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  • COP27 wins and losses: U.S. on the hook to pay for its pollution; natural gas gets nod as transition fuel

    COP27 wins and losses: U.S. on the hook to pay for its pollution; natural gas gets nod as transition fuel

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    For the first time ever, rich nations, including a top-polluting U.S., will pay for the climate-change damage inflicted upon poorer nations.

    These smaller economies are often the source of the fossil fuels
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    minerals
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    and other raw materials behind the developed world’s modern conveniences and technologicial advancement, including many practices responsible for the Earth-warming emisisons. And yet the developing world shoulders the worst of the droughts, deadly heat, ruined crops and eroding coastlines that take lives and eat into economic growth.

    The deal, called “loss and damage” in summit shorthand, was struck as the U.N.’s Conference of Parties, or COP27, gaveled to a close near dawn Sunday in Egypt. Official talks ended Friday, but negotiations extended into the weekend.

    Read: Historic compensation fund approved at U.N. climate talks

    It was a big win for poorer nations which have long sought money — sometimes viewed as reparations — because they are often the victims of climate-worsened floods, famines and storms despite contributing little directly to the pollution that heats up the globe. It took last-minute, pre-summit negotiations to even get the topic on the official agenda.

    “Three long decades and we have finally delivered climate justice,” said Seve Paeniu, the finance minister of island nation Tuvalu, according to the Associated Press. “We have finally responded to the call of hundreds of millions of people across the world to help them address loss and damage.”

    “ ‘Three long decades and we have finally delivered climate justice.’ ”


    — Seve Paeniu, finance minister for Tuvalu

    Pakistan’s environment minister, Sherry Rehman, said the establishment of the fund “is not about dispensing charity.” Pakistan, hit by devastating drought and more, dominated climate-change headlines this year.

    “It is clearly a down payment on the longer investment in our joint futures,” she said, speaking for a coalition of the world’s poorest nations.

    According to many conference participants, the U.S. was a late-stage roadblock to establishing this official payout language, though it signed off in the end. U.S. participation was also impacted once chief climate negotiator John Kerry tested positive for COVID-19, although he continued to work from his hotel.

    How does COP27 ‘loss and damage’ work? And where’s China?

    According to the agreement, the fund would initially draw on contributions from developed countries and other private and public sources such as international financial institutions, including the World Bank and the International Monetary Fund.

    While major emerging economies such as China wouldn’t automatically have to contribute, that option remains on the table. This is a key demand by the European Union and the U.S., who argue that China and other large polluters currently classified as “developing” countries have the financial clout and responsibility to pay their way.

    The fund would be largely aimed at the most vulnerable nations, though there would be room for middle-income countries that are severely battered by climate disasters to get aid.

    Getting serious about methane

    Attention on methane, a more-potent but shorter-lasting greenhouse gas than carbon, was considered a major win at the summit. Some 150 countries have now signed on to the voluntary Global Methane Pledge, an official effort to cap the release of the GHG whose reduction presents perhaps the easiest way to reduce the global warming.

    Read more: Natural gas-focused methane pact expands at climate summit, minus China

    With the pledge, countries representing 45% of global methane emissions have vowed to reduce their emissions by 30% by 2030. If methane-reduction pledges are met, the result would be equivalent to eliminating the GHG emissions from all of the world’s cars, trucks, buses and all two- and three-wheeled vehicles, according to the International Energy Agency.

    China, the world’s largest polluter by some measures, has not signed the deadline-based pledge, but has agreed to reduce methane emissions.

    Still largely voluntary

    COP27 talks wrapped without concrete progress on the contentious issue of shifting an overall 1.5 degrees Celsius temperature limit from a voluntary marker to an established requirement of nations. Most voluntary pacts among nations and private entities, including a vow by Amazon.com
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    Ford Motor
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    Apple
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    and others signing on to a “First Movers” pledge, loosly use the 1.5-degree limit set in 2015 when talks took place in Paris.

    Private banks, insurers and institutional investors representing $130 trillion said they would align their investments with the goal of keeping global warming to 1.5 degrees Celsius, toward a pledge to net-zero emissions economy-wide by 2050. Advocacy groups cheer the pledge and its expanding roster but are also keeping up pressure on the signatories to speed up progress toward this goal and to stop undermining the pledge with fossil-fuel investment.

    Read: Here’s where the big U.S. banks stand up and fall down on climate change

    The Egypt pact was also void of firmer language on emissions cutting and the desire by some officials to target all fossil fuels
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    for a phase-down.

    Natural gas, which is relatively cheaper to produce than other fossil fuels, has been the major alternative to more-polluting coal in electricity generation. Still, it has its own emissions risk.

    In the U.S., for example, electricity is the most common energy source used for cooking — electricity often powered by gas. Still, about 38% of U.S. households use natural gas directly for cooking, according to the U.S. Energy Information Administration.

    Natural gas providers also own an established pipeline infrastructure that may serve alternative energy, and is pushed by the industry as a viable alternative alongside solar, wind
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      and other means. The industry also promotes its efforts to cap methane leaks.

    Related: World’s richest nations stick to 1.5-degree climate pledge despite energy crunch

    “ ‘It is more than frustrating to see overdue steps on mitigation and the phase-out of fossil energies being stonewalled by a number of large emitters and oil producers.’”


    — Germany’s Foreign Minister Annalena Baerbock

    With fossil fuels in their sight, the European Union and other nations fought back at what they considered backsliding in the Egyptian presidency’s overarching cover agreement and threatened to scuttle the rest of the process, while advancing their own draft. The package was revised again, removing most of the elements Europeans had objected to but adding none of the heightened ambition they were hoping for, the AP said.

    Egypt has played a unique role as host, representative of Africa, which sits at the front lines of those hurt by climate change and yet, remaining loyal to its own fossil-fuel ambitions and those of OPEC nations.

    Germany’s Foreign Minister Annalena Baerbock voiced frustration.

    “It is more than frustrating to see overdue steps on mitigation and the phase-out of fossil energies being stonewalled by a number of large emitters and oil producers
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    BP,
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    ” she said.

    The agreement includes a veiled reference to the benefits of natural gas as low- emission energy, despite many nations calling for a phase down of natural gas, which does contribute to climate change.

    Fossil-fuel industry’s presence

    At least 636 representatives of the fossil fuel industry registered to attend the summit, a 25% increase over the industry’s presence last year, according to an analysis released by three advocacy groups.

    More fossil fuel lobbyists are on the roster than any single national delegation, besides the UAE who has registered 1,070 delegates compared to 176 last year, according to a report from Corporate Accountability, Corporate Europe Observatory (CEO) and Global Witness (GW).

     Frances Colón, senior director for International Climate Policy at the Center for American Progress, found plenty of fault with this round of talks.

    “The final text reflects the outsized and corrupting presence of fossil fuel and big agricultural lobbyists at COP27, compounded by a lack of ambition from key, high-emitting countries,” she said, in a statement. “The agreement makes only a passing reference to the 1.5-degree Celsius warming goal and does not include any new language on phasing down or phasing out all fossil fuels
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    — the only way to reach emissions reduction goals and secure a livable future.”

    Colón also worried that the official statement did not adequately advance efforts. World leaders failed to reference the twin, interlocking crises of nature loss and climate change, and declined to link COP27 to next month’s U.N. biodiversity summit in Montreal.

    “ ‘The agreement makes only a passing reference to the 1.5-degree Celsius warming goal and does not include any new language on phasing down or phasing out all fossil fuels — the only way to reach emissions reduction goals and secure a livable future.’”


    — Frances Colón of the Center for American Progress

    While the new agreement doesn’t ratchet up calls for reducing emissions, it does retain language to keep alive the voluntary global goal of limiting warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit). The Egyptian presidency kept offering proposals that harkened back to 2015 Paris language which also mentioned a looser goal of 2 degrees.

    This year’s pact also neglected to toughen the main sticking point from the previous COP, in Glasgow last year. At that time, China and India united to dig in unless coal language was softened. Nations this year did not expand on last year’s call to phase down global use of “unabated coal” even though India and other countries pushed to include oil and natural gas in language from Glasgow.

    “We joined with many parties to propose a number of measures that would have contributed to this emissions peaking before 2025, as the science tells us is necessary. Not in this text,” the United Kingdom’s Alok Sharma said.

    Climate campaigners are concerned that pushing for strong action to end fossil fuel use will be even harder at next year’s meeting, which will be hosted in Dubai, located in the oil-rich United Arab Emirates.

    The Associated Press contributed.

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  • What Happens When You Sell a Stock? What to Know Before Filing Your Taxes

    What Happens When You Sell a Stock? What to Know Before Filing Your Taxes

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    There’s a lot to consider when selling stocks, including your tax bill.

    People sell stocks for numerous reasons. But if you make a profit on the sale, you generally need to report it when you file your taxes the following year. (Different rules apply when selling stocks inside a retirement account.)

    Before you hit that trade button, make sure you understand what happens when you sell a stock.

    Here’s everything you need to know.

    Know When to Sell a Stock

    There’s no “perfect” time to sell a stock. The best time to sell depends on your personal investment strategy, risk tolerance and time horizon.

    Stock prices rise and fall, so you don’t want to sell a good stock just because it experienced a temporary dip. On the flip side, you don’t want to cling to plummeting shares that have little hope of ever rebounding.

    For most investors, holding stocks long-term is the best strategy. Avoid selling on impulse and during stock market downturns. As they say: Time in the market beats timing the market.

    Still, sometimes it makes sense to sell. In general, selling a stock is a poor decision only when it’s driven by emotion instead of data and research.

    Five times it makes sense to sell a stock

    1. You need the money and you can sell at a profit.
    2. The company performs poorly relative to its competitors and its outlook is bleak.
    3. The company commits fraud, files for bankruptcy or engages in crime.
    4. The company has undergone a major change (like a merger or acquisition) and you no longer agree with its ethics or leadership.
    5. You’ve done your research and believe your money can be put to better use invested elsewhere.

    How to Sell a Stock: the Right Order Type

    Order types let you decide how you want to sell your stock. Picking the right order type can help you maximize returns and minimize losses.

    There are three main order types:

    • Market
    • Limit order
    • Stop (or stop-loss)

    Market Order

    A market order executes a trade quickly — but it doesn’t guarantee an exact stock price. It usually sells at or near the current market price but can fluctuate — especially if you execute a trade during non-trading hours.

    As the U.S. Securities and Exchange Commission (SEC) puts it: “In fast-moving markets, the price at which a market order will execute often deviates from the last-traded price or ‘real time’ quote.”

     Limit Order

    This type of order will only sell a stock at a specific price.

    An example: A stock is currently worth $75. You put a sell limit order on it for $80. The stock won’t sell unless it hits $80 or better.

    Stop Order (or Stop-Loss Order)

    While a limit order executes a sale when a stock reaches a certain price, a stop order executes a sale when a stock drops to a certain price.

    When the stop price is reached, a stop order becomes a market order.

    You can use this type of order to limit your losses. For example, placing a stop-loss order of 10% below the price at which you purchased a stock limits your losses to 10%.

    On the flip side, a temporary drop in price may trigger a stop-loss sale when you don’t really want it.

    How Does Selling Stocks Impact Your Taxes?

    Whether you owe taxes after selling a stock depends on where you sold it: in a retirement account or in a taxable brokerage account.

    Selling Stock in a Retirement Account

    Retirement accounts are often called tax advantaged accounts, and for good reason.

    If you sell assets, such as stocks, within a retirement account, you won’t owe taxes until you withdraw the money.

    You can open up an individual retirement account (IRA) on your own, or you can open a 401(k) or a similar account (a 403(b) or a 457 plan) with your employer.

    Once money is in your 401(k) or IRA, and as long as the money stays in the account, you won’t pay taxes on investment gains, interest or dividends.

    If you own a Roth retirement account, you won’t owe any taxes when you withdraw money either, so long as you’re at least 59.5 years old.

    Did you know you can invest for retirement with your health savings account? You won’t owe taxes when you sell assets within your HSA until you withdraw the money.

    Selling Stock in a Taxable Brokerage Account

    The tax implications are very different if you sell stocks within a taxable brokerage account.

    Even if you don’t take the money out, you’ll still owe taxes when you sell a stock for more than what you originally paid for it. When tax time rolls around, you’ll need to report those capital gains on your tax return.

    How much you owe depends on how long you hold the stock and your income level.

    If you sell stock at a loss within a taxable brokerage account, you won’t owe taxes. In fact, selling stocks at a loss can actually help lower your tax bill.

    If you don’t sell any stocks, you don’t need to pay capital gains tax —- but you may still have to pay tax on dividends from stocks you own.

    Selling Stock for a Profit

    Your capital gain is the difference between how much you originally paid for the stock and how much you sold it for.

    For example, if you bought $1,500 of Amazon stock then sold it a couple years later for $2,000, your capital gain is $500.

    You’re taxed on the capital gain ($500), not the sale price ($2,000).

    How much you owe in taxes depends on how long you owned the stock.

    • Less than a year: Your profit will be taxed at the short-term capital gain rate, which is basically your ordinary income tax rate. (Ordinary income tax rates are based on your tax bracket.) Rates range from 10% all the way up to 37% for tax year 2022.
    • More than a year: Your profit will be taxed at the long-term capital gain rate, which is either 0%, 15% or 20%, depending on your income.

    Capital gains taxes aren’t limited to stock sales. They impact the sale of nearly all investment assets, including exchange traded funds (ETFs), mutual funds and cryptocurrency.

    2022 Long-Term Capital Gains Tax Rates

    Tax filing status 0% tax rate 15% tax rate 20% tax rate
    Single $0 to $41,675 $41,676 to $459,750 $459,751 or more
    Married, filing jointly $0 to $83,350 $83,351 to $517,200 $517,201 or more
    Married, filing separately $0 to $41,675 $41,676 to $258,600 $258,601 or more
    Head of household $0 to $55,800 $55,801 to $488,500 $488,501 or more

    Use when filing your taxes in 2023. Short-term capital gains are taxed at ordinary income tax rates.

    Holding for at Least a Year Has Tax Benefits

    You’ll almost always pay a higher tax rate when you sell short-term investments (those held less than a year) than when you sell long-term investments.

    Here’s an example.

    Let’s say you make $40,000 a year.

    • If you sold shares of a stock you’ve owned for over a year, you don’t have to pay taxes on any profit you make.
    • If you sell shares of a stock you’ve owned for less than a year, you’d be subject to a 12% short-term capital gains tax rate (which is based on your tax bracket.)

    Holding long-term is especially advantageous for high income earners.

    Let’s say you make $300,000 a year.

    • You’ll be taxed at a 15% capital gains tax rate when you sell a long-term investment.
    • You’ll be taxed at your 35% ordinary income tax rate when you sell a short-term investment.

    Selling Stock at a Loss

    If you sell a stock for less than what you paid for it, you experience a capital loss.

    A capital loss can be a good thing in the right situation. It can offset capital gains, limit your tax liability and even reduce your taxable income.

    • You can use capital losses to offset capital gains: Did you make a big profit earlier in the year? Selling stocks at a loss can reduce or even eliminate the taxes you owe on capital gains.
    • You might be able to use that loss to reduce your taxable income: Did you have more losses than gains this year? That excess loss can lower your taxable income (up to a $3,000 cap).
    • Or you can carry the loss forward to future tax years: Did you have more than $3,000 in capital losses this year? You can carry over those losses to help offset capital gains in any future years.

    Be aware of the IRS wash sale rule if you’re trying to get a tax break by selling stocks at a loss.

    The rule prohibits selling a security at a loss and then rebuying that same security within 30 days. The wash sale rule exists so that people don’t sell stocks at a loss solely to take advantage of a tax break.

    The rule doesn’t prohibit the sale itself. You just won’t be able to claim the loss for tax purposes.

    Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.


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    rachel.christian@thepennyhoarder.com (Rachel Christian, CEPF®)

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  • 10 Risky Investments to Avoid … Unless You Can Afford to Lose Everything

    10 Risky Investments to Avoid … Unless You Can Afford to Lose Everything

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    If the stock market crashes again, would you respond by investing more? Is day trading your sport of choice? Do you smirk at the idea of keeping money in a savings account instead of investing it?

    If you answered yes to these questions, you’re probably an investor with a high risk tolerance.

    Hold up, Evel Knievel.

    It’s fine to embrace a “no-risk, no-reward” philosophy. But some investments are so high risk that they aren’t worth the rewards.

    Here are 10 high-risk investments to avoid if you can’t afford big losses.

    10 Risky Investments That Could Lead to Huge Losses

    We’re not saying no one should ever consider investing in any of the following. But even if you’re a personal finance daredevil, think very carefully before you make these high-risk investments.

    Sure, if things go well, you’d make money — lots of it. But if things go south, the potential losses are huge. In some cases, you could lose your entire investment.

    1. Penny Stocks

    There’s usually a good reason penny stocks are so cheap. Often they have zero history of earning a profit. Or they’ve run into trouble and have been delisted by a major stock exchange.

    Penny stocks usually trade infrequently, meaning you could have trouble selling your shares if you want to get out. And because the issuing company is small, a single piece of good or bad news can make or break it.

    Fraud is also rampant in the penny stock world. One common tactic is the “pump and dump.” Scammers create false hype, often using investing websites and newsletters, to pump up the price. Then they dump their shares on unknowing investors.

    2. IPOs

    You and I probably aren’t rich or connected enough to invest in an IPO, or initial public offering, at its actual offering price. That’s usually reserved for company insiders and private investors with deep pockets.

    Instead, we’re more likely to be swayed by the hype that a popular company gets when it goes public and the shares start trading on the stock market. Then, we’re at risk of paying overinflated prices because we think we’re buying the next Amazon.

    But don’t assume that a company is profitable just because its CEO is ringing the opening bell on Wall Street. Many companies that go public have yet to make money.

    The first-day returns of a newly public company averaged 18.9% from 1980 through 2021, according to data from Jay R. Ritter, a professor in the University of Florida Warrington College of Business. But after five years, about 60% of IPOs had negative total returns.

    3. Cryptocurrency

    Proponents of cryptocurrency believe digital assets like bitcoin and ethereum will eventually become a widespread way to pay for everything from cars to groceries.

    But for now, cryptocurrency remains a speculative investment. People invest in it primarily because they think other investors will continue to drive up the price, not because they see value in it.

    All that speculation often creates an extremely volatile cryptocurrency market. Bitcoin traded at around $43,000 at the beginning of 2022 but plummeted to less than $20,000 by June.

    Many believe the market is undergoing “a crypto winter” — a slump driven in part by a global bear market for nearly all asset classes. But there’s no guarantee when — or if — it will ever bounce back.

    Plus, cryptocurrency still lingers in regulatory limbo. The U.S. Securities and Exchange Commission, which regulates other securities like stocks and mutual funds, is slowly ramping up enforcement on fraud and other financial crimes. But this high-risk investment is still more Wild West than Wall Street.

    Until greater regulations are put in place, the door is left open to bad actors who prey on naive investors. (Think of the Terra-Luna crypto crash in May 2022.)

    If you buy bitcoin or any other cryptocurrency, understand the risk and only invest what you’re willing to lose.

    4. Anything You Buy on Margin

    Buying on margin gives you more money to invest, which sounds like a win. You borrow money from your broker using the stocks you own as collateral. Of course, you have to pay your broker back, plus interest.

    If it goes well, you amplify your returns. But when margining goes badly, it can end really, really badly.

    Suppose you buy $5,000 of stock and it drops 50%. Normally, you’d lose $2,500.

    But if you’d put down $2,500 of your own money to buy the stock and used margin for the other 50%? You’d be left with $0 because you’d have to use the remaining $2,500 to pay back your broker.

    That 50% drop has wiped out 100% of your initial investment — and that’s before we account for interest.

    5. Leveraged ETFs

    Buying a leveraged ETF is like margaining on steroids.

    Like regular exchange traded funds, or ETFs, leveraged ETFs give you a bundle of investments designed to mirror a stock index. But leveraged ETFs seek to earn two or three times the benchmark index by using a bunch of complicated financing maneuvers that give you greater exposure.

    Essentially, a leveraged ETF that aims for twice the benchmark index’s returns (known as a 2x leveraged ETF) is letting you invest $2 for every $1 you’ve actually invested.

    We won’t bore you with the nitty-gritty, but the risk here is similar to buying stocks on margin: It can lead to big profits but it can also magnify your losses.

    But here’s what’s especially tricky about leveraged ETFs: They’re required to rebalance every day to reflect the makeup of the underlying index. That means you can’t sit back and enjoy the long-haul growth. Every day, you’re essentially investing in a different product.

    For this reason, leveraged ETFs are only appropriate for day traders — specifically, day traders with very deep pockets who can stomach huge losses.

    6. Collectibles

    A lot of people collect cars, stamps, art, even Pokémon cards as a hobby. But some collectors hope their hobby will turn into a profitable investment.

    It’s OK to spend a reasonable amount of money curating that collection if you enjoy it. But if your plans are contingent on selling the collection for a profit someday, you’re taking a big risk.

    Collectibles are illiquid assets. That’s a jargony way of saying they’re often hard to sell.

    If you need to cash out these alternative investments, you may not be able to find a buyer. Or you may need to sell at a steep discount. It’s also hard to figure out the actual value of collectibles. After all, there’s no New York Stock Exchange for Pokémon cards.

    Plus, there’s also the risk of losing your entire investment if your collection is physically destroyed.

    7. Junk Bonds

    If you have a low credit score, you’ll pay a high interest rate when you borrow money because banks think there’s a good chance you won’t pay them back. With corporations, it works the same way.

    Companies issue bonds when they need to take on debt. The higher their risk of defaulting, the more interest they pay to those who invest in bonds. Junk bonds are the riskiest of bonds.

    If you own bonds in a company that ends up declaring bankruptcy, you could lose your entire investment. Secured creditors — the ones whose claim is backed by actual property, like a bank that holds a mortgage — get paid back 100% in bankruptcy court before bondholders get anything.

    Pro Tip

    The highest paying, lowest risk bonds that you can count on? Inflation bonds, or I bonds, which are backed by the federal government.

    8. Shares of a Bankrupt Company

    Bondholders may be left empty-handed when a corporation declares bankruptcy. But guess who’s the very last to get paid? Common shareholders.

    Secured creditors, bondholders and owners of preferred stock — it’s kind of like a stock/bond hybrid — all get paid in full before shareholders get a dime.

    Typically when a company files for bankruptcy, its stock prices crash. Yet in recent years, eager investors have flocked in to buy those ultracheap shares and temporarily driven up the prices. (Ahem, ahem: Hertz.)

    That post-bankruptcy filing surge is usually a temporary case of FOMO. Remember: The likelihood that those shares will eventually be worth $0 is high.

    You may be planning on turning a quick profit during the run-up, but the spike in share prices is usually short-lived. If you don’t get the timing exactly right here, you could end up losing money when the uptick reverses.

    9. Gold and Silver

    If you’re worried about the stock market or high inflation, you may be tempted to invest in gold or silver.

    Both precious metals are often thought of as hedges against a bear market because they’ve held their value throughout history. Plus in uncertain times, many investors seek out tangible assets, i.e., stuff you can touch.

    Having a small amount invested in gold and silver can help you diversify your portfolio. But anything above 5% to 10% is risky.

    Both gold and silver can be volatile in the short term. Gold is much rarer, so discovery of a new source can bring down its price. Silver is even more volatile than gold because the value of its supply is much smaller. That means small price changes have a bigger impact. Both metals tend to underperform the S&P 500 in the long term.

    The riskiest way to invest in gold and silver is by buying the physical metals because they’re difficult to store and sell.

    A less risky way to invest is by purchasing a gold or silver ETF that contains a variety of assets, such as mining company stocks and physical metals.

    10. Options Trading

    Options give you the right to buy or sell a stock at a certain price before a certain date. The right to buy is a call. You buy a call when you think a stock price will rise. The right to sell is a put. You buy a put when you think a stock price will drop.

    What makes options trading unique is that there’s one clear winner and one clear loser.

    With most other investments, you can sell for a profit to an investor who also goes on to sell at a profit. Hypothetically, this can continue forever.

    But suppose you buy a call or a put. If your bet was correct, you exercise the option. You get to buy a winning stock at a bargain price, or you get to offload a tanking stock at a premium price. If you lose, you’re out the entire amount you paid for the option.

    Options trading gets even riskier, though, when you’re the one selling the call or put. When you win, you pocket the entire amount you were paid.

    But if you end up on the losing side, you could have to pay that high price for the stock that just crashed or sell a soaring stock at a deep discount.

    What Are the Signs That an Investment Is Too Risky?

    The 10 things we just described certainly aren’t the only high-risk investments out there. So let’s review some common themes. Consider any of these traits a red flag when you’re making an investment decision.

    • They’re confusing. Are you perplexed by bitcoin and options trading? So is pretty much everyone else. If you don’t understand how something works, it’s a sign you shouldn’t invest in it.
    • They’re volatile. Dramatic price swings may be exciting compared with the tried-and-true approach of dollar cost averaging and holding investments long term. But investing is downright dangerous when everything hinges on getting the timing just right.
    • The price is way too low. Just because an investment is cheap doesn’t mean it’s a good value.
    • The price is way too high. Before you invest in the latest hype, ask yourself if the investment actually delivers value. Or are the high prices based on speculation?

    The bottom line: If you can afford to put a small amount of money in high-risk investments just for the thrill of it, fine — as long as you can deal with big losses.

    Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].

    Rachel Christian, a senior writer for The Penny Hoarder, contributed to this story. 


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    robin@thepennyhoarder.com (Robin Hartill, CFP®)

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  • U.S. stocks log first back-to-back losses in two weeks as Fed’s Bullard calls for more aggressive rate hikes

    U.S. stocks log first back-to-back losses in two weeks as Fed’s Bullard calls for more aggressive rate hikes

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    U.S. stocks just logged their first back-to-back losses in two weeks on Thursday as senior Federal Reserve officials emphasized the need for more aggressive interest-rate hikes. The S&P 500
    SPX,
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    closed 12.23 points, or 0.3%, at 3,946.56. The Dow Jones Industrial Average
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    finished marginally lower, down 7.51 points, or less than 0.1%, at 33,546.32. The Nasdaq Composite
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    closed off 38.70, or 0.4%, at 11,144.96. St. Louis Fed President James Bullard hinted earlier that the Fed may need to hike its benchmark policy rate as high as 7% to successfully combat inflation.

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  • Nancy Pelosi steps down as leader of House Democrats after two decades

    Nancy Pelosi steps down as leader of House Democrats after two decades

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    Speaker Nancy Pelosi on Thursday said she will no longer serve as the top Democrat in the U.S. House of Representatives, with her departure coming after her party lost its majority in the chamber in this month’s midterm elections.

    “With great confidence in our caucus, I will not seek re-election to Democratic leadership in the next Congress,” Pelosi said during a speech on the House floor.

    “For me, the hour’s come for a new generation to lead the Democratic caucus that I so deeply respect, and I’m grateful that so many are ready and willing to shoulder this awesome responsibility.”

    She said she will continue to represent her district in the House.

    Some Democratic lawmakers have long called for new leadership in the House, wanting the California Democrat and her deputies to make way for the next generation. Pelosi, 82, has led the chamber’s Democrats in both the majority and minority for about two decades — since January 2003.

    The No. 2 House Democrat, Majority Leader Steny Hoyer of Maryland, who is 83, announced Thursday that he also will not seek a leadership position next year. 

    New York Democratic Rep. Hakeem Jeffries, 52, is seen as a frontrunner to become House minority leader.  

    Pelosi is the country’s first female speaker and has been in Congress for about 35 years. She had made a deal with House members to serve for two more terms as leader — or four years — after Democrats scored a majority in that chamber of Congress in the 2018 midterms.

    Pelosi said earlier this month that family issues would be key in her decision about her future plans. Her husband, Paul Pelosi, was attacked by an intruder in their San Francisco home last month and faces a long recovery from his injuries.

    While Republican hopes for a strong red wave on Election Day — which was Nov. 8 — have been dashed, the Associated Press projected Wednesday that the GOP had won enough House seats to control that chamber of Congress.

    The GOP’s slim majority is expected to cause trouble for the party’s leaders in the House. Meanwhile, the battle for control of the U.S. Senate went to the Democrats late Saturday. 

    The major laws passed during Pelosi’s time as speaker have included 2010’s Affordable Care Act, also known as Obamacare and which overhauled the U.S. healthcare
    XLV,
    +0.12%
    system; 2010’s Dodd–Frank Wall Street Reform and Consumer Protection Act that targeted banks
    KBE,
    -1.09%
    ; and 2021’s Infrastructure
    PAVE,
    -0.92%
    Investment and Jobs Act.

    U.S. stocks
    SPX,
    -0.23%

    DJIA,
    +0.09%
    lost ground Thursday as a key Federal Reserve official suggested interest rates may need to rise much further in order to subdue inflation.

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  • Oil Could Rise After Latest EU Sanctions on Russia. Why a Rally May Not Last.

    Oil Could Rise After Latest EU Sanctions on Russia. Why a Rally May Not Last.

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    The European Union’s ban on seaborne imports of Russian oil, along with the Group of Seven’s plan to cap prices of oil from Russia early next month won’t guarantee that prices for the commodity will see a lasting rally, or that supplies will tighten further in the days ahead.

    “In isolation, the sanctions on Russia should be bullish for prices,” says Matt Smith, lead oil analyst, Americas, at Kpler. However, they may have a limited effect, as Russian barrels get “rerouted and not taken off the market,” while a price cap still has so much uncertainty surrounding it that its impact may be “muted due to workarounds or may simply be ineffective.”

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  • Republicans clinch slim majority in House, likely signaling gridlock ahead

    Republicans clinch slim majority in House, likely signaling gridlock ahead

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    Republicans will take over the U.S. House of Representatives two years into President Joe Biden’s term, though their narrow majority looks set to cause headaches for GOP leaders.

    Republican hopes for a strong red wave have been dashed, but the Associated Press said Wednesday that the party won enough House seats — 218 — to control that chamber of Congress, as results from the midterm elections continue to be tabulated.

    The battle for the U.S. Senate went to the Democrats late Saturday. Democrats will retain their hold on the Senate after winning a key race in Nevada, giving Biden’s party control of at least one chamber of Congress for the next two years.

    “Republicans have officially flipped the People’s House!” Rep. Kevin McCarthy, R-Calif., the front-runner to become House Speaker, tweeted late Wednesday. “Americans are ready for a new direction, and House Republicans are ready to deliver.”

    While Republicans will control just one chamber of Congress, they now are expected to deliver a check on Biden’s policy priorities, such as by potentially using a debt-ceiling showdown to force spending cuts. 

    In a statement late Wednesday, President Joe Biden called for bipartisanship: “The American people want us to get things done for them. They want us to focus on the issues that matter to them and on making their lives better. And I will work with anyone — Republican or Democrat — willing to work with me to deliver results.”

    Related: Democrats weigh end run around Republicans to raise debt limit

    And see: Republican lawmakers likely to target ‘woke capitalism’ after the midterm elections, analysts say

    The Republican House majority has yet to be finalized but could be the narrowest of the 21st century, even less than in 2001, when the GOP had a nine-seat majority with two independents.

    Washington is likely to face new periods of gridlock, with Democrats also keeping their hold on the White House since Biden still has two years to serve before the 2024 presidential election. That’s after Democrats in the past two years used party-line votes to push through measures such as March 2021’s stimulus law and this past summer’s package targeting healthcare, climate change and taxes.

    The House switching to red from blue fits the historical pattern in which a first-term president’s party tends to lose congressional ground in the midterms. The GOP highlighted raging inflation in its effort to win over American voters.

    The House seats to flip to the GOP included one held by Democratic Rep. Elaine Luria of Virginia, who lost to Republican challenger Jen Kiggans, as well as two seats in Florida. But Democrats also flipped House seats and won re-elections in bellwether races, with Virginia Rep. Abigail Spanberger and Indiana Rep. Frank Mrvan notching victories.

    Read more: Here are the congressional seats that have flipped in the midterm elections

    Democrats have had a grip on the House since the 2018 midterms. They’ve run the Senate for two years, controlling the 50-50 chamber only because Vice President Kamala Harris can cast tiebreaking votes.

    Among the competitive Senate races, Democrats kept their hold on seats in Arizona, Colorado and New Hampshire, while scoring a pick-up in Pennsylvania. Republicans maintained their control of seats in North Carolina, Ohio and Wisconsin.

    Georgia’s Senate contest is headed to a Dec. 6 runoff, but its outcome has become less significant.

    Related: Ohio’s J.D. Vance tells MarketWatch he wants to end tax loopholes for tech companies and ban congressional stock trading

    Betting markets since late on Election Day have been seeing Democrats staying in charge of the Senate and Republicans winning the House. Ahead of last Tuesday’s voting, betting markets had signaled confidence in GOP prospects for taking over both the Senate and House.

    Analysts had said voters last month appeared increasingly focused on Republican issues such as high prices for gasoline
    RB00,
    -0.35%
    and other essentials, at the expense of Democrats’ agenda items such as climate change and abortion rights.

    But exit polls suggested that Republicans performed worse than expected because many Democrats and independents voted partly to show their disapproval of former President Donald Trump — and those voters were energized by the Supreme Court’s Dobbs decision that overturned Roe.

    See: Anti-Trump vote and Dobbs abortion ruling boost Democrats in 2022 election

    The former president announced his 2024 White House run late Tuesday. Earlier Tuesday, House Republicans chose Rep. Kevin McCarthy of California, the current minority leader, as their candidate for speaker. Thirty-one Republicans voted against McCarthy, signaling that he must shore up his support before the vote on the speakership takes place in January.  It’s an early sign of how Republicans’ narrow majority is creating turbulence for the House GOP leadership. 

    Now read: What a Republican-controlled House might mean for tech: Plenty of hand-wringing over Section 230 liability shield

    And see: DeSantis viewed as frontrunner for Republican 2024 presidential nomination after Trump’s candidates flop in midterm elections

    Plus: Senate Republicans pick Mitch McConnell as their leader, as Rick Scott’s challenge flops

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  • U.S. stocks close lower for second time in three days after choppy session

    U.S. stocks close lower for second time in three days after choppy session

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    U.S. stocks closed lower on Wednesday for the second time in three days after a choppy session as a rally inspired by softening inflation data appeared to take a breather. Market strategists cited concerns about Target Corp.’s
    TGT,
    -13.14%
    earnings for helping to weigh on equity prices Wednesday. The S&P 500
    SPX,
    -0.83%
    finished down 32.87 points, or 0.8%, to 3,958.86. The Dow Jones Industrial Average
    DJIA,
    -0.12%
    was off 39.22 points, or 0.1%, to 33,553.70. The Nasdaq Composite
    COMP,
    -1.54%
    closed off 174.75 points, or 1.5%, to 11,183.66.

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  • Are You a Founder Seeking Capital? My Advice Is Go Ugly-Early.

    Are You a Founder Seeking Capital? My Advice Is Go Ugly-Early.

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    Opinions expressed by Entrepreneur contributors are their own.

    I have been witness to a great many ups and downs in the markets — including a number of seismic events — and in the process have developed a bit of a déjà vu response when it comes to cycles and bubbles, not least in the realm of starting a business.

    I began my formal Wall Street career in the investment banking group at Bear Stearns in 1992, however, as early as 1987 (while still in high school), I worked for two summers as a specialist clerk “making markets” in Walt Disney and other equity options. Among the events I’ve witnessed since were the crash of ’87, the Netscape IPO in 1995, and numerous companies at the time paying for eyeballs to achieve unsustainable valuations. Then there was the 1998 Russian financial crisis and the Nasdaq and dotcom bust in 2000. Then came Madoff in 2008 and the subsequent years’ many sector bubbles (from biofuels to biotech) and now crypto and other things I frankly don’t really understand well. I’ve learned over all this time that cycles are just that: they repeat and rhyme, with main characters simply changing their names.

    There is currently a massive need for funding among venture-backed start-ups, but the fundraising environment has never been more challenging. The Fed has opened an airlock; we can all hear a massive whooshing sound of money being sucked out of the system, and this will severely impact venture-backed companies and their ability to raise capital to stay alive. Most of them, along with their founders, are still a bit “deer in the headlights” in response — struggling to accept the new valuation landscape. As the world was flooded with liquidity in 2020 to 2021, we witnessed giddy times for start-ups raising capital, whether Series Seed, A, B or C companies. We saw many in the Series B category being paid inflated Series D or pre-IPO prices by mega crossover hedge funds that were trying to leapfrog and lock up deals prior to an IPO. Today, things have changed: New capital is in short supply, and it will be harder than ever to fundraise. Because of that, we will see many wind-downs, unfortunately, of some potentially great start-ups that simply run out of fuel. Most venture funds are now in slow-play mode — more focused on their existing portfolio and keeping their winners alive.

    Related: Why I Just Made the Largest Investment of My Life in a Company I Hope Goes Bankrupt

    So, based on past cycles and various myths I have heard recently, some guidance:

    My advice to founders is to raise money now if it is available to you. Do not wait for things to improve because companies seeking capital will have even more competition in 2023 and need to accept this new reality. It may be a lower valuation or more draconian deal terms like 2x liquidation preference or warrants, but a bird in the hand is always the best course of action in an uncertain environment. Early-stage start-ups will not be as pressured as later-stage growth round enterprises (i.e., post-Series C companies), which may have raised capital at valuations not reflective of where things are today and will see more highly structured or down rounds.

    Myth: 2023 Will Be a Better Fundraising Environment, Including Better Terms

    Possible but not probable. The challenge with this argument is that there will be so much pent-up demand and competition for new capital from other start-ups that it will be a buyers’ market and there won’t be sufficient capital to fund all companies.

    Imagine New York’s LaGuardia airport on a winter weekday night at 10 p.m. It has been snowing all day and the airport has been closed due to weather. There are hundreds of planes waiting to land on limited runways and no chance they all get in before LGA closes at midnight. That is what we are seeing now, and it will get worse, because funding will be much more limited and expensive in 2023. In challenging times like this, term sheets are going to change from “plain vanilla” to much more structured and investor-friendly deals. Founders may encounter things they haven’t seen in a long time, like warrants and full-ratchet anti-dilution provisions.

    Prepare to be surprised.

    Related: Global Millennial Capital Founder Andreea Danila Is Making Use Of A New Model For Value Creation And Venture Capital In The Middle East

    Myth: There is Ample Dry Powder on the Sidelines

    True, but this was also true in 2008 when LPs told their PE or VC fund that if they issued them a capital call, they would never re-up for future funds. It worked. All that dry powder which was supposedly on the sidelines was all on a string. (For example, a statement like, “Yes, I committed capital to you, and you have dry powder, but don’t ask me for it!”)

    While many venture funds have raised new funds which are 2020 or 2021 vintage years and are actively making new investments, many are making hard decisions about which among their existing portfolio companies to support, and are also working at putting out fires. New investment activity will suffer, and we are seeing a period of what I would call “slow play,” with a lot of tire-kicking and reluctance to act quickly. Gone are the days of companies receiving multiple term sheets on the same day and rounds filling up quickly. There will be longer diligence periods, and we will even see funds back away from issued term sheets. This is the new norm.

    Myth: Valuations and Multiples will Rebound

    There is an old expression: Stocks go up on an escalator and down on an elevator. Some multiples will not rebound anytime soon to the peaks we saw in 2021 and may take years to do so, if ever. The liquidity-fueled tsunami caused the pendulum to swing hard to one side; it could well overcorrect to the other, and may take a long time to find the median.

    Related: The Art (And Science) Of Valuation: Here’s How Venture Capitalists Value Your Startup

    So, if you are seeking capital, my advice is to start early and plan for a long, slow process. You will need to kiss a lot of frogs before finding your prince. Have low expectations when it comes to terms, and know that every dollar raised will be a hard-fought battle.

    Don’t be bashful about raising funds in smaller increments and with multiple closes. Also, be frugal with spend and be prepared to tell your story many times over. Good ideas and founders will make it, but, with the hot money now gone from the playing field, Darwin will rule the day and only the best will be allocated capital. It’s also important to realize that the venture industry focus has shifted to near-term profitability vs. growth, and so most companies are working to reduce costs and extend cash runways.

    The landscape will always have the “haves” and “have nots,” and we are going to see many down rounds coming for those companies that do not have the funding to get through 2023.

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    Gregg Smith

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  • Donald Trump announces 2024 presidential run: ‘America’s comeback starts right now’

    Donald Trump announces 2024 presidential run: ‘America’s comeback starts right now’

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    Donald Trump will seek the presidency for a third time in 2024, the former president announced in a speech from his Florida estate Tuesday night, paving the way for a contentious Republican primary and a potential rematch between Trump and President Joe Biden for the White House in two years.

    “In order to make America great and glorious again, I am tonight announcing my candidacy for president of the United States,” Trump said from Mar-a-Lago.

    The former president spoke a week after midterm elections that saw Democrats keep the Senate, and a number of candidates backed by him lost their races, such as Pennsylvania Senate candidate Mehmet Oz and that state’s GOP gubernatorial candidate, Doug Mastriano. That’s prompted debate about moving on from Trump as the party eyes its 2024 chances.

    Now read: Trump vs. DeSantis: Midterm election results shake up the Republican 2024 field

    And see: Ahead of Trump’s announcement, Mitt Romney calls former president an ‘aging pitcher who keeps losing games’

    Trump — who a House panel has charged with a conspiracy aimed overturning the 2020 presidential election — is likely to face a crowded field in the contest for the GOP presidential nomination, with Florida Gov. Ron DeSantis seen at this stage as his most formidable opponent. Other potential candidates include former Vice President Mike Pence, former South Carolina Gov. Nikki Haley, Virginia Gov. Glenn Youngkin and former Secretary of State Mike Pompeo.

    See: Here’s how candidates endorsed by Trump performed in the midterm elections

    Trump may view DeSantis as posing his most daunting challenge, given the energy he has spent since the midterm elections lashing out at the the Florida governor. The former president remains a popular figure in the Republican Party and has proven himself adept at sidelining rivals for the affection of the GOP base.

    Speaking to a crowded room at Mar-a-Lago, Trump bashed the Biden administration and claimed, “we built the greatest economy in the history of the world.” Under Biden, he said, the U.S. is a “nation in decline.” Biden fired back in a video posted on Twitter as Trump was speaking: “Donald Trump failed America.”

    “America’s comeback starts right now,” Trump said. “I will fight like I’ve never fought before.”

    During his White House term, Trump presided over impressive gains in the stock market, with the 24.2% rise in the Nasdaq
    COMP,
    +1.45%
    ranking as the best ever during a presidential term since the index made its debut in the early 1970s. The Dow Jones Industrial Average
    DJIA,
    +0.17%
    gained 11.8% and the S&P 500
    SPX,
    +0.87%
    rose 13.7% during the four-year span.

    Read:Stock-market performance under Trump trails only Obama and Clinton

    Some of those gains can be attributed to Trump’s signature legislative achievement: a major corporate-tax cut that saw the top federal rate slashed from 35% to 21%, padding corporate profits and making the shares of large U.S. companies more valuable, often via share buybacks.

    Investors were less enthusiastic about the former president’s trade war with China — a high-profile standoff that often sent stocks tumbling on news of new trade restrictions, or soaring on the perception of easing tensions.

    From the archives (May 2020): Trade-war collateral damage: destruction of $1.7 trillion in U.S. companies’ market value

    The arrival of the COVID-19 pandemic shifted the focus of policy makers in both countries, and Biden has largely kept the tariffs his predecessor put in place. Despite these restrictions, the U.S. trade deficit in goods with China set a record of $355 billion in 2021.

    Trump on Tuesday said he wants to eliminate the U.S.’s dependence on China, by bringing manufacturing back to the U.S. He also falsely claimed that inflation is at a 50-year high — it is at a 40-year high.

    Economic policy often took a back seat to the various scandals that plagued Trump in his tumultuous term in office, when he became the first president to ever be impeached twice by the House of Representatives.

    The first impeachment resulted from a 2019 phone call when he asked Ukrainian President Volodymr Zelensky for a “favor” in announcing the launch of an investigation into Biden, then viewed as a likely Trump rival in the 2020 election. Democrats alleged that Trump withheld aid approved by Congress in an effort to ensure an investigation was announced.

    The second impeachment of Trump followed the Jan. 6, 2021, attack on the U.S. Capitol, with a bipartisan majority in the House arguing that he encouraged the attack.

    The former president’s legal troubles have not abated since he left office, and he’s facing several state and local investigations, civil and criminal, while some experts believe he will be indicted by Attorney General Merrick Garland for mishandling defense secrets and obstruction of justice after an FBI raid appeared to show that he lied to the government about classified documents in his possession.

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  • The Red Flags On FTX We All Seemed To Miss

    The Red Flags On FTX We All Seemed To Miss

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    As the autopsy of Sam Bankman-Fried’s crypto empire begins, it’s worth saying that there were red flags all over the place. We missed them.

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  • U.S. stock futures, bonds rally as wholesale price growth slows

    U.S. stock futures, bonds rally as wholesale price growth slows

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    U.S. stock futures rallied Tuesday morning after the producer price index for October came in lower than expected. The PPI index slowed to 8% from 8.4% in the 12 months through October, while core price growth slowed to 5.4% from 5.6%. Futures for the S&P 500 rose 78 points, or 2%, to 4,045, while futures for the Nasdaq 100 rose 366 points, or 3.1% to 12,102 after stock futures traded modestly higher before the data. Futures for the Dow Jones Industrial Average rose 405 points, or 1.2% to 33,967. Treasurys also rallied, with Treasury yields falling 9.4 basis points to 3.778%. Treasury yields move inversely to prices. The PPI data, which gauge prices paid by wholesale producers of goods, appeared to mirror a slowdown in consumer-price inflation exhibited by the October CPI released on Thursday. The October CPI report helped to cement expectations that the Federal Reserve will opt for a smaller interest-rate hike in December after four consecutive 75 basis point hikes.

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  • ‘What. H.A.P.P.E.N….’ — Sam Bankman-Fried’s latest slow roll of tweets spark scorn as well as concern

    ‘What. H.A.P.P.E.N….’ — Sam Bankman-Fried’s latest slow roll of tweets spark scorn as well as concern

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    The latest message from former FTX chief executive Sam Bankman-Fried left onlookers puzzled and alarmed after the swift decline into bankruptcy for the cryptocurrency exchange he founded.

    In successive tweets, Bankman-Fried’s twitter account merely stated, “What,” followed by capital letters H.A.P.P.E.N., unfurled slowly over the span of about 19 hours.

    Bankman-Fried has been an active tweeter throughout FTX’s demise, earlier having written that he was “shocked to see things unravel the way they did.”

    Twitter and Tesla
    TSLA,
    -2.56%
    CEO Elon Musk, who’s also having some difficulties, tweeted with fire emojis to an attempt at a translation of the cryptic tweet.

    Musk also tweeted his amusement at the claim that Bankman-Fried played a “League of Legends” game — the same game the executive infamously was playing when the venture-capital firm Sequoia invested in FTX. Court filings from Musk’s failed attempt to get out of his Twitter purchase show that he doubted that Bankman-Fried ever had $3 billion liquid to co-invest in Twitter.

    While the broader social-media sentiment was a wish for Bankman-Fried to be jailed, there also was concern for his health.

    FTX has filed for Chapter 11 bankruptcy protection, and over the weekend there also seems to have been a hack of customer funds. The securities regulator in FTX’s headquarters of the Bahamas meanwhile said it had not requested the prioritization for withdrawals of funds for Bahamian clients.

    Reuters reported the allegation Bankman-Fried had a “back door” that allowed him to mask the transfer of customer funds to his Alameda hedge fund, which Bankman-Fried told the news agency was just “confusing internal labeling.”

    The former FTX CEO couldn’t be reached for comment.

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  • Fed’s Waller says market has overreacted to consumer inflation data: ‘We’ve got a long, long way to go’

    Fed’s Waller says market has overreacted to consumer inflation data: ‘We’ve got a long, long way to go’

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    Federal Reserve Gov. Christopher Waller said Sunday that financial markets seem to have overreacted to the softer-than-expected October consumer price inflation data last week.

    “It was just one data point,” Waller said, in a conversation in Sydney, Australia, sponsored by UBS.

    “The market seems to have gotten way out in front over this one CPI report. Everybody should just take a deep breath, calm down. We’ve got a ways to go ” Waller said.

    Investors cheered the soft CPI print, released Thursday, driving stocks up to their best week since June. The S&P 500 index
    SPX,
    +0.92%
    closed 5.9% higher for the week.

    The data showed that the yearly rate of consumer inflation fell to 7.7% from 8.2%, marking the lowest level since January. Inflation had peaked at a nearly 41-year high of 9.1% in June.

    Waller said it was good there was some evidence that inflation was coming down, but noted that there were other times over the past year where it looked like inflation was turning lower.

    “We’re going to see a continued run of this kind of behavior and inflation slowly starting to come down, before we really start thinking about taking our foot off the brakes here,” Waller said.

    “We’ve got a long, long way to go to get inflation down. Rates are going keep going up and they are going to stay high for awhile until we see this inflation get down closer to our target,” he added.

    The Fed is focused on how high rates need to get to bring inflation down, and that will depend solely on inflation, he said.

    Waller said “the worst thing” the Fed could do was stop raising rates only to have inflation explode.

    The 7.7% inflation rate seen in October “is enormous,” he added.

    The Fed signaled at its last meeting earlier this month that it might slow down the pace of its rate hikes in coming meetings.

    The central bank has boosted rates by almost 400 basis points since March, including four straight 0.75-percentage-point hikes that had been almost unheard of prior to this year.

    “We’re looking at moving in paces of potentially 50 [basis points] at the next meeting or the next meeting after that,” Waller said.

    The Fed will hold its next meeting on Dec. 13-14, and then again on Jan. 31-Feb. 1.

    At the same time, Powell said the Fed was likely to raise rates above the 4.5%-4.75% terminal rate that they had previously expected.

    “The signal was ‘quit paying attention to the pace and start paying attention to where the endpoint is going to be,’” Waller said.

    In the wake of the CPI report, investors who trade fed funds futures contracts see the Fed’s terminal rate at 5%-5.25% next spring and then quickly falling back to 4.25%-4.5% by November. That’s well below the levels prior to the CPI data.

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  • Investors may be whistling past the graveyard of a recession with latest rally in stocks

    Investors may be whistling past the graveyard of a recession with latest rally in stocks

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    Investors feeling giddy about last week’s sharp rally for stocks might want to give a listen to Tom Waits’ song, “Whistlin’ Past the Graveyard” from 1978, to sober up for the dangers that still lurk ahead.

    The surge in stocks catapulted the S&P 500 index
    SPX,
    +0.92%
    almost back to the 4,000 mark on Friday, also lifting it to the biggest weekly gain in roughly five months, according to Dow Jones Market Data.

    Investors showed courage on signs of a slight slowing of inflation, but the fortitude also comes as a drearier backdrop for investors has been unfolding in plain sight. Massive layoffs at big technology companies, the dramatic implosion of crypto-exchange FTX, and the day-to-day pain of high inflation and skyrocketing borrowing on businesses and households are all taking a toll.

    “We are not convinced this is the beginning of a new bull market,” said Sam Stovall, chief investment strategist at CRFA Research. “We believe that we are headed for recession. That has not been factored into earnings estimates and, therefore, share prices.”

    Stovall also said the stock market has yet to see the “traditional shakeout of confidence capitulation that we typically see that marks the end of the bear markets.”

    From Meta Platforms Inc.
    META,
    +1.03%
    to Lyft Inc.
    LYFT,
    +12.59%
    to Netflix Inc.
    NFLX,
    +5.51%
    there is a wave of major technology companies resorting to layoffs this fall, a threat that could sweep other sectors of the economy if a recession materializes.

    Yet, information technology stocks in the S&P 500 jumped 10% for the week, while financials, which stand to benefit from higher interest rates, rose 5.7%, according to FactSet.

    That could reflect optimism about the odds of a slower pace of Federal Reserve rate hikes in the months ahead, after sharp rate rises helped to undermine valuations and pull tech stocks dramatically lower in the past year. However, Loretta Mester, president of the Cleveland Fed, and other Fed officials since the October inflation reading on Thursday have reiterated the need to keep rates high, until 7.7% annual rate finds a clearer path to the central bank’s 2% target.

    The stock-market rally also might suggest that investors view continued mayhem in the crypto sector as contained, despite bitcoin
    BTCUSD,
    +0.42%
    trading near its lowest level in two years and the shocking collapse in recent days of FTX, once the world’s third-largest cryptocurrency exchange.

    Read: FTX’s fall: ‘This is the worst’ moment for crypto this year. Here’s what you should know.

    What happens to stocks in recessions

    Blows to the American economy rarely have been good for stocks. A look at seven past recessions, starting in 1969, shows declines for the S&P 500 as more typical than gains, with its most violent drop occurring in the 2007-2009 recession.

    The more than 37% drop of the S&P 500 from 2007 to 2009 was the worst of its kind in a recession since the late 1960s.


    Refinitiv data, London Stock Exchange Group

    While a looming U.S. recession isn’t a foregone conclusion, CEOs of America’s biggest banks have been warning about the risks for months. JP Morgan Chase’s Jamie Dimon said in October that a “tough recession” could drag the S&P 500 down another 20%, even though he also said consumers were doing fine, for now.

    Still, the steady stream of warnings about the recession odds have left many Americans confused and wondering if one can even happen without an increase in job losses.

    Big moves lately in stocks also have been hard to decode, given the economy was shocked back to life in the pandemic by trillions of dollars in fiscal stimulus and easy-money policies from the Fed that are now being reversed.

    “What I think goes unnoticed, certainly by the average person, is that these moves are not normal,” said Thomas Martin, senior portfolio manager at Globalt Investments, about stock swings this week.

    “It’s all about who is positioned how — and for what — and how much leverage they’re employing,” Martin told MarketWatch. “You get these outsized moves when people are offside.”

    Here’s a view of the sharp trajectory upward of the S&P 500 since 2010, but also its dramatic drop this year.

    Sharp rise of S&P 500 since 2010, but recent fall


    Refinitiv Datastream

    While Martin isn’t ruling out the potential for a seasonal “Santa Claus” rally heading into year-end, he worries about a potential leg lower for stocks next year, particularly with the Fed likely to keep interest rates high.

    “Certainly what’s being priced in now is either no recession or a very, very mild recession,” he said .

    However, Kristina Hooper, Invesco’s chief global market strategist, said the overarching story might be one of stocks sniffing out the first steps in a path to economic recovery, and the Fed potentially stopping its rate hikes at a lower “terminal” rate than expected.

    The Fed increased its benchmark interest rate to a 3.75% to 4% range in November, the highest in 15 years, but also has signaled it could top out near 4.5% to 4.75%.

    “If often happens that you can see stocks do well, in a less-than-good economic environment,” she said.

    The S&P 500 rose 4.2% for the week, while the Dow Jones Industrial Average
    DJIA,
    +0.10%
    gained 5.9%, posting its best weekly gain since late June, according to Dow Jones Market Data. The Nasdaq Composite Index shot up 8.1% for the week, its best weekly stretch in seven months.

    In U.S. economic data, investors will get an update on household debt on Tuesday, retail sales and homebuilder data on Wednesday, followed by jobless claims and housing starts data Thursday. Friday brings existing home sales.

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  • FTX’s Sam Bankman-Fried: ‘I was shocked to see things unravel the way they did’

    FTX’s Sam Bankman-Fried: ‘I was shocked to see things unravel the way they did’

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    Sam Bankman-Fried, co-founder at crypto exchange FTX, tweeted Friday that he was “shocked to see things unravel the way they did,” after he quit as chief executive and the company and its related entities filed for bankruptcy.

    See: Sam Bankman-Fried resigns as CEO of FTX as cryptocurrency exchange files for Chapter 11 U.S. bankruptcy

    The bankruptcy “doesn’t necessarily have to mean the end for the companies or their ability to provide value and funds to their customers chiefly, and can be consistent with other routes,” Bankman-Fried tweeted Friday.

    Bankman-Fried has seen his net worth plunge to almost zero from $16 billion in less than a week, according to Bloomberg Billionaires index.

    FTX was once the third largest cryptocurrency exchange by trading volume. Bitcoin
    BTCUSD,
    +0.10%
    fell 3.4% Friday to around $16,838, hovering at around a two-year low, according to the CoinDesk data.

    A representative at FTX didn’t respond to a request seeking comment.

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  • Bitcoin falls to 2-year low, other cryptos down after market reacts to FTX bankruptcy news

    Bitcoin falls to 2-year low, other cryptos down after market reacts to FTX bankruptcy news

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    FTX, the crypto exchange, filed for voluntary Chapter 11 bankruptcy in a Delaware court on Friday, and chief executive Sam Bankman-Fried has resigned.

    Following the news, here is how prices are doing for major cryptocurrencies, according to CoinDesk data.

    Bitcoin  BTCUSD, -4.92%  The price for Bitcoin was around $19,350 before the announcement of the potential FTX/Binance deal on Tuesday. The price jumped to $20,590 in less than an hour after the announcement. But dropped to a 2-year low of $17,484. Currently, the Bitcoin price is $16,907.19, a change of -5.04% over the past 24 hours.

    Ethereum  ETHE, -9.66% Currently, the Ethereum price is $1,252.60, a change of -6.60% over the last 24 hours. The price of Ethereum was around $1,438 before the announcement, and peaked at $1,562 under an hour after. Later on Nov 8, the price dropped to $1,289.

    FTT: Today the price of FTT, which is the FTX token, is $2.74, down 20.37% in the last 24 hours, according to CoinMarketCap data. At the beginning of the week, on Nov 7, the price was around $22.06.

    Solana: Currently, the price is $17.34, a change of 2.91% over the past 24 hours. The price of Solana before the announcement was around $27.69, and peaked at $31.29 shortly after the announcement.

    Binance Coin: The Binance Coin price is $285.74, a change of -7.02% over the past 24 hours. The Binance Coin price was around $322 before the announcement that Binance might acquire FTX on Nov 8.

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  • Is the stock market open? Veterans Day is a regular day for U.S. stocks, but the bond market is closed.

    Is the stock market open? Veterans Day is a regular day for U.S. stocks, but the bond market is closed.

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    The stock market remains open Friday, Nov. 11, the Veterans Day holiday in the U.S., even through it counts as a holiday for the $53 trillion American bond market.

    That means a full day of trading for stocks, which appear poised to book a robust week of gains, despite continued fears of a potential U.S. economic recession as the Federal Reserve works to tame stubbornly high costs of living.

    Signs of a potential cooling off on the inflation front led the Dow Jones Industrial Average
    DJIA,
    +3.70%
    to advance 1,200 points on Thursday, with it, the S&P 500 index
    SPX,
    +5.54%
    and Nasdaq Composite Index
    COMP,
    +31.35%
    all booking their best daily gains since 2020.

    Don’t miss: Veterans Day: Are banks open? Does USPS deliver mail?

    While Friday marks the start of a three-day weekend for the bond market, Treasury yields already have climbed dramatically this year with the Fed’s sharp rate hikes. The central bank aims to temper demand for goods and services by making borrowing costs more restrictive.

    Consumers may feel certain effects of inflation in their everyday lives, like when they go to the grocery store. But it can also impact our savings and investments. Here’s what to know.

    The benchmark 10-year Treasury rate
    TMUBMUSD10Y,
    3.819%
    fell to about 3.8% on Thursday, but was up from a 1.3% low last December. Bond yields move in the opposite direction of prices.

    The fresh rally on Wall Street followed the consumer-price index reading for October showing a 7.7% annual rate, down from a 9.1% high in June. The Dow remains down more than 8% from its January peak, the S&P 500 is 17.5% lower and the Nasdaq is 31% below its last record close, according to Dow Jones Market Data.

    Veterans Day was born out of the wreckage of World War I, with Nov. 11 recognized as a legal holiday in the U.S. in 1938, two decades after an armistice between the Allied nations and Germany went into effect at the 11th hour of the 11th day of the 11th month.

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  • Crypto lender BlockFi pauses withdrawals in wake of FTX’s collapse

    Crypto lender BlockFi pauses withdrawals in wake of FTX’s collapse

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    Crypto lending platform BlockFi announced it was halting withdrawals Thursday night in the wake of the collapse of crypto exchange FTX.

    “We are shocked and dismayed by the news regarding FTX and Alameda,” BlockFi said in a tweet. “We, like the rest of the world, found out about this situation through Twitter.”

    BlockFi said that due to the “lack of clarity” regarding FTX and Alameda, “we are not able to operate business as usual,” and that until there is “further clarity, we are limiting platform activity, including pausing client withdrawals.”

    The company asked clients not to deposit into BlockFi Wallet or Interest Accounts at this time, and said it will share more specifics “as soon as possible,” though it warned it likely would communicate “less frequently” than what its clients and stakeholders are used to.

    In June, BlockFi received a $250 million bailout from FTX to help keep it afloat.

    FTX, once valued at $32 billion, collapsed this week under a liquidity crisis, and faces a shortfall of up to $8 billion, according to several media reports. Without a cash injection, the company might plunge into bankruptcy, according to a Bloomberg report.

    Also see: ‘Bedazzled by money’: Democratic ties to Sam Bankman-Fried under scrutiny after FTX collapse

    FTX founder and CEO Sam Bankman-Fried reportedly extended about $10 billion in loans to its affiliated trading firm Alameda Research — amounting to about half of FTX’s customer assets of $16 billion, according to the Wall Street Journal.

    “I fucked up, and should have done better,” Bankman-Fried said in a tweet Thursday, saying he had, among other things, misread the use of margin on the platform.

    More: The $26 billion rise and fall of FTX crypto king Sam Bankman-Fried

    Late Thursday, it was revealed that Alameda appeared to have shorted the stablecoin Tether, according to blockchain data.

    The FTX fiasco has spread fear of a “contagion” across the broader crypto industry, and sent the price of bitcoin
    BTCUSD,
    -3.87%
    at one point to its lowest level since November 2020.

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  • The $26 billion rise and fall of FTX crypto king Sam Bankman-Fried

    The $26 billion rise and fall of FTX crypto king Sam Bankman-Fried

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    Just six months ago, CEOs, celebs and world leaders like Bill Clinton and Tony Blair flocked to him, gathering at a Davos-like conference he hosted in the Bahamas where he lives as one of the most outspoken evangelists for the power of the blockchain.  

    Fast forward to Sunday and Bankman-Fried’s crypto empire came crashing down, the victim of an old-fashioned bank run that quickly exposed the weaknesses of the new finance system he had championed. 

    Almost overnight, Bankman-Fried’s cryptocurrency exchange, FTX, had gone from being valued at $32 billion to worthless, leaving scores of investors scrambling to get their deposits back and triggering probes in the U.S. by the Securities and Exchange Commission, the Commodities Futures Trading Commission and the Department of Justice, according to reports.

    On Thursday, the 30-year-old Bankman-Fried took to Twitter to level with his clients.

    “I fucked up, and should have done better,” he wrote.

    A very rapid rise

    It took less than five years for Bankman-Fried to build a personal fortune that was estimated at its highest point to be more than $26 billion, making him among the richest people in the world.

    His schlubby, boyish appearance — ill-fitting t-shirts, gym shorts and a mop of curly hair — made him look more like a college student ripping bong hits in the basement of a frat house than a finance guru, but fit nicely with the anti-establishment ethos that appealed to crypto enthusiasts.

    The son of law professors at Stanford University, Bankman-Fried was a wunderkind from an early age. He studied physics and mathematics at the Massachusetts Institute of Technology.

    After a stint as an ETF trader for Jane Street Capital, a highly respected Wall Street firm that is known for attracting genius quantitative traders, Bankman-Fried became interested in the concept of effective altruism, a philosophy that focuses on using reason and evidence to find solutions that benefit the most people possible. In 2017, he launched Alameda Research, a quantitative trading firm focused on digital currencies.

    Over the next year, he began building his fortune through arbitrage trading of Bitcoin
    BTCUSD,
    +11.10%
    between exchanges in the U.S. and Japan, where prices were often slightly higher. In 2019, Bankman-Fried launched the crypto exchange FTX.

    The timing was fortuitous: as the COVID-19 pandemic spread across the globe the following year, interest in cryptocurrencies among people exploded. FTX took off and brought in the big-name celebrity endorsers and partners, like professional athletes Tom Brady and Steph Curry. 

    Bankman-Fried soon found himself feted by some of the biggest institutions in finance, attracting investment from the biggest names on Wall Street and beyond like Softbank
    9984,
    -2.65%
    Group, Sequoia Capital, Blackrock
    BLK,
    +13.26%    .
    Tiger Global Management and Thoma Bravo. He even raised money from billionaire hedge fund legends Paul Tudor Jones and Israel Englander.

    Soon, FTX was among the biggest players in the industry.

    The face of crypto

    Despite his ballooning wealth, Bankman-Fried maintained the appearance and lifestyle of a teenage gamer. He moved to the Bahamas, where he reportedly lived in a penthouse apartment with 10 roommates.

    On Zoom calls, he would often play video games while talking — his favorite game being League of Legends. Profiles of him often noted that he kept a bean bag just feet from his desk to sleep on.

    What set Bankman-Fried apart from other crypto tycoons, was his professed interest in working with regulators to create a more robust framework around the nascent industry and treat it more like a traditional finance network. 

    To that end, Bankman-Fried appeared before Congress to try to explain to skeptical U.S. lawmakers how the crypto industry worked. He also said he welcomed regulation, not always a popular position in the crypto world.

    “FTX believes [government agencies] could play an even more prominent role in the digital-asset ecosystem and bring greater investor protections by closing some regulatory gaps,” he said before a senate panel in February. “FTX believes that such efforts would combine the best aspects of traditional finance and digital-asset innovations.”

    Bankman-Fried even put his great wealth to play in politics, becoming a major campaign donor for the Democratic party. In 2020, he was one of President Joe Biden’s largest single donors and spent nearly $40 million on political campaigns this year for the midterm elections, according to campaign filings.

    As cryptocurrencies have experienced significant declines in prices this year, triggering the collapse of several operations, Bankman-Fried arose as a savior, buying up several failing partners as positioning himself as a kind of Robin Hood for the industry.

    A swift collapse

    For as fast a rise to the top of the world that Bankman-Fried enjoyed, the fall was just as rapid.

    On Sunday, Changpeng Zhao, the CEO of FTX’s competitor, Binance, and an archrival of Bankman-Fried’s, announced on Twitter that his firm, the world’s biggest cryptocurrency exchange, was liquidating its sizable holdings of FTT, the coin issued by FTX, “due to recent revelations that have come to light.”

    Bankman-Fried accused Zhao of spreading false rumors. But the damage was done.

    Binance’s move triggered a massive selloff with customers seeking to redeem some $5 billion in deposits. FTX didn’t have it and redemptions froze up.  

    On Tuesday, Bankman-Fried announced that FTX had reached a tentative agreement to be acquired by Binance, due to a “significant liquidity crunch.” The turmoil set off broad declines among several of the most popular cryptocurrencies and even spilled into the world of traditional finance, sending markets tumbling.

    The next day, the chaos increased, with reports that FTX and Bankman-Fried were under investigation by several U.S. agencies. By the end of the day, Binance said it was walking away from the deal because due diligence had revealed that “the issues are beyond our control or ability to help.” 

    Binance’s deal seemed like the only thing preventing FTX from potentially collapsing. “At some point I might have more to say about a particular sparring partner,” Bankman-Fried tweeted on Thursday. “For now, all I’ll say is: well played; you won.”

    Also on Thursday, the Wall Street Journal reported that Bankman-Fried had been using some customer deposits to fund risky bets by his Alameda Research firm, setting FTX up for collapse.

    With the Binance lifeline gone and with few options available, Bankman-Fried told investors he needed $8 billion or more to plug the hole in FTX’s books, according to reports. 

    On Twitter, Bankman-Fried said he would focus all his efforts on making sure depositors got their money back. He also tried to explain FTX’s collapse, saying “a poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users’ margin. I thought it was way lower.”

    Said Bankman-Fried: “My #1 priority–by far–is doing right by users,” he wrote. “Right now, we’re spending the week doing everything we can to raise liquidity. I can’t make any promises about that.”

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