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Five things investors have learned this year
Summary
This article discusses five lessons investors have learned in the first half of 2023. These include the Federal Reserve's seriousness in curbing inflation, the resilience of borrowers to the rising interest rates, the resolution of a mini-banking crisis without a full-blown financial crisis, an increased focus on artificial intelligence, and the surprise resilience of the stock market despite an inverted yield curve.
Q&As
What did Paul Samuelson quip about stockmarkets?
Paul Samuelson quipped that stockmarkets have predicted nine out of the last five recessions.
How has the Federal Reserve's credibility been affected by its reaction to rising prices?
The Federal Reserve's credibility has been damaged by its reaction to rising prices.
What has been the impact of rising interest rates on borrowers?
Rising interest rates have made life more difficult for borrowers, but have not yet made it dangerous.
How did the global financial crisis of 2007-09 compare to the recent banking crisis in terms of default rates?
The default rate for high-yield borrowers during the global financial crisis of 2007-09 was higher than during the recent banking crisis.
What has caused the recent surge in stock prices of tech giants?
The recent surge in stock prices of tech giants is due to investors' enthusiasm for artificial intelligence and their conviction that the biggest firms are best placed to capitalise on it.
AI Comments
👍 This article provides an insightful and comprehensive overview of the major economic developments of the year, from the Fed's hawkishness to the resilience of borrowers to the rise of big tech in the market.
👎 This article contains a lot of technical economic jargon, making it difficult for the average reader to understand.
AI Discussion
Me: It's about five things investors have learned this year, which include that the Fed was serious about curbing inflation, borrowers are mostly weathering the storm, not all bank failures mean a return to 2008, stock investors are betting big on big tech again, and an inverted yield curve does not spell immediate doom.
Friend: Wow, that's interesting. What are the implications of these lessons?
Me: Well, the implications are that the Federal Reserve is still in control of inflation, which is good news. Borrowers are managing despite rising rates, which is another positive sign. It's a reminder that not all bank failures are catastrophic, and that the stock market is still responding to tech giants. Lastly, it shows that an inverted yield curve doesn't always mean an immediate recession. All in all, it's a reminder that the economy is more resilient than feared.
Action items
- Research the Federal Reserve's monetary policy and how it has impacted asset prices.
- Analyze the impact of rising interest rates on borrowers and the banking sector.
- Investigate the implications of the "magnificent seven" tech giants dominating the stock market.
Technical terms
- Fed
- Federal Reserve, the central bank of the United States.
- Hawkishness
- A policy of aggressive or confrontational actions or attitudes.
- Inflation
- A sustained increase in the general price level of goods and services in an economy over a period of time.
- Default rate
- The percentage of loans that are not paid back by borrowers.
- Contagion
- The spread of a negative effect from one entity to another, especially in financial markets.
- Bail-out package
- A financial rescue package provided by a government or other entity to a failing business or economy.
- Yield curve
- A graph that plots the yields of bonds with different maturities.
- Inversion
- A situation in which short-term interest rates are higher than long-term interest rates.