Fear of Falling

"If you worried about falling off the bike, you’d never get on.” — Lance Armstrong

Hey, Risers!

Tough stuff.

Investors continue to navigate a choppy market, due to the ongoing conflict in Israel, stubbornly high interest rates, and an economy that just won’t seem to slow. It was a big earnings week as well, which ran the gamut from amazement to disappointment. We will, as always, stick to our knitting and rely on a disciplined approach.

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Economy & Markets

Like sinking a balloon.

Growing Like a Weed

U.S. GDP grew at an annual rate of 4.9% in the third quarter, fueled by strong consumer spending. Economists forecast growth of 4.5%. This figure is more than double second-quarter growth.

Our take: Somehow the economy appears to be accelerating in the face of higher borrowing costs.

Shelter in Place

New home sales surprised to the upside, as well, despite mortgage rates topping 8%. More than 750,000 homes sold in September, up 12.3% month on month. Forecasts were for growth of less than 1%.

Our take: A shocking number.

Working

Initial jobless claims rose to 210,000 from 198,000 the week prior. Forecasts were for initial claims of 207,000.

Our take: Still lower than we would have thought.

Learning Block: Collateral Transfer Risk

Who’s holding the bag?

Collateral transfer risk is the risk that a party to a derivative contract will not be able to meet its obligation to transfer collateral to its counterparty in the event of a margin call. A study by the Bank for International Settlements (BIS) found that the average collateral haircut for over-the-counter (OTC) derivatives contracts was around 10% in 2022. This means that, on average, parties to OTC derivatives contracts must post collateral equal to at least 10% of the notional value of the contract.