

(BOLD is my opinion OR what I consider important content)

"The steep slide in Tesla's (TSLA) stock price this year is starting to catch the eye of valuation watchers.

"Not since 2018 has Tesla traded at these levels," Wedbush analyst Dan Ives wrote in an email to Yahoo Finance. "On an EV/EBITDA [earnings before interest, taxes, depreciation, and amortization] basis it’s the cheapest valuation to date."

Ives — a former Tesla bull who made headlines in mid-November for removing the EV maker's stock from Wedbush's best ideas list — isn't too far off on Tesla's stock being noticeably cheap relative to historical norms.

Tesla's stock trades on a forward price-to-earnings multiple of 32 times, according to Yahoo Finance data. That's an almost 70% discount from its historical average multiple. And from a forward EV/EBITDA multiple perspective, Tesla stock is trading at a 53% discount from its historical average.

Shares trade at steep discounts from forward enterprise value to EBIT [earnings before interest and taxes] and enterprise value to sales standpoints, too.

These valuation metrics only compressed further on Tuesday amid another 4% slide in Tesla's stock, which led to Tesla having the most-visited ticker page on Yahoo Finance.

Year to date, shares have nosedived about 54%.

Analysts such as Ives point to a few factors driving the Tesla stock plunge that wiped out more than $260 billion in market cap this year.

First, the risk of operational miscues at Tesla has grown as Elon Musk works around the clock to fix his newest portfolio company Twitter.

"Musk has gone from a superhero to Tesla’s stock to a villain in the eyes of the Street as the overhang grows with each tweet," Ives said.

Second, concerns remain around manufacturing issues and the pace of sales for Tesla in China amid an uncertain approach to COVID-19 policies.

And lastly, competition in the EV space in the United States has only intensified this year — raising the risk of slowing growth for Tesla in 2023 and beyond.'

MY COMMENT

Probably has a bit more to drop. BUT.....if you like this company and have been waiting to buy.......well here you go.

OBVIOUSLY....the media and others are going to continue to bad-mouth Musk at every opportunity now. Will it matter? Who knows.

We ARE talking of course.....about the man that is basically the USA space program and nearly has in place a world wide space internet and media system......unmatched by anything in the world. I think he can walk and chew gum at the same time.

 

A very nice day indeed. I had 9 or 10 stocks UP today. My only loser was TSLA. My big cap tech stocks were all UP very strongly. I also got in a beat on the SP500 by 0.40%.

Time to move on to.....FED DAY.

 

Everyone likes a little bit of drama and gossip....right?

Here Are The Wildest Parts From Bankman-Fried’s SEC Allegations

https://finance.yahoo.com/news/wildest-parts-bankman-fried-sec-133233940.html

(BOLD is my opinion OR what I consider important content)

(the ALLEGATIONS are below)

"(Bloomberg) -- US authorities have alleged that fallen crypto maven Sam Bankman-Fried defrauded investors in his FTX empire, stealing billions of dollars as part of a “massive, years-long fraud” for his own benefit.

Civil charges, filed by the Securities and Exchange Commission on Tuesday, claimed that Bankman-Fried had been engaged in a scheme to deceive investors in FTX and his companies since at least May 2019, and that the process only ended last month when he lost his position as chief executive officer as part of FTX filing for bankruptcy.

Bankman-Fried had raised more than $1.8 billion from equity investors over that time, including from the likes of SoftBank Group, Temasek, Tiger Global Management and Insight Partners. Upon engaging bankruptcy lawyers, the equity stakes of all who had backed FTX effectively fell to zero.

The SEC alleged in a 28-page filing detailing its claims against SBF (emphasis ours):

Unbeknownst to those investors (and to FTX’s trading customers), Bankman-Fried was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire.

Throughout this period, Bankman-Fried portrayed himself as a responsible leader of the crypto community. He touted the importance of regulation and accountability. He told the public, including investors, that FTX was both innovative and responsible. Customers around the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform. But from the start, Bankman-Fried improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC (“Alameda”), and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations.

Here’s more:

He told investors and prospective investors that FTX had top-notch, sophisticated automated risk measures in place to protect customer assets, that those assets were safe and secure, and that Alameda was just another platform customer with no special privileges. These statements were false and misleading. In truth, Bankman-Fried had exempted Alameda from the risk mitigation measures and had provided Alameda with significant special treatment on the FTX platform, including a virtually unlimited “line of credit” funded by the platform’s customers.

While he spent lavishly on office space and condominiums in The Bahamas, and sank billions of dollars of customer funds into speculative venture investments, Bankman-Fried’s house of cards began to crumble.

As the broader crypto market declined in value throughout 2022, Alameda’s lenders began to seek repayment. Even though FTX had allegedly already given Alameda billions of dollars in customer funds, Bankman-Fried began to give Alameda even more money to cover those positions, the SEC said. Over the summer, he also began to divert FTX customer funds for venture investments and to make loans to himself and other executives, the SEC added.

The filing described FTX’s origin story: From SBF setting up Alameda with co-founder Gary Wang in 2017, to setting up FTX in 2019 and bringing on board others that would form the exchange’s internal cabal of senior executives — Alameda co-CEOs Caroline Ellison and Sam Trabucco, and Nishad Singh as a co-founder of FTX. Approximately $1.1 billion of the funds raised were from US investors, the SEC said.

It alleged that all statements made by Bankman-Fried to investors during this time were misleading because he chose to omit information about Alameda’s special treatment, including its unique ability to carry a negative balance on FTX, and its exemption from a crucial part of FTX’s risk management system, its auto-liquidation feature.

From page 10 of the filing:

Bankman-Fried diverted FTX customer funds to Alameda in essentially two ways: (1) by directing FTX customers to deposit fiat currency (e.g., U.S. Dollars) into bank accounts controlled by Alameda; and (2) by enabling Alameda to draw down from a virtually limitless “line of credit” at FTX, which was funded by FTX customer assets.

As a result, there was no meaningful distinction between FTX customer funds and Alameda’s own funds. Bankman-Fried thus gave Alameda carte blanche to use FTX customer assets for its own trading operations and for whatever other purposes Bankman-Fried saw fit.

Moreover, for a period of time after its founding, Bankman-Fried claimed FTX was unable to secure its own bank accounts and so was forced to use Alameda’s accounts to store assets. A balance sheet touted by Bankman-Fried to potential investors in the week when he was trying to avoid bankruptcy described a “hidden, poorly internally labeled ‘fiat@’ account” with a negative $8 billion balance.

Having uncovered bank accounts operated by a secretive Alameda subsidiary called North Dimension Inc., the SEC said it found out exactly what that fiat@ account was up to:

Bankman-Fried directed FTX to have customers send funds to North Dimension in an effort to hide the fact that the funds were being sent to an account controlled by Alameda.

Alameda did not segregate these customer funds, but instead commingled them with its other assets, and used them indiscriminately to fund its trading operations and Bankman-Fried’s other ventures.

This multi-billion-dollar liability was reflected in an internal account in the FTX database that was not tied to Alameda but was instead called “[email protected].” Characterizing the amount of customer funds sent to Alameda as an internal FTX account had the effect of concealing Alameda’s liability in FTX’s internal systems.

And how the account got lost:

In 2022, FTX began trying to separate Alameda’s portion of the liability in the “[email protected]” account from the portion that was attributable to FTX (i.e., to separate out customer deposits sent to Alameda-controlled bank accounts from deposits sent to FTX-controlled bank accounts). Alameda’s portion — which amounted to more than $8 billion in FTX customer assets that had been deposited into Alameda-controlled bank accounts — was initially moved to a different account in the FTX database.

However, because this change caused FTX’s internal systems to automatically charge Alameda interest on the more than $8 billion liability, Bankman-Fried directed that the Alameda liability be moved to an account that would not be charged interest. This account was associated with an individual that had no apparent connection to Alameda. As a result, this change had the effect of further concealing Alameda’s liability in FTX’s internal systems.

When falling crypto prices meant the time came to start actually liquidating Alameda’s positions on FTX, Bankman-Fried said in interviews with media that he wasn’t aware of just how illiquid Alameda’s collateral had become. This was despite FTX’s supposed state-of-the-art risk engine, which Bankman-Fried promoted to regulators as an example of how crypto could avoid a 2008-style crisis if implemented at large. Now, the SEC:

Bankman-Fried was well aware of the impact of Alameda’s positions on FTX’s risk profile. On or about October 12, 2022, for example, Bankman-Fried, in a series of tweets, analyzed the manipulation of a digital asset on an unrelated crypto platform. In explaining what occurred, Bankman-Fried distinguished between an asset’s “current price” and its “fair price,” and recognized that “large positions – especially in illiquid tokens – can have a lot of impact.”

Bankman-Fried asserted that FTX’s risk engine required customers to “fully collateralize a position” when the customer’s position is “large and illiquid enough.” But Bankman-Fried knew, or was reckless in not knowing, that by not mitigating for the impact of large and illiquid tokens posted as collateral by Alameda, FTX was engaging in precisely the same conduct, and creating the same risk, that he was warning against.

The SEC also alleged Bankman-Fried told one investor in late 2021 that FTX had no exposure to its own FTT token at all, and that investor subsequently put $30 million into the company.

Between March 2020 and September 2022, the SEC claimed Bankman-Fried executed more than $1 billion in loans from Alameda, sometimes to himself as the borrower and from himself as Alameda’s CEO. Singh and Wang also borrowed hundreds of millions of dollars each, with these loans being “poorly documented, and at times not documented at all.”

As time went on, the authorities alleged that Bankman-Fried continued to lie to the public, stating multiple times on Twitter that customer assets were safe on FTX and that FTX would always be able to meet withdrawal requests. The former FTX CEO was arrested in the Bahamas on Monday."

MY COMMENT

Of course......ALL....of the above was going on right under the nose of all the financially sophisticated investors and business people that were funding this company. Sounds pretty DUMD to me.

I saw in one article that the company basically had no accounting system......but.....they did have Quick-books. Can you imagine a company this big and this complex using Quick-books?

 

And of course there are these allegations:

FTX Did Its Invoicing, Expenses Over Slack and QuickBooks: New CEO John Ray

https://finance.yahoo.com/news/ftx-did-invoicing-expenses-over-161232475.html

"FTX employees did invoicing and expenses over Slack and used QuickBooks, consumer-level tax software, to handle its accounting, the company's new CEO John Ray III said during Tuesday's House Financial Services Committee hearing.
"Nothing against QuickBooks. Very nice tool," Ray said. "It's not for a multibillion dollar company."

.........

"Ray laid the collapse of the exchange at the feet of “a very small group of grossly inexperienced and unsophisticated individuals,” referring to FTX founder Sam Bankman-Fried and his inner circle."

.........

"Ray further testified today that FTX had "virtually no internal controls and no separateness whatsoever," to monitor its leverage or ties to trading firm Alameda"

MY COMMENT

This really should give you some serious doubts about the supposed expertise and ability of any of the people funding or investing in this company. As usual.......we see in the end that all of these so called experts are in the end.....nothing more than incompetent empty suits.

They all paper each other with awards, trophies, and certificates and medals......which they bootstrap with their buddies in the financial media to create an AURA of EXPERTISE for themselves.

AND.....of course at the same time all this was going on for years......where was the SEC and all the other sorts of government regulators?

I sincerely HOPE no one on here got burned by this disaster.

 

Doing my usual market watching this morning. A good green day going on. BUT.....as usual none of it matters till this afternoon when the FED releases their rate increase. At that point what we have seen lately is the market respond positively and than as Powell starts to talk and answer questions the market tanks.

I have no doubt that the FED is going to try to TALK TOUGH after the rate release. So the key part of the day will be the close.

 

Not to beat a dead horse.....but I will anyway.....this is what happens when people just throw money at some business idea. this is what happens when the experts will all the money turn out to be incompetent. This is not bad luck or hidden fraud.......this stuff was right there entirely visible for anyone that had cared to look at the books or take a look under the hood of this company.

The socially sanctioned arrogance of SBF
Sam Bankman-Fried is what happens when nobody looks under the hood.

https://www.vox.com/the-goods/23507854/sbf-arrest-bahamas-ftx-wire-fraud-sec-cftc-sdny-why

BUT.....but....but.....they had a great ESG rating.

 

Lets hope so.....but we are starting to run out of time.

This Year’s Santa Claus Rally

https://allstarcharts.com/this-years-santa-claus-rally/

(BOLD is my opinion OR what I consider important content)

"It’s that time of the year again.


The infamous Santa Claus rally is just around the corner.

And contrary to popular belief, it doesn’t start until the end of next week.

The official period for the Santa Claus rally includes the last 5 trading days of the year and the first two of the following year.

Based on the 2022/2023 holiday schedule, that means this year’s Santa Claus Rally begins on Friday December 23th and goes through Wednesday January 4th.

These 7 days have historically had a ridiculous track record, averaging over a 1.3% return for the S&P500 and coming in positive almost 80% of the time.

Since 1950, all other 7-day periods throughout the year only average 0.24% returns and were positive less than 60% of the time.

That’s real alpha.

But for me, it’s less about the returns during this time of the year, even through they are very impressive, and more about the implications of Santa not showing up.

As the saying goes,

“If Santa Claus Should Fail To Call,
Bears May Come To Broad and Wall”

For those of you not familiar with lower Manhattan, the corner of Broad St. and Wall St. is where you’ll find the New York Stock Exchange.

So in other words, if there is no Santa Claus Rally, and stocks don’t go up during that period, it normally precedes gloomy days ahead for stocks: Recessions, Bear Markets, all that stuff.

I don’t want to steal Jeff Hirsch’s thunder, so I encourage you to go check out the annual Stock Trader’s Almanac for all the details and stats on the SCR indicator.

I was flipping through last year’s Almanac this morning to find some of my notes.

See?

I’m old school:

For me, Seasonality isn’t everything.

But it does really help put trends into context.

Us humans tend to behave in certain ways during different times of the year. We dress differently, we go to different places, we hang out with different people.

If you think that doesn’t impact our decision making in the markets, then I don’t think you’ve been around the markets long enough.

When we change our normal behavior patterns, something is up.


And the implications of a Santa No-Show are a great example.

In the meantime, there are shorter-term moves in the markets this month that don’t have anything to do with Santa Claus, or even a rally."

MY COMMENT

I like all this calendar based fun investing stuff. BUT......I dont invest by superstition. I also dont expect results based on statistical quirks of the calendar or the time of the year. I will gladly take it but i dont believe this is going to be a key factor in the coming year. As usual the year will be determined by EARNINGS and the business climate.