“So the pie isn’t perfect? Cut it into wedges. Stay in control, and never panic.” – Martha Stewart
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Good morning!
By now, JPMorgan Chief Executive Jamie Dimon’s reaction to his firm’s exposure to the Tricolor collapse is well known. “When you see one cockroach, there are probably more,” he said. As followers of our work know, the evidence of a multitude of other cockroaches metaphorically hiding inside the walls of our financial system has yet to materialize.
For the most part, fraud is strongly suspected to be the primary culprit at the recent credit-related events that have shaken up industry observers. Yesterday, First Brands filed suit alleging that founder Patrick James misappropriated “hundreds of millions (if not billions)” of company money to fund a lavish lifestyle for himself and his family – $500,000 for a private chef, for example.
The purported misappropriation is among a slew of allegations of fraud emerging in the investigation into the collapse. Fraudulent activity is also alleged to be central to the collapse of Tricolor as well as the commercial-loan losses incurred by Zions and Western Alliance.
Fraud, while obviously a serious matter, is not generally regarded as a systemic problem, nor is it typically reflective of corporate or consumer financial health. Yet all these years after the Global Financial Crisis, one could be forgiven for assuming that major financial players had fixed their previous problems with inadequate due diligence and risk management. As Colin Adams, partner at the restructuring adviser Uzzi & Lall, told The Wall Street Journal yesterday, “People are really starting to ask: ‘How does this happen?'”
Despite a general view that the economy and U.S. credit health remain healthy, some lenders appear to be responding by reflexively tightening lending standards, intensifying caution and scrutiny. Could this push the Federal Reserve in a dovish direction?
At current levels, this seems unlikely. However, if lender (or debt investor) confidence continues to decline, or if Dimon is right and more cockroaches appear, it’s a possibility. After all, after the Oct. 29 Federal Open Market Committee meeting, Fed Chair Jerome Powell was asked about credit events such as those described above, and he noted that, “We’re looking at it carefully. We’re paying close attention.” Fed Gov. Lisa Cook echoed Powell’s caution Monday at a Brookings Institution event. “We’re mainly concerned about vulnerabilities and risks to the financial system, and that’s what we stay concerned about,” she said.
As for rate cuts, Powell acknowledged at the October meeting that “I wouldn’t say that [rates are] accommodative right now” even though the FOMC had just cut rates and called a halt to quantitative tightening.
As of this writing, Fed funds futures trading implies odds of a Dec. 10 rate cut at 70.1%. If worries about due diligence cause enough of the financial sector to tighten lending to a meaningful degree, it could influence the next Fed rate decision.
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📧✍️Here’s what a reader commented📧✍️
Q: Is Jensen Huang correct about the need for Nvidia to sell advanced chips to China?
A: I don’t know if Jensen is correct about Nvidia’s lead evaporating sooner rather than later, but I think it’s in his best interest to say so. If the U. S. and its allies can stay ahead of China in the AI race for ten years, that would be a good thing. It makes no sense for the U.S. to allow Nvidia to sell Blackwell chips to China to avoid strengthening China’s chip-making expertise, because doing so strengthens China immediately instead of with a significant lag.
Catch up with FS Insight
Investors are seeing a constellation of worries, which is prompting many to sideline. But a wall of worries is how markets stage subsequent gains.
Technical
Short-term pullbacks in U.S. equity indices now look to be nearing initial support, which might offer some stabilization after the recent drawdown over the past week. While I did expect some consolidation in November, it’s hard for me to make the case for additional selling to grow too pronounced this week.
Crypto
The government shutdown and Treasury’s cash build-up have drained liquidity and raised concerns about growth, pressuring crypto markets. While ETH, SOL, and some alts show capitulatory signs, BTC funding and OI levels suggest that, absent a catalyst, the flush isn’t done yet.
News We’re Following
Breaking News
- Democrats dominate as economic woes take a toll on Trump’s GOP. Takeaways from Election Day 2025 AP
- UPS cargo plane crash in Kentucky leaves at least seven dead WSJ
Markets and economy
- Looking to experts for how the Supreme Court will rule on tariffs? They aren’t sure either YF
- Saudi Arabia’s state oil company reports surprise $28B profit SEM
- Norway suspends $2.1tn oil fund’s ethics rules to avoid selling Big Tech stakes FT
Business
- AMD reports better-than-expected results but margin guidance only meets estimates CNBC
- IBM cutting thousands of jobs in the fourth quarter CNBC
- US Steel details plans to invest $11 billion by 2028 across all business segments AP
- Apple prepares to enter low-cost laptop market for first time BBG
Politics
- Trump administration will comply with court order on SNAP funds WSJ
- As government shutdown stalemate persists, frustration defies party lines NYT
- Wall Street couldn’t stop Mayor Mamdani. Now it has to work with him WSJ
Overseas
- Narco-sub carrying 1.7 tonnes of cocaine seized in Atlantic BBC
- Philippines begins cleanup after Typhoon Kalmaegi leaves at least 85 dead REU
- TikTok investigated in France over content that promotes suicide BBG
Of Interest
- Gopichand Hinduja, the head of UK’s richest family, dies aged 85 BBC
- Audemars Piguet’s “crowning achievement” was thought lost. Now it’s at auction BBG
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| Date | Time | Description | Estimate | Last |
|---|---|---|---|---|
| 11/5 | 9:45 AM | Oct F Sep F S&P Srvcs PMI | 55.2 | 55.2 |
| 11/5 | 10:00 AM | Oct Sep ISM Srvcs PMI | 50.8 | 50 |
| 11/6 | 8:30 AM | 3Q P Nonfarm Productivity | 3.3 | 3.3 |
| 11/6 | 8:30 AM | 3Q P Unit Labor Costs | 0.9 | 1 |
| 11/7 | 8:30 AM | Oct AHE m/m | 0.3 | 0.3 |
| 11/7 | 8:30 AM | Oct Unemployment Rate | 4.4 | 4.3 |
| 11/7 | 8:30 AM | Oct Non-farm Payrolls | -20 | 22 |
| 11/7 | 10:00 AM | Nov P Oct P UMich 1yr Inf Exp | 4.6 | 4.6 |
| 11/7 | 10:00 AM | Nov P Oct P UMich Sentiment | 53 | 53.6 |
| 11/7 | 11:00 AM | Oct Sep NYFed 1yr Inf Exp | n/a | 3.38 |
| 11/11 | 6:00 AM | Oct Sep Small Biz Optimisum | n/a | 98.8 |
