LEARNING RESOURCES

What is hard landing?

  • A hard landing refers to a marked economic slowdown or downturn following a period of rapid growth. The term "hard landing" comes from aviation, where it refers to the kind of high-speed landing that—while not an actual crash—is a source of stress as well as potential damage and injury. The metaphor is used for high-flying economies that run into a sudden, sharp check on their growth, such as a monetary policy intervention meant to curb inflation. Economies that experience a hard landing often slip into a stagnant period or even recession.

GBP/USD (British Pound/U.S. Dollar)

  • The GBP/USD (British Pound/U.S. Dollar) is an abbreviation for the British pound and U.S. dollar currency pair or cross. The currency pair tells the reader how many U.S. dollars (the quote currency) are needed to purchase one British pound (the base currency).
  • GBP/USD is the third-largest trading pair, accounting for about 11% of the total forex market. Trading the GBP/USD currency pair is also known as trading the "Cable."
    • The GBP/USD currency pair is the world's third most widely traded currency pair.
    • It is affected by economic indicators and actions by the central banks in both countries to boost or devalue their currency.
    • The British pound is historically stronger than the USD, although it has steadily weakened in the decades after World War II.
    • After the Great Recession, the pound lost nearly a third of its value as investors flocked to the dollar.
    • Investors can trade the GBP/USD pair, along with other currencies, through any forex broker.

Consumer Price Index (CPI)

  • The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending.
  • The CPI is one of the most popular measures of inflation and deflation. The CPI report uses a different survey methodology, prices sample and index weights than the producer price index (PPI), which measures changes in the prices received by U.S. producers of goods and services
    • The Consumer Price Index measures the overall change in consumer prices based on a representative basket of goods and services over time.
    • The CPI is the most widely used measure of inflation, closely followed by policymakers, financial markets, businesses, and consumers.
    • The widely quoted CPI is based on an index covering 93% of the U.S. population, while a related index covering wage earners and clerical workers is used for cost-of-living adjustments to federal benefits.
    • The CPI is based on about 94,000 price quotes collected monthly from some 23,000 retail and service establishments as well as 43,000 rental housing units.
    • Housing rents are used to estimate the change in shelter costs including owner-occupied housing that account for nearly a third of the CPI.
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Purchasing Managers' Index (PMI)?

  • The Purchasing Managers Index (PMI) is a measure of the prevailing direction of economic trends in manufacturing.
  • The PMI is based on a monthly survey of supply chain managers across 19 industries, covering both upstream and downstream activity.
  • The value and movements in the PMI and its components can provide useful insight to business decision makers, market analysts, and investors, and is a leading indicator of overall economic activity in the U.S.Link

What is Macroeconomics?

  • Macroeconomics is the branch of economics that deals with the structure, performance, behavior, and decision-making of the whole, or aggregate, economy.
  • The two main areas of macroeconomic research are long-term economic growth and shorter-term business cycles.
  • Macroeconomics in its modern form is often defined as starting with John Maynard Keynes and his theories about market behavior and governmental policies in the 1930s; several schools of thought have developed since.
  • In contrast to macroeconomics, microeconomics is more focused on the influences on and choices made by individual actors in the economy (people, companies, industries, etc.).

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What is Microeconomics?

  • Microeconomics studies the decisions of individuals and firms to allocate resources of production, exchange, and consumption.
  • Microeconomics deals with prices and production in single markets and the interaction between different markets but leaves the study of economy-wide aggregates to macroeconomics.
  • Microeconomists formulate various types of models based on logic and observed human behavior and test the models against real-world observations.Link

Fiscal Policy

What is Fiscal Policy?:
  • Fiscal policy refers to the use of government spending and tax policies to influence economic conditions.
  • Fiscal policy is largely based on ideas from British economist John Maynard Keynes.
  • Keynes argued that governments could stabilize the business cycle and regulate economic output rather than let markets right themselves alone.
  • An expansionary fiscal policy lowers tax rates or increases spending to increase aggregate demand and fuel economic growth.
  • A contractionary fiscal policy raises rates or cuts spending to prevent or reduce inflation.

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Inflation survival guide

Ponzi Scheme

What Is a Ponzi Scheme? (8/7/2022) :

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers.

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What is a Stock Split?

A stock split occurs when a company divides each one of its existing shares of stock into multiple shares. A company implements a stock split to increase the stock's liquidity.
While following a stock split the number of shares outstanding – the number of shares on the open marker – increases by a specific multiple, the dollar value of the total number of shares is the same as that of the number of shares outstanding prior to the split. Consequently, from the company's perspective, a stock split, like a stock dividend, is a non-monetary transaction. 
Two common split ratios are 2-for-1 and 3-for-1, or 2:1 or 3:1 stock split. In the case of a 2:1 split, for each share that a stockholder owns prior to a stock split, she will own two shares following the split. In a similar fashion, should a 3:1 stock split occur, a stockholder will receive an additional two shares for each share he owned prior to the split.

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How to Prepare Your Finances for a Recession

Step 1: Cut Expenses

  • Dramatic price increases across the board have already forced many consumers to cut back on their budget for basic living expenses such as groceries and travel. Now is also a good time to review bank and credit card statements to find other cost-cutting opportunities.
  • Maybe those streaming services that were a lifeline during COVID aren’t necessary any more. Or, it might make sense to put off some of those home improvements you were considering, keeping the equity in your home intact should you need it during the slowdown.
  • Revamping your budget can help you handle today’s higher prices and also help free up a few dollars for steps 2 and 3 below.

Step 2: Boost Emergency Savings

  • Hard as it may be to find extra cash right now, it’s important to make sure you are putting something aside for unexpected expenses. Don’t feel overwhelmed by the advice saying you should aim for three to six months’ worth of living expenses. Saving that much right now may sound more discouraging than helpful, especially for people who saw their emergency funds dwindle during the pandemic. Keep in mind, anything you can save (even $25 a month) is good, and even small weekly deposits add up over time. Whatever you can afford, know that it’s worthwhile to prioritize emergency funds.

  • With emergency savings, you may get to take advantage of one of the few benefits of rising interest rates. Savings accounts may begin to pay more interest soon. What kind of savings account should you get? You might look for high-interest accounts offered by online banks as they often pay more than bricks-and-mortar financial institutions. Your goal, of course, is to get the best rate. If you are employed full time, check with your benefits department to see if any emergency savings programs are available through your work. Having some cash in the bank can be a key step when you are wondering how to handle a recession. It can be a hugely helpful safety net.

Step 3: Pay Down Debt

  • Here’s the bad news about higher interest rates. The national average credit card rate rose above 17% for the first time in more than two years, according to a recent weekly rate report  . The jump happened after the Federal Reserve increased interest rates. More rate hikes are expected throughout the year.

  • Check rates on all of your credit cards and other debts. Any variable rates may have already gone up. Next step? Pay as much as you can on your highest interest rate balances first to whittle down that debt; it’s the kind that can unfortunately snowball during tough economic times.

  • You might also look into balance transfer credit card offers. They can offer a period of no or low interest, during which you can pay down that debt. Another option is finding out how debt consolidation programs work.
  • Review Any Student Debt

  • The current economic turmoil hits just as federal student loan repayments are set to begin again in September, after a more than two-year reprieve during the COVID-19 pandemic. Another extension is expected (and hoped for by many) but has not been announced. Nonetheless, payments are likely to start again sometime.

  • If you’ve taken advantage of the pause, this is the time to get ready for repayment, whenever it comes. Contact the servicers of your federal student loans to make sure you know the monthly payment due date and other details that you may have forgotten or that may have changed during the pause.

  • If you’re worried about affording repayments, look into alternatives. Forbearance, for example, allows a qualified borrower to suspend federal student debt payments for a period of time, although interest continues to accrue. Government-sponsored income-driven repayment programs are another option. They cap monthly loan payments at a percentage of what is defined as discretionary income. Still other borrowers may find refinancing student loans through a private lender can be an affordable option. It can be worthwhile to do the research to find out what exactly your options are to stay current on your loans.
  • Step 4: Stay on Your Investment Course

  • When it comes to your long-term investments such as 401(k)s and other retirement accounts, the key to surviving a down market is simple: Hold tight. Nothing good is likely to happen when you sell in a panic. Not only do you risk selling at a loss, but you’ll miss out when the market rebounds, as it inevitably does.

  • Take a look at the most recent downturn. The Standard & Poor’s stock market index plunged almost 31% in March 2020 when Covid first hit. Then the index almost doubled just a year later. Investors who sold in a panic didn’t see any of those record-breaking returns.

  • If rising expenses are making it impossible for you to keep up with 401(k) contributions, you may want to try to deposit the minimum necessary to get any matching funds your employer offers. That’s free money, and you don’t want to miss out.
  • Also try to avoid making any withdrawals from your retirement accounts. In most cases, if you’re younger than 59 ½, you’ll pay a 10% penalty plus taxes. Even more important, a chunk of your money won’t be there to see the growth in your long-term savings account when the market rebounds.

Step 5: Recession-proof Your Career

  • Most recessions include high unemployment and mass layoffs. This slowdown is a little different. So far, the unusually strong labor market has protected the U.S. from rising unemployment, contributing to the one bright spot in the U.S. economy. Wages have also increased, but generally not enough to offset the current record inflation.

  • Economists warn the strong employment market may not last. That’s something to be ready for, especially if you work in an industry that typically suffers downturns in a recession. And employees who may be counting on finding a higher-paying position in this strong job market may find their window for doing so is closing. What’s more, in a worst case scenario, some people could find themselves figuring out how to apply for unemployment.

  • Reducing debt and building emergency savings, as mentioned above, are two important steps you can take to prepare for the financial shock of a layoff. In addition, this is a good time to work to recession-proof your career: Update your resume, boost your network, and get the extra education, skills or training you may need to protect your livelihood.

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Buy The Dips

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"Buy the dips" means purchasing an asset after it has dropped in price. The belief here is that the new lower price represents a bargain as the "dip" is only a short-term blip and the asset, with time, is likely to bounce back and increase in value.

Buying the dips does not guarantee profits. An asset can drop for many reasons, including changes to its underlying value. Just because the price is cheaper than before doesn't necessarily mean the asset represents good value.

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