Weekly Good Reads: 5-1-1
On markets, finance, and wellness
Welcome to another issue of 5-1-1. Each week, I will include 3 links to relevant economic and investment news, 1 link to finance, and 1 to wellness pursuit based on what I read (5 links). I will also include 1 important chart and 1 investment term to know.
While the U.S. inflation (headline and core) both indicated a disinflationary process has begun (@apricatas economics), the Fed wants to prepare us for a mild recession starting later this year. Labour market and housing have softened while credit conditions are worsening and the EPS (earnings per share) of the S&P 500 companies look to decline for a second quarter after the Q1 reporting season is over. This will be an earnings recession albeit not an economic recession.
To show how the market changes in a dime, the “Bond King” Bill Gross (co-founder of PIMCO) mentioned in his latest investment outlook that he purchased stocks of several U.S. regional banks and the SPDR S&P Regional Banking ETF. Buy low?
Gross cited that the shares of these small lenders are now trading at about 60% of their book value. With a 9 to 10% return on equity, these banks are attractive long-term investments (not an investment advice). And Gross, who has long wanted to own a bank, can own banks via the public market, i.e., stocks.
The verdict is still out. The financial crisis in 2008, which saw the collapse of Lehman Brothers, was in motion for more than a year. Now consumers and corporates are experiencing the aftermath of the fastest tightening for decades in the U.S. and other countries, e.g., U.K. The $5 trillion outstanding of money market fund reflects the sentiment of many - stay in safer cash for now.
Economy and Investments:
Fewer Money Managers are Bullish on the Stock Market Now: Barron’s Poll - professional investors favor bonds over stocks for the next 12 months. The biggest risk to the market: recession (Barron’s)
Risk of US-China decoupling ‘still high’ despite olive branch from Treasury Secretary Janet Yellen (South China Morning Post)
(Bonus): How 35 Real People Use A.I. (New York Times) or via this link.
Finance/Wealth:
How to Split Expenses With Your Partner (Ellevest Magazine)
Amazing World:
China’s BIGGEST traditional communal home for more than 600 people - Fujian Hakka Tulou (Little Chinese Everywhere YouTube) - discover Tulou, a traditional communal home - a masterpiece of architecture (made by hands) that will open your eyes!
One Chart You Should Not Miss: Real GDP Growth (IMF)
Every April and October, the IMF (International Monetary Fund) published its economic growth forecast for countries in the World Economic Outlook. They forecast global growth will slow from 3.4% in 2022 to 2.8% in 2023 and 3% in 2024. However, the IMF highlights high downside risks to growth.
The next 5-year growth will be around 3% compared to 3.8% from the past 2 decades. This is due to central banks’ monetary tightening to bring down inflation, tighter financial conditions, and geopolitical risks.
Check out this page and scroll to the bottom of the chart to add your favourite country to compare its real GDP growth (historical and forecast) to that of the world, advanced economies, and developing economies.
One Term to Know: Credit Crunch
This is an economic phenomenon when individuals and corporations suddenly find themselves not being able to obtain loans from their financial institutions. Banks and financial institutions are reducing their lending causing a squeeze in funds because they are afraid the borrowers will default. This usually occurs in a recession.
Credit is the tightest it has been since the Pandemic began, according to this measure (credit conditions index of consumers and businesses) by the American Bankers Association. The quality and availability of credit are expected to decline over the next 6 months.