Note: Economics is the study of how society uses resources for the development, production, procurement, distribution, and consumption of tangible products (such as iPhones) and intangible services (such as Apple Music).
John Maynard Keynes
The most important name in today’s worldwide economic system is John Maynard Keynes. Keynes is the one who developed economics as we know it. He wrote “The General Theory of Employment Interest and Money” in 1936 in the UK. Similar to Copernicus seeking to understand the movement of the Sun, planets, and stars, Keynes wanted to understand unemployment because The Great Depression was such a problem in the 1930s, and the existing understanding of economics did not explain what was happening (or what could be done about it) very well enough for governments to partake in righting the economic ship during the storm.
Note: Come back later for more articles about other economists across the ages, such as The Austrian School of economics (also very significant).
Keynes wanted to understand
He wanted to know what existing economics at the time could not explain about The Great Depression – but he did so with an emphasis on unemployment and by taking snapshots of the economy, as if it was static. So what he developed is useful, but lacks usefulness on growth or inflation issues.
More specifically, Keynes wanted to understand how employment and prices affect each other; how government affected employment and prices; and more than anything, he wanted to know how to “control” (or at least influence economies/money), such as how to drive employment up.
More or less, Keynes used existing approaches that microeconomists used when evaluating businesses, plus some new approaches to expand economic knowledge into something bigger: macroeconomics
Simply put, Keynes took what was small or local and made it big – big enough for governments to use. Naturally, macroeconomics includes microeconomics since the economy of each piece would be part of the economy of the whole.
Milton Friedman came later
He pointed out that Keynesian Economics could not explain the relationship between price levels and economic output. He called this “the missing equation.” Friedman melded classical economics understandings of Adam Smith (and others) with Keynesian Economics. Friedman concluded that the classic theories worked in the long-run, but Keynesian Economics works in short intervals.
Local isn’t universal
“What goes up must come down” is right locally (in your backyard), but on a bigger scale it is wrong . The meteorites from space that have landed on Earth did not come back down to their origin when they “went up.” They never came back down.
Building on Friedman’s work
An economist from New Zealand began working with 100 years of UK data on the relationship between unemployment and inflation. The economist’s name was AW Phillips, and his work became known as The Phillips Curve. This curve was adopted by economists worldwide and is now a major contributor to economics. It shows that as unemployment rises, wages increase, and when unemployment falls, wages decrease.
Friedman and fellow economist Edmund Phelps felt that manipulating monetary policy (such as managing inflation) was not the right way to manage unemployment and that unemployment should be left “natural” and unaltered by central banks, the banks of governments.
Then in the 1970s and 1980s the US experienced both high unemployment and high inflation. Phelps and Friedman then clarified the understanding to show that The Phillips Curve was true if inflation was unanticipated. If it was anticipated, then the conditions were different. This ushered in a whole new element to economics: Expectations are part of the equation in a significant way.
Nowadays, we see expectations set by world governments very deliberately so they can use it as another way to manage economic systems. Something like “a period of somewhat-higher inflation can be expected in the next two quarters,” is common to hear from a Fed Chairman (Federal Reserve Chairman) since this economic understanding came to be.
Of note, since the late 80s/early 90s, economic growth theory is what has dominated economist efforts (since inflation, employment, and prices were already being managed with Keynesian and Friedman understanding), and GDP expansion continued as a top priority.
Back to The Great Depression
Let’s not forget how the interest and need for macroeconomics got started: The Great Depression. The Great Depression was not just in the US. It was global. It started in the US in 1929 though, and by 1930 it had reached the UK. Half of Britain’s trade (sales around the world) disappeared, and in some areas unemployment reached 70%! No wonder efforts were made to understand economics better.
The US had an awful time through The Great Depression too of course, as did countless other countries. For the US, The Great Depression did not end until we entered WWII in 1941. The statistics and the stories are really sad, and to this day people and governments study, fear, and work to avoid the conditions that led to The Great Depression.
Note: The Industrial Revolution followed by The Great Depression followed by WWII followed by The Cold War firmly cemented Keynesian Economics into world governments for a variety of reasons.
Boom and bust
Economic booms (a hot economy) and busts (a cold economy) are now known as business cycles. You may think that you always want your economy hot, but that is actually not true. Booms can lead to bubbles and bubbles pop and you get busts. Understanding business cycles is just one piece of the economy. Another piece of the economy is understanding growth.
Note: As investors, if we understand where things have been we can better understand where things are going — and that’s a major strategic advantage.
Let’s talk about GDP
When you add up all of the goods (such as iPhones) and services (such as Apple Music) you get GDP (Gross Domestic Product). GDP is measured as Total County Production measured in dollars (if you’re the US). GDP has been growing for 200 years for capitalist countries.
Note: there is no purely capitalist country, but each country has rules and people that are more capitalistic than others.
GDP across decades has a very obvious upward trend
But GDP throughout the weeks, months, quarters, and a year can (and do) have significant ups and downs. It is within these ups and downs that successful investors thrive and profit.
Let’s talk about inflation too
The last concept to introduce in this article is inflation. For most people the word has nothing but negative connotations. But in the world of Keynesian economics inflation is a given, and it's managed with government actions.
Simply put: inflation is a rise in prices.
Often people think inflation is simply a devaluing of currency by printing too much currency, but consider this: if currency was devalued then prices would go up, no? They would. So devaluing currency is a type/cause of inflation, but there are other types/causes too.
It’s right to monitor and take appropriate action against inflation
When prices go up enormous amounts this is called hyperinflation. For instance, between WWI and WWII Germany had inflation of 230% per month at times! That means every day prices went up 4% on average. So if milk cost $1 on Monday, it cost $1.04 on Tuesday, $1.08 on Wednesday, $1.12 on Thursday, and $1.17 on Friday. By the end of the month milk would cost $2.30. By the end of the year milk would cost $8.20. And a $25,000 car would cost $180,020.60 if those hyperinflation rates happened to us today. No wonder it scares people.
Historically, the US has managed inflation well
In the last 100 years, our worst experience had been in the 1970s when inflation reached 7% from 1973-1975. However, in 2022 inflation met or exceeded 7.5%.
The US government used many tools and decision-makers to keep it down and return to the 3-4% average we have had since 1946 (on the heels of WWII). Before WWII, the US averaged about 1.7% inflation.
Around the world though, countries have been far more adversely affected by inflation. As mentioned, Germany experienced 230% inflation per year. Israel saw 400% inflation in 1985; Argentina has seen 700% inflation; Bolivia saw 12,500% in 1984. There are many more examples, but Keynesian economics does indeed have the understanding, tools, and systems that manage inflation well.
Inflation is like cancer to economies — and it must be detected early and expertly managed. When inflation is detected, it gets everyone’s attention!
So that’s the introduction to economics. There is a lot more to follow, but we hope you liked what you read, and we hope you have learned something too. Is this enough understanding for you to go start investing in stocks with great success? No. But we can build to that.
The key concepts in this article to remember are:
- John Maynard Keynes “invented” macroeconomics for governments
- Government using macroeconomics to influence and manage a country’s economy
- Milton Friedman identified the relationship between prices and economic output
- AW Phillips identified the relationship between Unemployment and inflation, known as The Phillips Curve
- Phelps-Friedman established expectations as a key component of an economy
- Business cycles, GDP, and inflation as the major factors government considers
- Since the late 80s/90s, economic growth has become the priority for economists
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
You’re the Hero.
We’re the Guide.
Announcement: Arena Investor Partners with Elements
We are thrilled to announce that Arena Investor is expanding our service offerings with a cutting-edge integration into our tech stack: Elements (getElements.com). This addition is set to transform the way we serve our clients in financial planning, investment management, and through our unique "Financial Health Monitoring and Alerts" service.
Why Elements?
Elements is a leading financial monitoring and planning tool designed to simplify the complexities of managing wealth. It provides a streamlined and user-friendly experience, enabling clients to see the bigger picture of their financial health at a glance. With Elements, you gain a comprehensive view of your financial status, making it easier to make informed decisions and track progress toward your financial goals.
Value for Financial Planning Clients
For our financial planning clients, Elements offers a robust platform to track your progress in real-time. Whether you're focused on building wealth, planning for retirement, or managing day-to-day finances, Elements helps you stay on top of your financial goals. The tool allows you to monitor key financial indicators, such as liquidity, net worth, and debt levels, ensuring that you always know where you stand. By leveraging Elements, Arena Investor can provide more personalized and proactive advice, helping you navigate life's financial milestones with confidence.
Enhancing Investment Management
For our investment management clients, Elements provides an additional layer of insight into how your investments align with your overall financial health. The integration allows us to seamlessly connect your investment portfolio with other aspects of your financial life, ensuring that your investment strategy is aligned with your broader financial goals. With Elements, we can more effectively manage risk, optimize your asset allocation, and keep you on track toward achieving long-term growth.
Financial Health Monitoring and Alerts
One of the most innovative features of Elements is its ability to deliver timely and actionable insights through our "Financial Health Monitoring and Alerts" service. This integration enables us to keep a close eye on your financial health, alerting you to potential issues before they become problems. Whether it's identifying opportunities to optimize your cash flow or providing early warnings about financial risks, Elements empowers you to take control of your financial future.
Looking Ahead
At Arena Investor, our mission is to provide you with the best tools and advice to achieve financial success. The integration of Elements into our tech stack is a significant step forward in fulfilling this mission. We believe that by combining the power of Elements with our expert financial planning and investment management services, we can offer an unparalleled client experience that supports your financial journey every step of the way.
We are excited about the enhanced value this integration will bring to your financial planning and investment management needs. If you have any questions or would like to learn more about how Elements can benefit you, please don’t hesitate to reach out to us.
Thank you for your continued trust in Arena Investor.
Truly,
The Arena Investor Team
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
You’re the Hero.
We’re the Guide.
Morning Market Preview for August 29, 2024
US Economic Reports Today's economic calendar is packed with key indicators:
- GDP (Second Estimate for Q2): Expected to hold steady at 2.8%, signaling continued economic growth but with a watchful eye on inflation.
- Initial Jobless Claims: Anticipated at 232k, this could influence views on labor market health and Fed's future rate decisions.
- Pending Home Sales Index: At 10 AM, this report will offer insights into future real estate trends, crucial for understanding consumer confidence and housing market dynamics.
Key Earnings Reports Today
- NVIDIA (NVDA): After a stellar year, NVIDIA's recent earnings disappointed, leading to a -1.8% drop, which might affect tech sector sentiment today.
- Salesforce (CRM): Positive earnings have boosted Dow futures, suggesting a positive start for tech stocks.
- Dollar General (DG): Scheduled before market open, could provide insights into consumer spending habits.
- Best Buy (BBY): Also reporting pre-market, its performance will be watched for retail sector health.
- Campbell Soup (CPB): Expected to report, offering a view into consumer staples amidst inflation.
Federal Reserve (The Fed)
- While no meeting today, comments from Atlanta Fed President Raphael Bostic could sway market expectations on future rate decisions. Markets are pricing in rate cuts, especially if unemployment shows signs of increase.
Stocks
- US Stock Indexes: Pre-market trading suggests gains, with tech earnings like Salesforce providing a lift, though tempered by NVIDIA's dip.
- Individual Stocks: Focus on mega-caps like Apple, Amazon, and Google, which often set market sentiment.
Bonds
- Treasury Yields: Remain steady, reflecting a balance between economic recovery and inflation concerns.
Crypto
- Cryptocurrencies like Bitcoin and Ethereum remain volatile, influenced by regulatory news and broader market sentiment. No specific crypto news today, but always watch for reactions to global financial policies.
Gold
- Gold prices are slightly up, seen as a safe haven during economic uncertainty or inflation fears.
Real Estate
- The Pending Home Sales Index will be crucial. A drop could signal cooling in the market, affecting related stocks and funds.
Geopolitical Aspects
- US-China Relations: Developments from recent talks could impact markets, especially tech stocks due to ongoing trade tensions.
- Global Tensions: Any escalation or de-escalation in global hotspots could affect oil prices, thereby influencing energy stocks and commodities.
Worldwide Market News
- Europe: Watch for Brexit-related updates or EU economic data influencing European stocks or the Euro.
- Asia: After Japan's policy shift, Asian markets might react to further comments or data, affecting carry trade dynamics.
- Oil Markets: With WTI and Brent crude prices moving, geopolitical news or OPEC decisions could lead to volatility.
Learning Perspective for someone new to market analysis:
- Economic Reports like GDP and jobless claims gauge economic health, influencing everything from Fed decisions to stock prices.
- Earnings Reports are company performance reviews. Positive earnings can boost stock prices, while misses can lead to drops.
- The Fed controls interest rates, affecting borrowing costs, consumer spending, and asset prices.
- Stocks, Bonds, and Gold often move in response to economic indicators and Fed actions. Stocks might rise with good economic news but fall with inflation fears. Bonds and gold can be safer during uncertainty.
- Crypto and Real Estate are more speculative but influenced by broader economic trends.
- Geopolitics can create sudden market shifts, especially in commodities like oil or currencies.
Today's market will likely be driven by how these various elements interact. For instance, if GDP growth is higher than expected but jobless claims rise, markets might see mixed signals on economic health versus labor market strength, potentially leading to volatility as investors recalibrate expectations for Fed actions and economic recovery.
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
You’re the Hero.
We’re the Guide.
Understanding Liquid Term
Understanding Liquid Term
When managing personal finances, especially for future goals and emergencies, understanding the concept of "Liquid Term" becomes crucial. This term, though less commonly discussed outside professional financial circles, provides essential insights into the liquidity of your assets and how quickly you can convert them into cash without significant loss. Here’s a detailed explanation of Liquid Term, simplified for those new to finances, and how an Arena Investor Advisor can guide you in optimizing this aspect of your financial planning.
What is Liquid Term?
Liquid Term refers to the measure of how long you can sustain your current lifestyle or cover expenses using only your liquid assets without additional income.
In simpler terms, it's an estimate of how many months or years you can fund your living expenses using readily available resources if no more money comes in. This measure is crucial during periods of financial adjustment, such as a job change, or unexpected situations like a medical emergency.
Importance of Understanding Liquid Term
1. Emergency Preparedness: Knowing your Liquid Term helps gauge how well-prepared you are for unexpected events. It highlights the importance of having accessible funds that can be quickly mobilized in emergencies.
2. Financial Flexibility: A healthy Liquid Term implies more financial flexibility. It allows you to make choices such as changing careers or moving without the immediate pressure of financial constraints.
3. Investment Decisions: Understanding your Liquid Term can influence your investment strategies. If you have a short Liquid Term, you might prioritize increasing it by investing in more liquid assets to enhance your financial security.
Calculating Liquid Term
To calculate your Liquid Term, you divide your liquid assets by your monthly expenses. Liquid assets include things like cash in checking or savings accounts, stocks, and other marketable securities that can be quickly converted to cash. For example, if you have $30,000 in liquid assets and your monthly expenses are $3,000, your Liquid Term is 10 months.
How an Arena Investor Advisor Can Help
1. Assessment and Planning: An Arena Investor Advisor starts by assessing your current financial situation, including calculating your Liquid Term. They can help you understand what your number means and plan steps to improve it if necessary.
2. Customizing Investment Strategies: Depending on your needs and goals, your advisor might suggest ways to adjust your investment portfolio to improve liquidity without sacrificing long-term growth. This could involve diversifying investments or reallocating assets to include more liquid options.
3. Budgeting and Expense Management: Advisors can work with you to optimize your budget, potentially reducing monthly expenses and extending your Liquid Term. They can offer insights into cost-saving without compromising lifestyle quality too much.
4. Continuous Monitoring and Adjustment: Financial situations evolve, so continuous monitoring is vital. Your Arena Investor Advisor will help update your financial plan based on changes in your life and goals, ensuring that your Liquid Term remains adequate.
5. Educational Support: Understanding financial concepts can be overwhelming. Arena Investor Advisors are dedicated to educating you about key financial indicators like Liquid Term. They ensure you’re equipped with the knowledge to make informed decisions.
6. Utilizing Technology: Tools from industry-leading app and platforms you Arena Investor Advisor's ability to present visual and easy-to-understand representations of your financial data, including Liquid Term assessments. This helps you see and understand your financial health in an easy way. It also helps in making informed, data-driven decisions.
All In All
Liquid Term is a vital aspect of financial health, for both new investors learning to navigate the complexities of personal finance and for established investors too. Understanding and managing this term can significantly impact your financial flexibility and security. Working with an Arena Investor Advisor provides you with expert guidance and tools to optimize your Liquid Term effectively. Together, we can build a simple to understand and use financial plan that not only prepares you for the unexpected but also helps achieve your long-term financial goals.
By approaching your financial planning with a clear understanding of Liquid Term, supported by professional advice and advanced financial tools, you can ensure greater stability and confidence in managing your finances.
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
You’re the Hero.
We’re the Guide.
Arena Investor Offers
Income Research Assistance
Are you being compensated properly? Let us check on that for you.
A boost in compensation can make a major impact on your financial goals.
We Also Offer
Philanthropy Assistance
Enjoy our well-curated list of charitable organizations to donate to. Have a favorite organization already? Great! Let's get those donations coordinated for you.
Charitable donations can reduce your tax obligations too.
Win-win scenarios are the best!
Did You Know That Your Business Can Have Investment Portfolios?
Put business money to work too.
Tailored to your business’s unique needs.
Arena Investor Offers Something For Everyone
FINANCIAL PLANS
Simple Financial Plans.
Built for Your Situation.
So You Can Reach Your Goals.
INVESTMENT
MANAGEMENT
Optimized Portfolios.
Professionally Built.
Professionally Managed.
PORTFOLIO
CHECKUPS
Personal Portfolio Reviews.
Adjustment Recommendations.
From a Registered Investment Advisor.
Join the Waitlist
The Investor Mindset newsletter is a weekly digital publication that creatively presents insights into the mind of an investor.
Arena Investor Helps
The One in the Arena Level-Up
Learn
Financial Planning Education
Investing Education
Current Events
Insights & Ideas
News In The Arena
Reviews
Monthly Topics include
Understanding: Insurance Rate, Debt Rate, Savings Rate, Burn Rate, Qualified Term, Tax Rate, Liquid Term, Real Estate Term, Equity Rate, Total Term
Plus
• DRIP and Grow Rich!
• What Is Investment Management?
• What Is Your Financial SWOT?
• and more!
Subscribe to The Investor Mindset newsletter (above)
Plan
One-on-One Financial Planning
Enjoy an Initial Meeting to get to know each other, set your goals, and evaluate your debt and credit
Enjoy a Second Meeting to refine the gameplan, review insurance, and review your investing
Get easy-to-understand Monthly Reports specific to you and the Financial Plan we built recorded and delivered to your inbox for your convenience
Schedule live or recorded Quarterly Meetings to stay on track, review your Financial Health, Financial Plan, and make adjustments as needed
Enjoy Income Research Assistance -- Let us confirm you're being properly compensated
Enjoy Philanthropy Assistance -- our curated list of organizations you can donate to if desired
Financial Health Monitoring & Alerts
in the Elements app
Get professional monitoring of your Financial Health
Receive alerts when certain thresholds are met
Understand your Financial Health and actually enjoy the journey!
Invest
Investment Management
for Individual and SMBs
Fee-Only, never any commissions or conflicts
At just 0.75% AUM, Arena Investor offers great value!
No hidden [fill-in-the-blank] fees -- we absorb them all!
Enjoyable user experiences with elegant industry-leading apps
A modern Advisory designed to serve today's professionals
Professionally managed portfolios
Stocks, ETFs, Mutual Funds, Bonds,
Crypto, High Yield Cash Accounts
Also included
Financial Health Monitoring & Alerts in the Elements app
Portfolio Checkups for DIY Investors
For All 401ks
For Personal Brokerage Accounts
Have your Investor Profile analyzed (your goals, time horizon, risk tolerance, et al)
Have your actual portfolio analyzed and compared to your Investor Profile to ensure alignment
Get specific stock, ETF, mutual fund, crypto, etc recommendations to realign your portfolio
Invest with the peace of mind that you have a Registered Investment Advisor as a teammate when desired