Weekly Good Reads: 5-1-1
Hotter Economy, Apple, Detroit Strike, Training AI, Dump vs. Smart Money
Welcome to Weekly Good Reads 5-1-1, and a warm welcome to my new subscribers! Thank you so much for supporting my work 🙏.
I am Marianne O, an investment professional and author of The Learner’s Mind about investing, economy, and wellness ideas. For this Weekly, I include 5 links to relevant economic and investment news, finance, and wellness/idea pursuit based on what I read. I also include 1 important chart and 1 investment term to know. All the Weeklies are here. You can also find the index of charts and terms. You can easily subscribe to my newsletter by clicking below.
Market and Data Comments
With the tight labour market and inflation and in a battle between blue-collar workers and billionaires, the United Auto Workers strike against Ford, GM, and Chrysler-owned Stellantis this week, the first time the union strikes against all the Big 3 carmakers together. The irony is if the US wants more citizens to take up electric vehicles, the cars need to be cheaper (see article 1 below).
The strike may complicate the Fed’s job next week to likely pause when they meet for the FOMC meeting. Recently, the data point to more disinflation—the 3-month annualized pace in core PCE was 2.3% in August (down from 2.9% in July). Consumer inflation expectation fell to 3.1% over the next year (the lowest reading since early 2021), down from the 3.5% expected in August. Overall, August CPI rose 0.6%, or 3.7% year-on-year, but over half of that increase was due to gasoline prices. As El-Elrian said, “Fed's 'Last Mile' Of Inflation Fight Will Be No Cakewalk”.
Look at the real rates path projected by Bloomberg to gauge the true impact on economies from central bank tightening (see chart above).
Due to expected disinflation and the projected nominal rate path, the real interest rates of the UK may be the highest by mid-2024, with the US at 2% to 3% and Europe, at the lowest. The worry is the Bank of England may over-tighten given the weak economy while the ECB under-tightens. For next week’s US FOMC meeting, look out for changes in the dot plot to see any updated interest rates range this year and next.
Meanwhile, China’s CPI has turned positive while retail sales and industrial production did better than expected. A stabilizing China will help European growth, so watch this space.
Next week, we will monitor major central banks’ rate decisions: the Fed on Wednesday, the Bank of England on Thursday, and the Bank of Japan on Friday.
Economy and Investments (Links):
Striking UAW Can’t Bring Back the 1950s or Wish EVs Away (Bloomberg)
Instacart raises IPO price range after robust Arm debut (Reuters)
Remote Work Thrives in the Biggest and Fastest-Growing Parts of the U.S. (Axios)
Finance/Wealth (Link):
The Financial Illiteracy Epidemic (The Rational Walk, also on Substack)
+ The Apple Episode (Carbon Neutralish) (More or Less podcast)—brings you what people are talking about in technology and markets. This episode focuses on the Apple iPhone release event, the state of hardware, and how Apple will fare in the AI era—talks amongst a few VCs and influencers in Silicon Valley including the founder of The Information (technology news). Apple is the largest company in the world in terms of market capitalization so a lot of investors care about its prospects. You can see this awesome chart by How They Make Money about Apple.
Wellness/Idea (Link):
AI Keeps Getting Smarter. Who is Training it? (The Verge)
Much of the public response to language models like OpenAI’s ChatGPT has focused on all the jobs they appear poised to automate. But behind even the most impressive AI system are people — huge numbers of people labeling data to train it and clarifying data when it gets confused. Only the companies that can afford to buy this data can compete, and those that get it are highly motivated to keep it secret. The result is that, with few exceptions, little is known about the information shaping these systems’ behavior, and even less is known about the people doing the shaping.
One Chart You Should Not Miss: US Household Debt at $17 Trillion with Credit Card Debt Reaching $1 Trillion (New York Fed)
Total household debt rose by $16 billion to $17.06 trillion in Q2 2023, according to the latest Quarterly Report on Household Debt and Credit. Credit card balances rose briskly by $45 billion to a series high of $1.03 trillion. On an annual basis, credit card debt rose $144 billion, second only to Mortgage Debt increase of $627 billion. The saving grace: The New York Fed found that despite the toll inflation has taken on consumers, there is little sign of widespread household distress.
One Term To Know: Smart Money versus Dumb Money
Wall Street refers to the hedge fund and mutual fund investors and institutional investors such as pensions as “Smart Money” because they are professional investors who have a team of analysts working with them and have access to lots of data, models, and analyses, often aided by the Wall Street banks.
Dumb money refers to retail investors who do not process the same trove of information and help as professionals in their investing. These individual investors may jump into a stock because of rumours or tips from friends and families without doing any fundamental research on the stocks beforehand. As a result, they ride up and down stock prices with little understanding of why they have lost money.
“Smart Money” do not always make smart decision, and some “Dump Money” make shrewd decisions.
Average fund investors did much worse (6.8%) than the S&P 500 (9.65%) over 30 years. Not only the individual investors but also over 90% of the active fund managers in large-cap US stocks also underperformed the S&P 500. Try to avoid market-timing and performance-chasing, stay invested for the long haul, and use index funds and ETFs to lower fees.
To experience Dumb Money vs. Smart Money without losing your shirt, you may like to watch the film Dumb Money, which premiered at the Toronto Film Festival and will open in the US on September 22. It retold the real story of the GameStop stock short squeeze saga in 2020 to 2021.
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