Don’t expect volatile equity-market swings to go away when the calendar flips to 2023, says Edward Jones senior investment strategist Mona Mahajan, who advises focusing on defensive and value stocks in the new year. But there is hope for later in the year, she says, when the market will be looking forward to lower inflation and a stabilizing US economy.

Mahajan joined the What Goes Up podcast to discuss her outlook for next year and assess the market’s reaction to the latest message from the Federal Reserve to expect higher interest rates for longer. 

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Bonds are back—and they appear to be the preferred asset class as we head into the uncertain economic environment in 2023, according to Gargi Chaudhuri, head of investment strategy for the Americas at BlackRock’s iShares unit. She joined this week’s What Goes Up podcast to talk about her 2023 outlook, next week’s policy decision by the Federal Reserve and the appeal of not only safe Treasuries but some riskier mortgage securities.

“It is so exciting, I think, to be in a world where there are some incredible opportunities staying very high in quality, short in duration, in the fixed-income markets,” she said. 

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Expectations that inflation will normalize to near 2% in the near term will “end in tears,” according to Vincent Deluard, the director of global macro strategy at brokerage StoneX Financial. He contends growth in consumer prices will remain closer to 5% for about a decade. Deluard joined the latest episode of the What Goes Up podcast to explain why he believes inflation will remain stubbornly high and what that would mean for markets. He also reveals what he calls “Silicon Valley’s Seven Deadly Sins.”

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The implosion of Sam Bankman-Fried’s FTX empire dealt a harsh blow to the Bahamas’ ambitions to be a hub for the crypto industry, and it’s causing massive pain for locals who treated the now-bankrupt exchange like a bank.

Stephane Ouellette, chief executive of Toronto-based crypto firm FRNT Financial, traveled to the Bahamas to assess the fallout from the collapse. He joined the What Goes Up podcast to discuss the bankruptcy’s effect on the island nation it called home, as well as the impact the scandal is having on his business and the entire market.

“FTX was positioning [itself] as a banking alternative, particularly in regions where they operated—like the Bahamas,” Ouellette said. “So there’s even more horror stories of people treating FTX like bank-like infrastructure, and therefore leaving a significant amount of their assets just latent on FTX. Now they can’t get access to them, just like everybody else.”

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The collapse of Sam Bankman-Fried’s FTX cryptocurrency empire was accelerated when the head of a rival exchange announced he was planning to dump holdings of something called FTT—a token created by FTX that afforded some perks to investors who owned it. At one point, the token was one of the 10 biggest coins in the market, which would have made it eligible for the Bitwise 10 Crypto Index Fund.

However, Bitwise never added FTT to the fund. Matt Hougan, chief investment officer of Bitwise Asset Management, joined the What Goes Up podcast to discuss the damage caused by the implosion of FTX and explained why the fund snubbed its coin. “We look at assets that are at undue risk of being found in violation of federal securities laws,” he said. “FTT fell into that framework because we thought it was likely, or possible, to be deemed a security by regulators. And it was largely internally controlled, in our view.”

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FTX Cryptocurrency Exchange rattled the financial world this week when a crisis of investor confidence triggered a run, forcing the company to scramble for a buyer or bailout to avoid collapse. Joining the What Goes Up podcast to discuss the chaos that ensued are Sadie Raney, chief executive of the crypto hedge fund Strix Leviathan, and Nico Cordeiro, its chief investment officer.

The firm said it had a limited amount of funds with FTX frozen. “We’ve been through a number of market crashes,” says Raney. “We’ve used Voyager in the past. We also used BlockFi. And when there were some indicators that maybe they were, I guess you could say over their skis, we stopped trading with them.”

“This one,” Raney said, “I don’t think anyone saw coming.”

Cordeiro adds that while their firm has “some funds frozen there,” it was “a small portion of our portfolio allocated there—simply because this space is the wild west.”

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Cryptocurrency news this year has been filled with stories about how institutional investors are embracing digital assets. So if more big players are entering the space, why are prices for Bitcoin, Ether and other tokens so depressed compared with last year’s peaks? 

Leah Wald, chief executive of digital-asset investment firm Valkyrie Investments Inc., joined the What Goes Up podcast to share her thoughts on the topic. “Institutions have a longer time horizon. They also, as a fiduciary, cannot just jump in with a strategy,” Wald said. “There’s a lot of other hurdles that institutions have—whether it’s risk parameters, among others, and also just generally the vehicle that they need in order to buy it.”

Wald also sheds light on the outlook for blockchain miners, use cases for crypto in developing markets and the prospects for a spot Bitcoin exchange-traded fund. 

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There are better ways to combat inflation than destroying demand with interest-rate increases, according to Nela Richardson, chief economist for payroll giant Automatic Data Processing Inc. She joined the latest What Goes Up podcast to give her take on half-century record American employment, decades-high inflation and signs of softness in the US housing market. 

“It’s about productivity,” Richardson says. “Productivity grows you out of inflation when more workers produce more output for the same amount of cost. That’s what productivity is. That’s what gets you out of the inflation wage-price spiral conundrum.” But to do that, she says, business and government need to invest in jobs and workers—something they haven’t been good at recently. “It takes more partnerships with community colleges to build an agile and skilled workforce in the places that the economy needs it,” Richardson says.

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The stock market has been getting very volatile as the US Federal Reserve continues its historic effort to squash rising prices. Proclamations from policymakers suggest the central bank won’t let up until inflation is under control—even if it means trouble for the economy. Officials may raise rates by another 75 basis points at their upcoming November meeting, and the same again in December, according to Kristina Hooper, chief global market strategist at Invesco.

“Seventy five is the new 25,” she says. “When you are raising rates in 75-basis-point increments and you’re not giving any time for it to process through and make its way through into the data, you’re playing a dangerous game,” she says on the latest episode of What Goes Up. “And the more you’re doing it, the more likelihood you create of having a recession—and a significant recession.”

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Another hot inflation reading this week underscores the importance of the US Federal Reserve’s campaign to tame decades-high increases in consumer prices, with many market observers evoking the memory of a similar effort by the central bank’s larger-than-life former chairman, Paul Volcker. 

One key to Volcker’s success in the 1980s, achieved through interest-rate hikes and control of the money supply, was setting the appropriate expectations in the financial markets, according to Christine Harper, editor of Bloomberg Markets magazine and co-author of Volcker’s memoirs, Keeping at It: The Quest for Sound Money and Good Government. Harper joined the latest episode of What Goes Up to discuss her experience with Volcker, and what lessons learned from his time as Fed chief are useful today.   

“Psychology was really important,” she said. “He really understood the psychology of investors, the psychology of consumers and business people. And so much of what he did, and the inflation fight, was basically around changing the psychology.”

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