Weekly Good Reads: 5-1-1
On Tech vs. Banks, China-US, and Health Lessons from Japan
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.
This week tech companies (Microsoft, Meta, Alphabet) positive earnings driven by AI development and cost-cutting dominated market news despite the uncertainty of the fate of First Republic Bank, which saw its share price plunge 75% this week and 97% year-to-date when all sources of help could not prevent its deposits from dropping 41% for Q1.
As of the time of writing, FDIC asked big banks including J.P. Morgan and Bank of America bid for First Republic. The takeover deal, which may include the FDIC taking on some of First Republic’s troubled assets or offering other guarantees, looks to be finalized by Sunday before the market opens. Stock market contagion has been minimal while a measure of the U.S. high-yield bond spread to the U.S. government has rallied 6 basis points this month.
While the Q1 U.S. GDP growth rate (see Chart section) slowed to an annualized 1.1% (worst than expected), the Fed’s preferred inflation gauge, the PCE price index ex-food and energy, rose 4.6% in March compared to a year ago, slightly down from 4.7% in February (high was February 2022 at 5.41%).
Real personal consumption held steady in March compared to February. In the U.S. where personal consumption constitutes 71% of the economy, the strength of consumer spending is crucial to economic growth. The Federal Reserve Board interest rate meeting on May 2-3 will be a close call. The expectation is still for a 25bp increase.
Meanwhile, Europe faces another type of inflation, “greedflation”, where corporate profits have been a larger driver of price gains than labour costs since the start of 2021, leading the central bankers to continue to raise rates despite energy prices and overall CPI decline.
Notable events next week include the Fed’s and ECB’s rate decisions and King Charles III’s coronation.
Economy and Investments:
ECB Wakes up to Greedflation as Key Culprit in Price Struggle (Bloomberg)
What Does the Relative Performance of Equal Weight S&P500 Mean? (Big Picture)
Finance/Wealth:
Wellness:
6 Powerful Lessons from Japan that helped me heal my health (Kaki Okumura on Medium). I love her visual art illustrations and cooking advice.
One Chart You Should Not Miss: U.S. Quarterly GDP Growth and Contribution
From Econ 101, you may remember real gross domestic growth (GDP) has four constituents: (1) Personal Consumption (2) Private Investments (3) Government Spending, and (4) Net Exports (Exports minus exports).
Notice how the U.S. Q1 2023 GDP growth has mainly been driven by consumer spending (which has had a positive contribution since 2021), offset by a negative contribution from private inventories (a component of private investments.)
One Term to Know: Expense Ratio
For any funds you buy, whether mutual funds or index funds/exchange-traded funds, one key thing to check is the expense ratio, which consists of a fund’s administrative and other operating expenses. A higher expense ratio eats into your fund’s performance; active funds usually charge on average 10x as much as passive funds.
Investment management fee
12b-1 fee (mutual funds)
Recording keeping
Custodial services
Taxes
Legal, accounting, and auditing.
Please do not hesitate to get in touch if any questions!