Weekly Market Recap for August 19-23, 2024

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Note: Economics is the study of how society uses resources for the development, production, procurement, distribution, and consumption of tangible products (such as iPhones) and intangible services (such as Apple Music).

John Maynard Keynes

The most important name in today’s worldwide economic system is John Maynard Keynes. Keynes is the one who developed economics as we know it. He wrote “The General Theory of Employment Interest and Money” in 1936 in the UK. Similar to Copernicus seeking to understand the movement of the Sun, planets, and stars, Keynes wanted to understand unemployment because The Great Depression was such a problem in the 1930s, and the existing understanding of economics did not explain what was happening (or what could be done about it) very well enough for governments to partake in righting the economic ship during the storm.

Note: Come back later for more articles about other economists across the ages, such as The Austrian School of economics (also very significant).

Keynes wanted to understand

He wanted to know what existing economics at the time could not explain about The Great Depression – but he did so with an emphasis on unemployment and by taking snapshots of the economy, as if it was static. So what he developed is useful, but lacks usefulness on growth or inflation issues.

More specifically, Keynes wanted to understand how employment and prices affect each other; how government affected employment and prices; and more than anything, he wanted to know how to “control” (or at least influence economies/money), such as how to drive employment up. 

More or less, Keynes used existing approaches that microeconomists used when evaluating businesses, plus some new approaches to expand economic knowledge into something bigger: macroeconomics

Simply put, Keynes took what was small or local and made it big – big enough for governments to use. Naturally, macroeconomics includes microeconomics since the economy of each piece would be part of the economy of the whole.

Milton Friedman came later

He pointed out that Keynesian Economics could not explain the relationship between price levels and economic output. He called this “the missing equation.” Friedman melded classical economics understandings of Adam Smith (and others) with Keynesian Economics. Friedman concluded that the classic theories worked in the long-run, but Keynesian Economics works in short intervals.

Local isn’t universal

“What goes up must come down” is right locally (in your backyard), but on a bigger scale it is wrong . The meteorites from space that have landed on Earth did not come back down to their origin when they “went up.” They never came back down.

Building on Friedman’s work

An economist from New Zealand began working with 100 years of UK data on the relationship between unemployment and inflation. The economist’s name was AW Phillips, and his work became known as The Phillips Curve. This curve was adopted by economists worldwide and is now a major contributor to economics. It shows that as unemployment rises, wages increase, and when unemployment falls, wages decrease.

Friedman and fellow economist Edmund Phelps felt that manipulating monetary policy (such as managing inflation) was not the right way to manage unemployment and that unemployment should be left “natural” and unaltered by central banks, the banks of governments.

Then in the 1970s and 1980s the US experienced both high unemployment and high inflation. Phelps and Friedman then clarified the understanding to show that The Phillips Curve was true if inflation was unanticipated. If it was anticipated, then the conditions were different. This ushered in a whole new element to economics: Expectations are part of the equation in a significant way.

Nowadays, we see expectations set by world governments very deliberately so they can use it as another way to manage economic systems. Something like “a period of somewhat-higher inflation can be expected in the next two quarters,” is common to hear from a Fed Chairman (Federal Reserve Chairman) since this economic understanding came to be.

Of note, since the late 80s/early 90s, economic growth theory is what has dominated economist efforts (since inflation, employment, and prices were already being managed with Keynesian and Friedman understanding), and GDP expansion continued as a top priority.

Back to The Great Depression

Let’s not forget how the interest and need for macroeconomics got started: The Great Depression. The Great Depression was not just in the US. It was global. It started in the US in 1929 though, and by 1930 it had reached the UK. Half of Britain’s trade (sales around the world) disappeared, and in some areas unemployment reached 70%! No wonder efforts were made to understand economics better.

The US had an awful time through The Great Depression too of course, as did countless other countries. For the US, The Great Depression did not end until we entered WWII in 1941. The statistics and the stories are really sad, and to this day people and governments study, fear, and work to avoid the conditions that led to The Great Depression.

Note: The Industrial Revolution followed by The Great Depression followed by WWII followed by The Cold War firmly cemented Keynesian Economics into world governments for a variety of reasons.

Boom and bust

Economic booms (a hot economy) and busts (a cold economy) are now known as business cycles. You may think that you always want your economy hot, but that is actually not true. Booms can lead to bubbles and bubbles pop and you get busts. Understanding business cycles is just one piece of the economy. Another piece of the economy is understanding growth.

Note: As investors, if we understand where things have been we can better understand where things are going — and that’s a major strategic advantage.

Let’s talk about GDP

When you add up all of the goods (such as iPhones) and services (such as Apple Music) you get GDP (Gross Domestic Product). GDP is measured as Total County Production measured in dollars (if you’re the US). GDP has been growing for 200 years for capitalist countries.

Note: there is no purely capitalist country, but each country has rules and people that are more capitalistic than others.

GDP across decades has a very obvious upward trend

But GDP throughout the weeks, months, quarters, and a year can (and do) have significant ups and downs. It is within these ups and downs that successful investors thrive and profit.

Let’s talk about inflation too

The last concept to introduce in this article is inflation. For most people the word has nothing but negative connotations. But in the world of Keynesian economics inflation is a given, and it's managed with government actions. 

Simply put: inflation is a rise in prices. 

Often people think inflation is simply a devaluing of currency by printing too much currency, but consider this: if currency was devalued then prices would go up, no? They would. So devaluing currency is a type/cause of inflation, but there are other types/causes too.

It’s right to monitor and take appropriate action against inflation

When prices go up enormous amounts this is called hyperinflation. For instance, between WWI and WWII Germany had inflation of 230% per month at times! That means every day prices went up 4% on average. So if milk cost $1 on Monday, it cost $1.04 on Tuesday, $1.08 on Wednesday, $1.12 on Thursday, and $1.17 on Friday. By the end of the month milk would cost $2.30. By the end of the year milk would cost $8.20. And a $25,000 car would cost $180,020.60 if those hyperinflation rates happened to us today. No wonder it scares people.

Historically, the US has managed inflation well

In the last 100 years, our worst experience had been in the 1970s when inflation reached 7% from 1973-1975. However, in 2022 inflation met or exceeded 7.5%. 

The US government used many tools and decision-makers to keep it down and return to the 3-4% average we have had since 1946 (on the heels of WWII). Before WWII, the US averaged about 1.7% inflation.

Around the world though, countries have been far more adversely affected by inflation. As mentioned, Germany experienced 230% inflation per year. Israel saw 400% inflation in 1985; Argentina has seen 700% inflation; Bolivia saw 12,500% in 1984. There are many more examples, but Keynesian economics does indeed have the understanding, tools, and systems that manage inflation well.

Inflation is like cancer to economies — and it must be detected early and expertly managed. When inflation is detected, it gets everyone’s attention!

So that’s the introduction to economics. There is a lot more to follow, but we hope you liked what you read, and we hope you have learned something too. Is this enough understanding for you to go start investing in stocks with great success? No. But we can build to that.

The key concepts in this article to remember are:

• John Maynard Keynes “invented” macroeconomics for governments
• Government using macroeconomics to influence and manage a country’s economy
• Milton Friedman identified the relationship between prices and economic output
• AW Phillips identified the relationship between Unemployment and inflation, known as The Phillips Curve
• Phelps-Friedman established expectations as a key component of an economy
• Business cycles, GDP, and inflation as the major factors government considers
• Since the late 80s/90s, economic growth has become the priority for economists

Built for The One in the Arena

Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.

You’re the Hero.
    We’re the Guide.

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Good morning, Heroes!

Here’s your Morning Market Preview for September 9th, 2024
Read, or listen relaxingly for a few minutes – whichever you prefer!

Key Economic Reports

• Wholesale Inventories and Consumer Credit for July are due today, offering insights into business stockpiling and consumer borrowing trends, respectively.

Key Events & Earnings Reports Today

• Mondays are similar to Fridays, and are typically light on earnings reports. Today is no different.

Limoneira Co

• Importance: Represents agricultural and food sectors, less volatile but indicative of consumer goods trends.
  
  
• Expectations: Steady growth expected due to consistent demand for agricultural products.

The Apple Event

• Importance: While not an earnings report, Apple's product announcements can significantly impact tech stocks.
• Expectations: Focus on AI, new hardware, and software could boost market sentiment.

The Goldman Sachs Communacopia & Tech Conference

• Importance: Insights from this conference often guide investor sentiment in the tech and finance sectors.
  
  
• Expectations: High anticipation for strategic announcements and partnerships.

The Fed

• Next Meeting: The Federal Reserve's next meeting is scheduled for later this month, September 17th and 18th. Markets are already pricing in a potential rate cut, influenced by recent economic data suggesting a slowdown.

Stocks

Year-to-Date Performance:

• Up Most: Utilities & Information Technology, driven by a cautious market looking for safe plays in Utilities and Tech Giants.
  
  
• Down Most: Energy and Consumer Discretionary, affected by global supply chain issues, geopolitical tensions, and a cautious collection of consumers.

5 Day Moving Average: This is the percent of Large Cap stocks above their 5 day average

• Up Most: Consumer Staples, as sentiment expects an economic slowdown
  
  

• Down Most: Energy, which has been a laggard all year, followed closely by Materials and Information Technology, suggesting the IT tides are turning in investor minds due to a large run up of Tech Giants.

Bonds

• 2-Year Treasury Yield: Open at 3.654%, down 55.03% this year.
  
  
• 10-Year Treasury Yield: Open at 3.713%, down 13.29% this year.

Crypto

• Bitcoin: $54,339, up 31.22% this year.
  
  
• Ethereum: $2,272, up 0.28% this year.
  
  
• Top Gainers Last Week: Solana (SOL) and Cardano (ADA), showing strong recovery and adoption in DeFi and smart contracts.

Gold

• Open Price: $2,490 per ounce, up 21.16% this year, driven by safe-haven buying amid economic uncertainties.

Real Estate

• 30-Year Fixed Mortgage Rate: Around 6.27%, down 6% this year.
  
  
• Trends: A cooling market with a shift towards more affordable housing options.

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Geopolitical Aspects

• Worldwide News: Tensions in the Middle East and trade talks between the US and China are key focuses, potentially affecting oil prices and global trade.

Built for The One in the Arena

Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.

You’re the Hero.
    We’re the Guide.

‍

P.S. Simple Explanations of Key Concepts to Level Up Your Financial Education

- Economic Reports: These are government-released data points like job growth, inflation rates, or consumer spending. They help investors understand the economy's health, influencing market movements.

- Earnings Reports: Companies announce their financial performance quarterly. Investors look at earnings per share and revenue growth to gauge company health and future potential.

- The Federal Reserve: Often called "The Fed," it's the U.S. central bank. It sets interest rates, which affect borrowing costs for everyone from consumers to big businesses, impacting economic activity.

- Stock Sectors: The market is divided into sectors like tech or energy. Performance here can tell you where investors see growth or stability.

- Bonds & Yields: Bonds are loans to governments or corporations. Their yields (interest rates) move inversely to their prices. Higher yields can mean higher risk or inflation expectations.

- Cryptocurrency: Digital currencies like Bitcoin (BTC) and Ethereum (ETH). They're volatile but can offer high returns, often seen as speculative investments.

- Gold: Traditionally a safe investment during economic uncertainty. Its price often rises when markets are turbulent.

- Real Estate: Influenced by mortgage rates, economic health, and demographic trends. Lower rates typically mean easier buying, boosting the market.

- Geopolitical News: Events like trade wars or conflicts can disrupt markets by affecting oil prices, trade, or investor confidence.

Understanding these elements helps in navigating the financial markets, where each piece of information can be a puzzle piece in predicting market movements or making informed investment decisions.

You’re the Hero.
    We’re the Guide.

When you’re in your 20s, 30s, or 40s, handling your own investments might seem straightforward. With countless online tools, apps, and resources available, the idea of DIY investing is tempting. However, building substantial wealth, preparing for retirement, and ensuring long-term financial security require more than basic market knowledge—they demand a suitable approach, ability to think long and stay the course, trend identification (and which trends to avoid), emotional poise, consistent attention, and expertise. This is where Arena Investor comes in, as a teammate, offering professional investment management that can significantly impact your financial success.

Make Your Money Work for You
Enjoy professionally designed portfolios that align with your Investor Profile – your goals, time horizon, risk tolerance, and other important factors. Arena Investor is ready to serve the busy professionals who know their money needs more attention but don’t have the time, or simply want better work-life balance.

In this article, we’ll explore what investment management is, why partnering with Arena Investor is worth considering for young professionals, and how our approach can help you build wealth, prepare for retirement, and secure your financial future—without making any false promises of guaranteed returns.

What Is Investment Management?

Investment management is the professional handling of various financial assets—such as stocks, bonds, and real estate—with the goal of growing your wealth over time. At Arena Investor, our investment managers are responsible for developing personalized investment strategies, executing trades, and monitoring your portfolio to ensure it aligns with your financial goals.

For those in their 20s, 30s, and 40s, this is especially important because the financial decisions you make now will shape your future wealth and retirement security. While it’s possible to manage your own investments, the expertise, experience, and strategic oversight provided by Arena Investor can optimize your investments and help you navigate the inevitable market volatility.

Why Arena Investor’s Management Is Worth It

1. Suitable Strategic Planning

One of the most significant advantages of working with Arena Investor is our professionalism. Our investment managers are all qualified Investment Advisor Representatives (IARs) registered with the SEC or States and bring extensive knowledge of the markets, asset classes, and economic trends to the table. We use this knowledge to ensure your portfolios align with your unique goals, risk tolerance, and time horizon.

For example, if you’re 35 years old and aiming to retire at 65, Arena Investor might recommend a diversified portfolio with a mix of equities for growth and bonds for stability. In the early years, a larger portion of your portfolio might be allocated to stocks to capitalize on potential returns, gradually shifting to more conservative investments as you approach retirement. This strategic planning is designed to optimize your financial outcomes over time.

2. Risk Management

Investing inherently involves risk, but Arena Investor helps you manage that risk effectively. We do this by diversifying your portfolio across different asset classes and industries, reducing the impact of market volatility.

For instance, during the 2008 financial crisis, many DIY investors experienced significant losses because their portfolios were overly concentrated in sectors like real estate or financial stocks. At Arena Investor, we can diversify your investments to include international stocks, bonds, and commodities, mitigating such risks. This diversification leads to a more stable investment experience, even during challenging market conditions. In fact, those challenging market conditions can become excellent buying opportunities when your portfolios are professionally made-ready to capitalize on the opportunity.

3. Behavioral Guidance and Emotional Discipline

Investing isn’t just about numbers—it’s also about managing emotions. Market volatility can trigger fear and impulsive decisions, like selling off assets at the worst possible time. Arena Investor provides the emotional discipline needed to stay the course during turbulent times.

For example, consider the stock market drop in March 2020 at the onset of the COVID-19 pandemic. Many investors panicked and sold their stocks at a loss. However, those who stayed invested saw significant recovery in the months that followed. Arena Investor can help prevent emotional reactions that could harm your long-term financial goals by encouraging a disciplined, long-term perspective.

4. Time Efficiency and Focus on Your Life

Managing investments can be time-consuming. For young professionals juggling careers, family, and other responsibilities, keeping up with market trends and adjusting your portfolio can be overwhelming. Arena Investor takes this burden off your shoulders, allowing you to focus on what matters most in your life.

If you’re 20, 30, 40 years old, advancing in your career, and raising a family, you might not have the time to research stocks, monitor your portfolio daily, or rebalance your investments regularly. Arena Investor handles these tasks for you, ensuring your portfolio is managed efficiently without your constant market monitoring.

5. Tax Efficiency

Taxes can significantly impact your investment returns, but Arena Investor can help minimize this impact through tax-efficient strategies. This might include tax-loss harvesting, where losing investments are sold to offset gains and reduce your overall tax bill, or strategically placing investments in tax-advantaged accounts like IRAs or 401(k)s.

For example, if you’re earning a high income in your 30s and concerned about taxes, Arena Investor might advise maximizing contributions to your 401(k) to reduce taxable income now while allowing your investments to grow tax-deferred.

6. Long-Term Wealth Building and Retirement Planning

At Arena Investor, our ultimate goal is to help you build wealth over the long term and prepare for a comfortable retirement. We regularly review and adjust your portfolios to ensure it remains aligned with your evolving life circumstances and market conditions.

For instance, if you’re in your 20s, we might focus on aggressive growth strategies, taking advantage of your long time horizon to invest in higher-risk, higher-reward assets like small-cap stocks or emerging markets. As you leave your 40s, the strategy might shift to include more bonds or dividend-paying stocks to provide income and stability as you approach retirement. This can be especially good for individuals seeking FIRE (Financial Independence, Retire Early).

While it’s important to note that no investment manager can guarantee specific returns, Arena Investor’s strategic approach, vigilance, and emotional poise can increase your chances of achieving your financial goals.

Examples of Arena Investor’s Management in Action

To illustrate the value of investment management with Arena Investor, let’s consider a few scenarios:

- Scenario 1: Diversification for Stability:
Imagine you’re 32 years old with a portfolio primarily invested in tech stocks. Arena Investor might suggest diversifying into sectors like healthcare, consumer goods, and international markets to reduce risk. Over time, this diversified approach could protect your portfolio from significant losses if the tech sector experiences a downturn. This is especially important if your income comes from a tech- or tech-reliant company.

- Scenario 2: Tax-Efficient Investing:
Suppose you’re a 45-year-old with a high income. Arena Investor might recommend strategies like tax-loss harvesting or investing in tax-advantaged accounts to minimize your tax liability. These strategies could save you thousands of dollars in taxes, increasing your overall returns.

- Scenario 3: Retirement Planning:
If you’re 28 years old with plans to retire at 50, Arena Investor could create a long-term strategy that focuses on growth in the early years and gradually shifts to more conservative investments as you approach retirement. This strategy helps ensure that you have a robust nest egg when you’re ready to retire.

It’s important to note that retirement is not just a function of investments, but also your monthly and annual expenses, so our Financial Planning services (here) are a critical part of the whole equation. It is important to approach this comprehensively.

Built for The One in the Arena

Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.

You’re the Hero.
    We’re the Guide.