National

Data: U.S. Department of Commerce; Chart: Axios Visuals

The U.S. economy expanded at a 3.2% annual rate in the third quarter, according to the final revision of Gross Domestic Product released by the Commerce Department on Thursday. 

Why it matters: The latest revision shows the economy grew at a slightly faster pace last quarter than previously estimated, in large part due to stronger consumer spending.

The economy's return to growth last quarter followed two back-to-back contractions that raised fears the country had entered a recession. 

By the numbers: The final estimate is above the initial readings, which said the economy grew at a 2.6% and 2.9% annualized pace, respectively.

In the first quarter, the economy contracted at a 1.6% annual rate, while the economy shrank at a 0.6% annualized pace in the second quarter. 

Go deeper... The Nixon-era rule that muzzles the White House when economic data comes out

Third-quarter economic growth revised higher to 3.2%

Gross domestic product (GDP)

Jobs

Stock market

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Markets

Axios Markets

Total spent at auction on work by Basquiat and other Black American male and female artists

Data: Artnet via Burns Halperin Report; Chart: Tory Lysik/Axios

The art world has always resembled a winner-takes-all game where a few superstars dominate an enormous field of also-ran artists. When it comes to the market for Black American artists, that dynamic is supercharged, per a huge new report on art-world inclusion from journalists Julia Halperin and Charlotte Burns. 

Why it matters: Recent years have seen dozens of records fall when it comes to prices for work by Black American artists, who represent about 8% of U.S. artists.

Overall, however, their presence in the market still lags far behind their presence in the broader art world — with one massive exception. 

By the numbers: A key watershed moment was Sean "Diddy" Combs' $21.1 million acquisition of Past Times, by Kerry James Marshall, in 2018. That was followed earlier this year by The Sugar Shack, by Ernie Barnes, which was bought for $15.2 million — 76 times its high estimate.

The top-selling Black American female artist, Julie Mehretu, has an auction total of $65 million between 2008 and mid-2022, with her record price of $5.6 million being set at an auction in Hong Kong in 2019. 

Among living Black American men, Mark Bradford is setting the pace, with a total of $194 million in auction sales over the same period. His top price of $12 million was garnered in London in 2018. 

Between the lines: Once you get past the biggest names, there's often very little volume. Mehretu alone, for instance, accounted for 80% of the auction total for Black American women artists in 2016.

Every year, up to and including 2022, the auction total for Jean-Michel Basquiat is greater than the auction total for all other Black American artists combined.

Basquiat is the only artist in the global top 20 who isn't a white man; his auction total from 2008 to 2022 is $2.6 billion, and his top price, set in New York in 2017, is $110 million. 

Driving the news: Museums are doing a marginally better job than buyers at auction houses when it comes to diversifying their collections. Black American artists accounted for 6.3% of exhibitions at 31 U.S. museums between 2008 and 2020, and 2.2% of all acquisitions. 

The broad trends are upwards — between 2008 and 2021, for instance, the amount spent at auction on work by Black American women rose by 728%, vastly outpacing the market as a whole. 

The inequality remains glaring, however: In the first half of 2022, Black American women were still just 0.3% of all auction sales. 

The bottom line: A lot of the interest in Black artists is speculative: Buyers want to collect works before they soar in value. But speculative markets invariably work on boom-bust cycles, as can be seen in the two-year decline between 2018 and 2020, where auction sales of work by Black American artists fell by 49%. 

How Black American artists fare at auction

A new report shows Black American artists are underrepresented in auction house sales

The crypto world has been asking a single question for the past decade: Who's in charge here? The answer has now emerged: It's the Americans. 

Why it matters: U.S. authorities consider the whole world to be under their purview, to some degree. No one else behaves quite like that — so the U.S. ends up being the de facto global regulator.

Catch up quick: Last month, as you might have heard, a Bahamas-based crypto exchange failed, along with its associated Hong Kong-based trading vehicle. The consequences came thick and fast: 

A bankruptcy filing, in Delaware, a U.S. state.

Civil complaints from both the U.S. Securities and Exchange Commission and the U.S. Commodities and Futures Trading Commission. 

A criminal complaint from U.S. federal prosecutors. 

An arrest, in the Bahamas, at the request of U.S. authorities. 

Between the lines: The Bahamian authorities seem to have been reduced to little more than plaintive tweeting. 

Driving the news: Danske Bank, based in Copenhagen, this week paid $2 billion to the U.S. Department of Justice resolve a settlement over its lax money-laundering controls. 

As Bloomberg's Matt Levine points out, the transactions in question were done at the behest of Russian customers at an Estonian branch of a Finnish bank owned by a Danish bank. Nevertheless, the prosecution was driven by Americans — and there was even a parallel $400 million securities fraud settlement with the U.S. SEC, for good measure. 

Be smart: Binance, the only major global crypto exchange now that FTX has gone, is beefing up its U.S. lobbying operation, three months after appointing Patrick Hillmann to the job of global chief strategy officer. 

Hillmann, whose LinkedIn URL is "crisis communications," has built his career shaping U.S. public opinion. 

Binance has a tiny footprint in the U.S., but it's clear that from the company's point of view, the major existential threat comes from America. 

The big picture: Thanks to the dollar's status as the global reserve currency, the U.S. has always felt that almost all major international financial transactions, anywhere in the world, are within its purview. 

When a U.S. finance executive spends a lot of time on Capitol Hill, as former FTX CEO Sam Bankman-Fried did, and is treated heroically by the U.S. press, there's no doubt that he will ultimately end up answering to U.S. authorities. 

The bottom line: The world of crypto has spent many years promulgating the useful fiction that there's a significant difference between U.S. crypto companies and those based offshore. When push comes to shove, however, U.S. authorities don't care one whit about such distinctions. 

The Americans are in charge of the crypto world

For better or worse, the Americans are in charge

Illustration of Uncle Sam with a cursor hand

There's something a bit oxymoronic about the idea of a cryptocurrency company. In the wake of the implosion of FTX, crypto is increasingly going back to its trustless roots — a world where companies have a much smaller role to play. 

Why it matters: FTX's spectacular collapse, and the looming prosecution of its disgraced founder, Sam Bankman-Fried, has undermined confidence in the institutional crypto ecosystem.

The result has been a bifurcation: Normal people want reassurance they can trust the companies they deal with. Crypto people, on the other hand, prefer to simply not trust anyone at all. 

The big picture: Crypto companies have raised more than $85 billion from venture capitalists in recent years, per Galaxy Digital, of which some $1.8 billion went to FTX. The irony is that those investments were all based in a system of contracts and civil-society institutions that have never been trusted by crypto's true believers. 

Now, crypto is flowing out of institutions, including Binance, the largest crypto exchange. 

That means it's flowing directly to individuals, who are increasingly choosing to look after their own crypto wealth, rather than trust any company to look after it for them. 

Flashback: Bitcoin was created in 2010 as an alternative to government-issued money, in the wake of a global financial crisis that cratered trust in institutions. 

Bitcoin is based on a "trustless protocol" — the blockchain — where no one needs to know the identity of their counterparty in any transaction, and there is no credit risk or counterparty risk. 

What happened: As the global economy recovered from the 2008–09 financial crisis and crypto became increasingly mainstream, a large number of companies were created to help individuals navigate the crypto world. 

By necessity, anybody dealing with those companies was on some level trusting them. 

Part of the reason the companies were trusted was that they were able to raise billions of dollars in venture capital, and customers reckoned that the VCs had done their homework. 

Where it stands: Crypto companies are trying very hard to prove themselves trustworthy — which isn't easy when no major auditor will work with them. 

For many crypto investors, however, there's no need to trust auditors or work through elaborate Merkle Tree proofs, so long as they can revert to a world of investing and trading where they don't need to trust anybody at all, except for maybe themselves. 

That's the promise of DeFi — decentralized finance — and of "cold storage" solutions where coins are kept on physical devices that are not connected to the internet. Such products are seeing a surge in sales in the wake of FTX's collapse.

The bottom line: Governments control currency, so if you want to convert your U.S. dollars to crypto, or vice versa, you're going to have to go via some kind of trusted and regulated institution. 

Outside those "on-ramps and off-ramps," however, it's entirely possible to navigate the cryptoverse without trusting anyone. That's bad news for companies in the space.

Mistrust is back at the center of the cryptoverse

In a trustless cryptoverse, companies have a much smaller role to play.

Illustration of a block made out of neutral emojis, which turn into raised-eyebrow emojis.

Cryptocurrencies

There is more good news for an American consumer bedeviled by soaring prices, and policymakers racing to tame them: inflation slowed even further in November, the latest clue that the worst of it may be behind us.

The big picture: Similar optimism this summer was quickly crushed by subsequently higher inflation readings. But there are good reasons to believe this time really is different, with key inflation drivers — housing, goods and services — all pointing in a favorable direction.

Why it matters: The fate of the economy hangs largely on how inflation evolves. If it continues cooling without a drastic slowing of growth, a soft landing might be possible after all.

The Fed's policy meeting is likely to conclude with a half-percentage point rate hike announced Wednesday afternoon.

That's baked in, but the soft inflation data raises the odds that the central bank will conclude its rate-rising campaign at its next meeting seven weeks from now, perhaps with a mere quarter-point hike.

By the numbers: November's Consumer Price Index was up 7.1% over the last 12 months — the lowest since the end of 2021.

Core CPI, which excludes volatile food and energy, has risen at a 4.2% annual rate over the last three months. That's well below the recent peak of 7.9% registered in the spring.

Indeed, core prices rose only 0.2% in November, the lowest since August 2021. That works out to a 2.4% annual rate, which is consistent with the Fed's inflation target.

Details: Prices for physical goods are firmly in deflationary territory, a reversal of pandemic shortages.

Vehicles were a poster-child. Prices of used cars and trucks have declined for five consecutive months, and are down 3.3% in the 12 months that ended in November.

Goods with plunging prices also include furniture and bedding (-0.8% in November), laundry equipment (-2.7%) and tools and hardware (-0.8%).

There are positive trends in the services side of the economy, too — where consumers are increasingly shifting spending.

Shelter costs, a critical driver of inflation, slowed last month. Private-sector readings, however, show rent prices are falling, which will feed through to the official CPI reading in the coming months.

Price gains across other services, excluding shelter, were flat again. That's a sign that the strong labor market isn't yet causing prices to accelerate.

What they're saying: "Another downside inflation surprise not only validates a Fed decision to slow the pace of rate hikes, it also raises hopes that the inflation surge may actually be tamed within the next 12 months," Principal Asset Management's Seema Shah wrote in a note.

The bottom line: For the last 18 months, inflation has acted like the villain in a horror movie, re-appearing every time you think it might be dead. 

That could happen yet again — but November's CPI is the best evidence to date that the movie is finally near its end.

Why America's inflation cooldown might be here to stay

Key inflation drivers — housing, goods and services — are all pointing in a favorable direction.

Illustration of a stack of frozen dollar bills with snowcaps.

Inflation

Politics & Policy

Year-over-year change in Consumer Price Index

Source: Bureau of Labor Statistics; Chart: Axios Visuals

Following a cooler-than-expected inflation reading in October, consumer price gains slowed even further last month: the Consumer Price Index rose 7.1% in the year ending in November, down from 7.7% the prior month, the Labor Department said on Tuesday.

Why it matters: Inflation is still way too high, but the data offers some hope that it can ease alongside a still-healthy economy.

By the numbers: On a monthly basis, CPI rose 0.1%, slower than the 0.4% in October.

Core CPI, which strips out volatile food and energy costs, also continued to ease. On a monthly basis, it rose 0.2% — up 6% over the 12 months ending in November.

In October, those figures were 0.3% and 6.3%, respectively.

Where it stands: The Federal Reserve has raced to try to get inflation under control, raising interest rates at a historic clip — moves that risk throwing the economy into a recession. 

Officials will likely raise rates by a smaller (but still historically huge) amount following a two-day policy meeting that concludes on Wednesday.

That will come after surprisingly cooler inflation readings, though officials have warned that its war on inflation is far from over.

It’s a big week for markets with CPI and Fed on tap

Yellen says inflation will be "much lower" by end of 2023

Inflation cools in November for the second-straight month

Inflation is still way too high, but the data offers some hope that it can ease alongside a still-healthy economy.

Passive investors, the giants of the investing world, have been facing fierce criticism from both sides of the debate over environmentally responsible investing. One of the biggest players has decided to throw in the towel. 

Why it matters: One of the great successes of the past few years has been NZAM, the Net Zero Asset Managers Initiative. Its 291 signatories, representing $66 trillion of assets under management, have all signed on to a vision of a zero-carbon future. 

Now, however, one of the biggest members, Vanguard, has withdrawn from the group. 

The big picture: Vanguard, more than any other investing giant, is proudly dedicated to passive investing — the idea that it's a better idea over the long haul to just buy an entire index than it is to try to pick and choose individual stocks to buy and sell. 

By their nature, passive investors can't divest from carbon-intensive companies. That's a big problem, for environmentalists who have been loudly campaigning against Vanguard's fossil-fuel investments. 

The other side: Joining groups like NZAM carries connotations distasteful to many Republicans, who criticize the members of such groups as being beholden to "woke capitalism."

Vanguard has been on the receiving end of relatively few of those complaints, but BlackRock, another mostly-passive asset manager, is regularly attacked by Republicans. On Thursday, Arizona said it withdrew $543 million from BlackRock money-market funds, for instance. 

The bottom line: BlackRock CEO Larry Fink relishes the fight over environmental responsibility. Most other U.S. asset managers don't. 

Passive investments aren't green

Vanguard is a proud passive investor, but passive investors can't divest from carbon-intensive companies.

Illustration of two hundred dollar bills shaped like billowing smoke stacks

Investments

Barry Silbert achieved the impossible: He successfully invented a genuinely safe way of earning billions of dollars in crypto. And yet his firm, Digital Currency Group, is currently hunkered down, with a key unit on the brink of bankruptcy. 

Why it matters: The crypto winter is laying bare the degree to which the "whales" in the space, including billionaires like Silbert, willingly took on ludicrous risks, even as they painted themselves in public as sober entrepreneurs who would embrace regulatory constraints. 

The big picture: Silbert became dynastically wealthy by getting two big things right. The first was to make a huge bet on bitcoin very early on, in 2013. The second was to create a box known as GBTC, that would do nothing but own bitcoin, and that would be listed on the over-the-counter markets. 

GBTC was an early way for individual and institutional investors to own bitcoin without having to worry about being hacked or even having to move money out of their stock-market brokerage accounts. 

It was also a license to print money for Silbert, who charged a 2% management fee to his company, Grayscale, for overseeing the box. That fee amounted to $615 million in 2021 alone.

Between the lines: GBTC threw off so much cash because other crypto players, including the doomed 3 Arrows Capital (3AC), invested billions of dollars into its shares when they were trading at a premium to the underlying bitcoin. 

All that money ended up flooding the market with GBTC, which is currently trading at a 45% discount to the bitcoin in the box. 

Grayscale is now in a legal fight with a hedge fund called Fir Tree, which complains that GBTC acts as a roach motel: Bitcoin can go in, but it can't ever come out. If Grayscale allowed investors to redeem GBTC shares for bitcoin, the share price would surge — but Grayscale would lose substantially all of its management fee. 

Zoom out: Silbert looks as though he gambled away the cash being thrown off by GBTC. Another one of his subsidiaries, Genesis, lent billions of dollars not only to 3AC but also to Alameda Research, the crypto trading vehicle now in bankruptcy alongside FTX. The Alameda loans, per Reuters, were secured by FTX's in-house currency, FTT. 

Silbert's Digital Currency Group also took equity stakes in an astonishing number of other companies — over 200, according to the WSJ. 

DCG was valued at $10 billion in a late 2021 funding round led by SoftBank, but none of the $700 million raised went to shore up DCG's balance sheet; all of it went to employees selling stock.

Genesis barred customer withdrawals last month.

The bottom line: For most of us, investing in cryptocurrency at all is ridiculously risky. I like to think that if I'd bet massively on bitcoin in 2013, that would suffice for one lifetime in terms of generating outsize wealth. 

For the biggest players in crypto, however, there never seems to be any limit to how much is enough. They go on to take ever greater risks — some of which can be big enough to endanger everything they built up over a decade.

How crypto billions evaporate

The titans that endanger their own success

Illustration of an empty suit with smoke where the head would be.  

The stonks are too damn high. One good thing that could happen for America over the coming weeks would be for the stock market to embark upon another significant decline.

Why it matters: A buoyant stock market is constraining the Fed and, ultimately, hurting the country. There's a financial media convention that higher = better, when it comes to the stock market — but that's not always the case. 

The big picture: The Fed's big problem is that the economy continues to run too hot, driving inflation well above its 2% target. The current spending spree is fueled at least in part by investors' animal spirits — after all, they've fared pretty well over the past couple of years.

By the numbers: The S&P 500's pre-pandemic record high of 3,387 was hit on February 19, 2020. We're now a comfortable 16% above that level, even after accounting for plunges in the likes of Facebook and Tesla. 

Even meme stocks continue to defy gravity: GameStop, for instance, which was trading at $1 per share pre-pandemic, is now at $22. 

Dogecoin has risen from 0.2 cents to 9.7 cents. 

How it works: A stock market fall would help create the tighter financial conditions that the Fed is attempting to engineer. At the margin, it might even make that final half-point rate hike that much less likely. 

Lower stocks would help out those of us who are still saving for retirement, and want to build up our portfolios as cheaply as possible. The best returns come to those who buy low and sell high, which requires stocks to be cheap when they're bought. 

There's even a case to be made that a recession could be the the optimal outcome in terms of sustainable long-term growth. 

Fed economists — and many others — tend to believe that predictably low inflation is a necessary precondition for strong and stable growth. 

The faster that we can vanquish inflation, on this view, the healthier the economy will be in the long term. 

Between the lines: A falling stock market does make investors feel bad — especially the relatively affluent Americans who are fortunate enough to boast sizable brokerage accounts. They're the seemingly unstoppable consumers who show no sign of getting the message that the economy might be headed into recession. 

If they prefer to funnel their income into newly-attractive cheap stocks rather than spending it on consumer goods, that would help to constrain inflation. They will also have a reduced "wealth effect" from the market.

For hourly workers or anybody living paycheck-to-paycheck, stock-market wealth is generally a hypothetical irrelevance. Falling stocks would do little if any harm to the precariat — and might even help to reduce inequality.

And because unemployment is so low and laid-off workers are finding it easy to get a new job, few people will find themselves in the forced-sale situation of having to dip into their stock-market savings in order to make up for lost income.

The bottom line: Another correction in the stock market would be salutary in the short term, while being very unlikely to have any real effect on its long-term performance. And if a short and mild recession gets the economy back on its low-inflation track, that could be preferable to a world in which high inflation persists for years.

Why lower stocks could be a good thing

A buoyant stock market is constraining the Fed and, ultimately, hurting the country.

Americans' real incomes are stagnating or declining thanks to high inflation, yet consumers are still spending at a rapid pace — two things that, taken together, are a bit of an economic puzzle.

What’s going on: One explanation dates back to pandemic-era fiscal policy, the effects of which are still rippling through the economy.

Why it matters: The lagged COVID-era effects of stimulus checks, topped-up unemployment benefits, and unspent income has provided a cushion for the consumer and buoyed demand this year — allowing Americans to keep spending even as inflation chips away at their incomes.

Driving the news: The personal saving rate — the share of disposable income left over after spending — dropped to a rock-bottom 2.3% in October, as consumer spending accelerated at a healthy clip.

In data that goes back more than 60 years, there's been just one instance of a lower saving rate (July 2005).

Between the lines: As Americans spend down their accumulated savings, their voracious appetite for goods and services will wane.

The worry is that savings will dry up just as the full effect of the Fed's interest rate increases hit economic activity, creating a double-whammy that hits growth in 2023.

Roughly $1.5 trillion in accumulated savings will run out in the middle of next year, JPMorgan Chase CEO Jamie Dimon told CNBC yesterday.

“When you’re looking out forward, those things may very well derail the economy and cause a mild or hard recession that people worry about," Dimon said.

Flashback: It marks a stunning reversal from the depths of the pandemic, when the saving rate skyrocketed to a record high.

In the decade leading up to 2020, the personal saving rate averaged roughly 7%. But it averaged twice that throughout the first two years of the pandemic, a period that included three rounds of fiscal aid and — thanks to the global shutdown — limited places to spend.

Context: That resulted in a huge pile of excess savings for consumers. Recent Fed research estimated that households accumulated roughly $2.3 trillion in savings through last summer. That stockpile started declining at the end of last year; as of the second quarter, it stood at $1.7 trillion.

The biggest contributor to excess savings for the richest households was the lockdown-driven reduction in spending, the Fed found. For the bottom half of the income distribution, the fiscal transfers were the primary contributor.

The poorest Americans are much closer to exhausting the built-up excess savings than the richest ones.

What they're saying: Economists have a slew of guesses about when those savings will be exhausted — another important variable for how the economy develops.

Analysts at Bank of America found one excess savings estimate — around $930 billion — would last another eight months based on recent trends. But their alternate estimate suggests excess savings could last for up to two more years.

Americans' pandemic-era cash pile is shrinking

The worry is that savings will dry up just as the full effect of the Fed's interest rate increases hit economic activity

Illustration of a hand squeezing a piggy bank. 

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