Weekly Good Reads: 5-1-1
Disinflation, bond and stock volatility, AI and jobs
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.
Investors faced contrasting data once again this past week about the U.S. economy. On the one hand, U.S. headline inflation in March was down to 5% year-on-year versus 6% in February and the 9.1% peak in June 2022. Still, CPI is too high and was just 2.3% in February 2020, before COVID spread. The 1% monthly decline in retail sales (4 monthly declines in the last 5 months) and the Fed’s expectation of a mild recession later in the year indicate a growth slowdown.
Yet, the Fed’s backstop lending to banks declined again for the week through April 12 while big banks reported earnings (J.P. Morgan, Wells Fargo, and Citibank) surprised on the upside.
The equity market and bond credit spread show few signs of stress while government bond price swings (the MOVE Index) are two times their average in the past 10 years. Historically, when both the equity and bond volatility indices spiked, the economy and market were in deep trouble. The verdict is still out on the economy since the 2 volatility indices are moving in opposite directions.
Economy and Investments:
Good News in March CPI - along with Egg CPIs falling since early April for the first time since the pandemic (Dot Macro)
The 60-40 Portfolio is Back (Axios Markets)
Warren Buffett Says He Intends to Add to Japanese Stock Holdings (Nikkei Asia)
Finance/Wealth:
16 Pressing Personal Financial Questions, Answered - What’s the deal with bonds? Are stocks cheap? (Bloomberg)
(Bonus) WealthScore Financial Wellness Check Tool (Bloomberg)
Wellness:
What Really Makes Us Happy? (Lion’s Roar)
When people in our study were committed to things in the world beyond themselves, they were so much happier. They felt that there was so much more meaning in their lives when their concerns went beyond the narrow concerns of the small self.
~Lion’s Roar
One Chart You Should Not Miss:
With all the talks about AI replacing our jobs, here is a fascinating study by OpenAI (the creator of ChatGPT):
Humans and AI separately rated how well software powered by large-language models (llms), which are trained on vast chunks of the internet and then fine-tuned to specific functions, could undertake 19,000 tasks involved in the jobs. If the software, such as OpenAI’s GPT-4, was deemed able to reduce the time it takes humans to complete the task by at least half, without a drop in quality, the task was considered ripe for AI replacement (a score of one meant that the whole occupation could be done in half the time).
Jobs such as legal assistance/contract writing and telemarketing are high on the most impacted list. Surprising to see central bankers’ jobs at risk, too! Watch out, the Fed!
However, agriculture and forestry remain the least impacted. We should be thankful to all the humans behind growing our food and not waste our food.
One Term to Know: Risk (Investment)
Risk takes on many forms in the investment world. A key concept in finance is return and risk. We can measure risk as a permanent loss of capital or the possibility of losing some portion of an investment. A common metric of risk in finance is volatility (the dispersion of returns around the historical average.) Higher volatility usually means higher risk.
Diversification, quality focus, and hedging strategies are common ways to reduce investment risks.
Please do not hesitate to get in touch if any questions!
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