Podcast Summary
US Recession Fears: Disappointing jobs report triggered US recession fears, leading to economic decline, decreased spending, lower production, and rising unemployment, negatively impacting US businesses and stocks
The recent sharp falls in stocks, including those in our portfolios, can be attributed to fears of a US recession and a complex issue involving the Japanese yen. A recession is defined as a period of economic decline, characterized by shrinking economic growth, decreased spending, lower production, and rising unemployment. These factors would negatively impact US businesses and stocks. The latest recessionary fears in the US were triggered by a disappointing US jobs report, which showed fewer jobs added and a rise in unemployment. This data indicates that the economic growth could slow down or even reverse, leading to decreased confidence and spending. We, as investors, are closely monitoring this situation and will keep you updated on any developments.
Economic balance, interest rates: Interest rate decisions impact both inflation and economic growth, with potential consequences for up to 18 months, and predictions of recessions should be taken with skepticism
The current economic situation involves a delicate balance between inflation and economic growth, and the Federal Reserve's decision to keep interest rates high has been a contentious one. Critics argue that this decision may be hindering economic growth, while others believe it's necessary to combat inflation. The impact of interest rate changes on the economy can take up to 18 months to be fully felt. Despite concerns of a potential recession, it's important to remember that economists and analysts have a mixed track record when it comes to predicting economic downturns. The stock market's reaction to these concerns, however, can have a significant impact on investor confidence and the broader economy. Ultimately, the future of the economy remains uncertain, and it's crucial to approach economic predictions with a healthy dose of skepticism.
Yen Carry Trade Risks: The Yen Carry Trade, which involves borrowing Japanese yen at low rates and investing in higher-yielding assets, has introduced risks due to the Bank of Japan's interest rate hike and potential exchange rate fluctuations, leading to market uncertainty and volatility.
The yen carry trade, a popular investment strategy involving borrowing Japanese yen at low interest rates and investing it in higher-yielding assets like US treasury bonds or stocks, has contributed to recent market volatility. This strategy has been popular due to the large interest rate differential between Japan and other countries, as well as the weakening yen against the US dollar. However, the Bank of Japan's recent decision to raise interest rates and the potential for exchange rate fluctuations have introduced risks to this trade, leading to market uncertainty and stock sell-offs. Trading 212 users can sign up using code SNSBONUS or the link in the episode description to get a free fractional share worth up to 100 pounds when depositing the minimum amount for investment or ISA accounts.
Yen Carry Trade Unwinding: The unwinding of the yen carry trade has led to increased borrowing costs for traders, potential losses due to US dollar weakness and US stock declines, and a self-reinforcing downward spiral of investments being sold to repay loans, causing further market pressure.
The unwinding of the yen carry trade has had a significant negative impact on carry traders due to various factors. The increase in interest rates in Japan and the strengthening yen have more than doubled the cost of borrowing for carry traders, reducing their profits. Additionally, the Federal Reserve's potential interest rate cuts and a bad jobs report in the US have weakened the US dollar and caused US stocks to drop, respectively, further reducing carry traders' profits and potentially leading to losses. These events, combined with the use of leverage and algorithms that can execute trades quickly, have led to a self-reinforcing downward spiral of investments being sold to repay loans, which in turn puts more pressure on remaining carry traders and sends the market down further. It is estimated that the unwinding of this trade is not yet complete and may take several months, but it is unclear how much of the recent stock market declines can be attributed to this specific factor. Overall, the yen carry trade unwinding has been a significant event with far-reaching consequences for the financial markets.
Market volatility: Market volatility presents opportunities for long-term investors to invest at lower prices and potentially earn higher returns in the future.
As long-term investors, we should not be overly concerned about short-term market volatility, such as the unwinding of the carry trade or fears of a US recession. These events may cause temporary pain for carry traders and the market, but they present opportunities for long-term investors to invest at lower prices and potentially earn higher returns in the future. The history of the stock market shows that investing consistently through recessions and market declines can yield significant long-term gains. For instance, an investment of $10,000 in an S&P 500 index fund 30 years ago would now be worth over $113,000. It's important to remember that these market events are normal and should be viewed as part of the investment process. The speaker also shared their personal experience of buying additional investments during the recent market decline.
Market dips opportunistic investing: During market dips, consider selling underperforming stocks and investing in long-term opportunities while maintaining a balanced portfolio to mitigate risk.
The speaker has taken advantage of recent market dips to sell underperforming stocks and invest in companies he has been watching for a long time, while also maintaining less risky investments during the market decline. He acknowledges the importance of long-term investing but also recognizes opportunities to adjust his portfolio. The speaker sold his investments in Block and PayPal, and used the proceeds to buy stocks in Celsius and Duolingo. He also bought shares in the NASDAQ and Amazon to balance risk in his portfolio. Despite the uncertainty, he believes he is being opportunistic rather than rash with his investments.
Investing regularly: Despite market uncertainty, regularly investing is crucial for long-term stock market rewards. Diversify and consider fractional investing to make it more accessible.
Despite the uncertainty and volatility in the stock market, it's important to continue investing regularly. Michael Buble's music may have its questionable moments, but the key message for investors is clear: keep adding to your portfolios every month, no matter what. The future is unpredictable, but staying invested is crucial for reaping the long-term rewards of the stock market. The speakers acknowledged that recent market fluctuations may have caused concern, but emphasized that this is a normal part of investing. They encouraged listeners not to let fear or uncertainty deter them from their financial goals. In fact, they encouraged listeners to give their podcast a positive review to help spread the message and reach more people. The speakers also reminded listeners of the importance of diversification and the benefits of fractional investing, which can help make investing more accessible to everyone. They encouraged listeners to take advantage of offers like the one from their sponsor, Train 212, to get started or grow their investments. Overall, the message was one of encouragement and reassurance. The speakers acknowledged the challenges of investing, but emphasized the importance of staying the course and focusing on the long-term rewards.