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šļø Russia Tries to Save the Ruble
[5 minutes to read] Plus: The star quarterback making less than $1 million
By Matthew Gutierrez and Shawn OāMalley
Inflation, probably the biggest market theme over the last two years, is holding steady. The Consumer Price Index (CPI) rose 3.7% in September from the same time last year, matching Augustās mark š
Like many data points, it can be read both ways:
On the one hand, housing costs and energy remained high, showing that controlling inflation is lengthy and burdensome.
On the other hand, the broader trend of slowing price increases remains intact.
š āThis report still suggests that we have stepped out of the higher inflation regime,ā an economist told The New York Times. āWeāre not out of the woods ā there are still some sticky corners of inflation.ā
More on inflation is below.
ā Shawn and Matthew
Hereās todayās rundown:
POP QUIZ
Today, we'll discuss the three biggest stories in markets:
Diving into Septemberās inflation numbers
Why the NFLās top player makes under $1 million
Russia aims to stabilize the ruble
All this, and more, in just 5 minutes to read.
IN THE NEWS
š¬ Inflation is Still Not Back to āNormalā
The million-dollar (billion-dollar? maybe trillion-dollar?) question is whether inflation will continue to drift toward a more neutral and sustainable 2% annual rate.
If not, the Federal Reserveās hand will be forced to keep raising interest rates, which, to summarize nearly every newsletter weāve written in the last year: Higher interest rates = Bad for financial markets & the economy (yes, weāre oversimplifying!).
Where we are with inflation: The Core Consumer Price Index, which strips out food and energy costs, increased 0.3% in September and is up 4.1% from last year.
If your first instinct is, how can you possibly take out food & energy costs when measuring inflation, we sympathize.
The short answer is that prices for raw food commodities and energy can swing wildly from year to year due to idiosyncratic factors. For example, we recently discussed how the Israel & Palestine conflict has increased oil prices.
But those unpredictable fluctuations arenāt particularly helpful for economists trying to determine the big-picture trend in inflation.
Breaking down Septemberās CPI:
Shelter costs make up about 1/3 of the CPI and reflect the cost of rent and utility payments for renters (and the cost for homeowners to rent a similar home.) Shelter costs accelerated 0.6% last month, up 7.2% from a year ago, and were the main driving factor behind higher inflation.
Gasoline prices moved 2.1% higher while food costs inched up 0.2%.
Vehicles were mixed as new vehicles were 0.3% more expensive while used vehicle prices fell 2.5% in aggregate.
Apparel expenses, measuring the costs of clothing, footwear, jewelry, and related services, fell sharply by 0.8%. And medical care services were down 2.6% from the same period in 2022, despite increasing modestly last month.
Why it matters:
Bloomberg reports, āAfter showing some progress, Americansā wages are no longer keeping up with inflation. A separate report Thursday showed inflation-adjusted earnings fell for a second month.ā
One economist from Navy Federal Credit Unioned chimed in, āJust because the rate of inflation is stable for now doesnāt mean its weight isnāt increasing every month on family budgets.ā
Zooming out: The September report delivered few surprises and matched Wall Streetās expectations. The inflation picture remains cloudy, but the latest data gives the Fed no reason to panic.
BROUGHT TO YOU BY
Assembling IKEA tables got you feelinā like the Steph Curry of furniture?
The Average Joe will turn you into the Marie Kondo of investing. Organized, calm and ready to conquer the markets.
Their newsletters are the āIKEA instructions for investingā ā short, simple and concise ā filled with market trends and insights.
But you donāt read IKEA manuals on your spare time and you wouldnāt read financial publications for fun.
Until nowā¦
š The NFLās Most Valuable Player Makes Less Than $1 Million
Brock Purdy makes under $1 million annually, virtually nothing for a starting quarterback. Yet his team, the San Francisco 49ers, is undefeated and a Super Bowl favorite. And Purdy is arguably the NFLās most valuable player.
Purdy might be the worldās best quarterback (QB) right now, yet he earns about 2% of what Cincinnati Bengals QB Joe Burrow makes. Top quarterbacks command salaries over $50 million per year ā not Purdy, whose contract pays him an average of $930,000 per season.
Purdy is kinda like the penny stock that rises 1,000%.
Last year, Purdy earned the starting job after two quarterbacks went down with injuries. Since then, heās 10-0 as a starter in the regular season.
Without getting too far down the rabbit hole of NFL contracts, Purdy makes so little (relatively speaking) because he was the very last pick of the 2022 NFL Draft. He was supposed to be the backup to the backup ā āMr. Irrelevantā ā and thus under a limited contract structure.
Live below your means: The 23-year-old appears to be living frugally. He splits rent with a teammate and drives a Toyota. If he continues to play this way, heāll be due for a $50 million yearly payday by 2026.
Purdy is such a bargain ā call it deep value territory ā that his salary ranks him 80th among 84 NFL quarterbacks.
Nearly all the kickers and punters earn more than him, and there are about 1,500 players who make more money than Purdy, who might be the MVP.
Why it matters:
Purdyās situation is a case study in pay and value. Itās also an outlier because of his rapid rise from low draft pick to sensation and the NFLās unique contract rules.
Simply put: The 49ers donāt have to pay him much because a salary cap constrains teams. Rookie contracts are given caps based on draft order. Since Purdy was picked so low in the draft, his pay is limited until 2026.
Itās also why the top pick in 2021, Jacksonville Jaguars quarterback Trevor Lawrence, isnāt playing as well as Purdy yet earns 10 times ($9.2 million/year) Purdyās average earnings. If not for the caps, both quarterbacks would demand much higher salaries on the open market.
Purdy is like a CEO leading an incredible turnaround for a Fortune 500 company but being paid peanuts for it, with no stock options, even as its share price soars.
MORE HEADLINES
š Social Security cost-of-living adjustment will be 3.4% in 2024
š¤ Microsoft owes the IRS almost $30 billion in back taxes
š UAW expands strike, hitting Fordās largest factory
š° Winning $1.7 billion Powerball jackpot sold in California
āļø Delta Air Lines profit jumps almost 60% after strong summer in travel
š„“ Kremlin Brings Back Capital Controls to Support Currency
The Russian ruble is rallying, but not for a good reason. The currencyās exchange rate against the dollar is climbing back after the Kremlin reintroduced capital controls ā last implemented shortly after Russia first invaded Ukraine.
Capital controls 101: Not every country manages its currency in the same way, nor do they have equally āopenā economies and financial markets.
While some places embrace the free market, allowing their currencyās value to be priced relative to other major currencies daily, others set an explicit target exchange rate value to enforce.
Or, they might seek less direct ways to manipulate their currency.
In this case, Russiaās president Vladimir Putin plans to force 43 of the countryās biggest companies (including energy, metals, and agriculture exporters) to sell some of their foreign currency holdings to prop up the ruble.
In other words, the Russian government is compelling businesses to artificially boost the countryās currency in foreign exchange markets, using funds earned from exports worldwide.
Why it matters:
As a result, the rubleās value versus the dollar moved 4% higher on Thursday. Still, Russiaās currency has lost 23% of its value this year relative to the U.S. dollar and has fallen a little more since the onset of Western sanctions last year.
A weaker ruble strains the Russian governmentās finances, making it more expensive to purchase things it needs to power the countryās wartime economy.
It also imposes inflationary costs on Russiaās populace as imports grow costlier.
Playing defense: Russiaās central bank has also dramatically raised interest rates to attract and retain more capital. In August, at an emergency meeting, policymakers raised interest rates by 3.5% and another 1% in September to 13%.
QUICK POLL
If you could give all your money now to just one investor to manage in their prime, who would it be?(We'll show the answers tomorrow) |
Yesterday, we asked: Do you use a financial advisor?
ā Most (62%) of you said no
ā Some (21%) said you do have a financial advisor, and 17% of you said youād like to at some point in the future
ā One reader commented, āI do my homework on investments thanks to studying Buffett.ā While another said, āIām a financial advisor, and I use one!ā
TRIVIA ANSWER
See you next time!
That's it for today on We Study Markets!
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