Your Financial News Roundup
July 19, 2023
1. Economy: The Fed admits defeat in its inflation fight because of Taylor Swift’s “Eras” tour; and Goldman Sachs indicates lower odds for a U.S. recession within the next year.
2. Tech: Microsoft’s AI news catapulted its stock up 4% on Tuesday; meanwhile Bay Area and national tech layoffs are declining, indicating the start of a new boom cycle.
3. World: YouTuber John Green and advocates convinced J&J to release patents for a tuberculosis treatment; while the EU-LatAm summit ended on a whimper.
Personal Finance Concept [Part 4/5]: Money Scripts – Money Vigilance
🎤 A Force More Powerful Than You Can Possibly Imagine: What’s more powerful than the Fed? Taylor Swift. The Fed was forced to admit defeat in its effort to lower inflation because of Taylor Swift and her Eras tour. Swift’s Eras tour boosted revenue for the hotel sector and took the industry out of its COVID slump. The “Swift Effect” brings millions in revenue to hotels wherever the show is held as thousands of fans pour in from near and far. (Billboard)
Our Take: Taylor Swift’s Eras tour has been a smashing success with 2M+ tickets sold and hundreds of shows scheduled. Demand for the pop megastar’s performances really goes to show the more scarce something is, the more people will value it. It also reflects the drivers of post-pandemic inflation — people are putting their money toward leisure and experience they could not do for 2 years.
👍🏽 The Odds Are Improving: Goldman Sachs reduced the chance of a U.S. recession in the next 12 months from 25% to 20% after optimistic economic data. Goldman’s chief economist noted:GDP grew at 2.3% in Q2 compared to 2% in Q1 on an annual basis,consumer sentiment is rising,unemployment fell to 3.6% in June.Inflation for consumer goods (outside of food and energy) rose at the slowest pace since February 2021. But growth should be tamer in the future as the growth of personal disposable income slows down. Goldman forecasts one more 0.25% rate hike from the Fed later this year. (CNBC)
Our Take: With an inflation read of ~3%, the Fed’s plans are working and expectations for the elusive “soft landing” are sounding more realistic. However, shocks from out-of-sync supply chains and international conflict will likely keep rates and inflation higher and longer than we’d like.
✈️ A.I. Is Jet Fuel For Stocks: Yesterday, Microsoft announced it would include its A.I. service, Copilot, in subscriptions for its Office products (e.g., Word, Excel) and make Meta’s AI, Llama 2, available to Azure cloud computing users. The Copilot addition to Office 365 subscriptions will increase revenue from enterprise customers by 83%, while Microsoft will not share revenue from Llama 2 use with Meta. Microsoft’s actions show its focus on enabling business use of a wide selection of AI products. On this news, the stock jumped 4% — marking a 50% rise in its stock price from the start of the year! (CNBC)
Our Take: Big Tech firms continue to make waves in the AI space, creating and riding the stock market mania over the novel technology’s potential. Whether they will fully dominate this area is unknown, but investors in these firms look poised to be early-game winners.
🌁 Bay Area Tech Stabilizes: After experiencing several rounds of large layoffs, tech workers in the Bay Area may now see a reprieve. Figures from Q2 show a ~50% decline in layoffs notices compared to Q1 of this year, indicating that layoffs are declining for the first time in 18 months. It’s a sign that the Bay’s tech economy has settled and that improving stock prices, slowing inflation, and a more sunny economic forecast are all playing their part. Nationwide, tech job cuts declined by 80% from last June. Though EVs and AI are driving a renewed early boom in the tech sector, the Fed’s high interest rates will dampen any lofty expectations. (The Mercury News)
Our Take: As Silicon Valley continues its boom-bust cycle, it’s evident that this tech wave will likely not see the sharp growth of the last cycle but will experience more moderate, sustained uptick. The main limiters are the economic forecast and interest rate policy, as expectations for a better, stronger economy could sway companies to open their wallets once more.
🏆A Win For Good: YouTube star John Green, his online community Nerdfighteria, and the Treatment for Action Group (TAG) spurred Johnson & Johnson (J&J) to let their tuberculosis drug patent expire, allowing cheaper versions to be used in poorer regions with high TB rates. Green and TAG pressured J&J to make access to the first TB drug in 40 years affordable and legal, as they noted it was developed with taxpayer funds. However, extra advocacy will be needed in the few countries where J&J’s patents prevent cheaper access. (Reuters)
Our Take: Treatments for diseases like TB are not readily available in poorer countries due to the long-term patents granted to pharma firms, letting them create monopolies. Green’s videos noted that the drug was funded with public money and that J&J had already made a hefty profit, potentially bruising J&J’s brand image.
❎ No Deal (Yet): After 8 years of separation, the European Union (EU) and Latin American leaders ended the EU-LatAm summit in a standoff. While the summit aimed to revitalize relations between the 2 regions, Nicaragua’s decision not to condemn Russia’s invasion of Ukraine hindered progress on trade agreements and economic initiatives. Additionally, Latin American and Caribbean leaders criticized that Europe has historically disproportionately benefited from the relationship, citing its history of colonialism and slavery. (AP News)
Our Take: With China making heavy investments in Central and South America, many European companies have lost ground in the region. As the EU attempts to end its overreliance on China’s rare mineral resources, its leaders will need to build a more equal relationship with Latin America.
Finance Concept of the Week
The Psychology of Money [Part 4/5]: Money Scripts — Money Vigilance
Money scripts are ingrained beliefs and attitudes you have about money that influences your financial behaviors and decision-making. In particular, people who exhibit money vigilance tend to take a cautious and careful approach to managing their finances. They often budget and save diligently and may be more hesitant to spend money on non-essentials. Additionally, they may prioritize financial security, avoid debt, and be more risk-adverse.
While money vigilance can promote financial stability, when taken to the extreme, it an lead to people becoming overly frugal or excessively anxious about money. That can lead to a reduced quality of life or difficulty enjoying the present moment.
Examining the Roots of Money Vigilance
Money vigilance can be caused by many factors. One significant contributor is your upbringing and family environment. Growing up in a family where money was a major source of stress or contention can lead you to become frugal or anxious about money. If you’ve experienced financial problems, such as going through poverty, unemployment, or struggling to make ends meet, you may develop a heightened sense of financial caution.
Cultural and social norms also play a role. Living in a society that emphasizes financial security, savings, and conservative spending habits can reinforce money vigilance. Meanwhile, economic crises, such as the Great Recession, may instill a sense of financial insecurity that pushes you to be more financially cautious.
Role models and influential figures, such as grandparents or mentors, can also shape your financial attitude. Other notable factors include fear of financial insecurity, aversion to debt, messages from the media, and psychological traits can all lead you to develop money vigilance.
Overcoming Money Vigilance Beliefs
Among the 4 money scripts, money vigilance is the best for your bottom line. But, it can lead you to become overly cautious and cause restrictive financial behaviors if you are not careful.
To find the right balance, start by reflecting on your beliefs and attitudes towards money and identify the root causes of your money vigilance. Once you have a clear idea of where these beliefs come from, you can better address them.
Next, establish clear and achievable financial goals that align with your values. If you tend to be overly risk-averse, consider taking small steps to expose yourself to reasonable financial risks, such as diversifying your investments. Pay attention to your emotions and reactions when it comes to money matters and create a budget that balances saving and occasionally splurging on things that bring you joy.
As you go through these steps, have open conversations about your finances with friends and family you trust. They can provide valuable insights and support as you build a healthier and more balanced relationship with money.
Tip of the Week
💸 Before buying a home, evaluate your financial readiness, long-term plans, and the total cost of homeownership, including mortgage payments, maintenance, and property taxes. The last thing you want is to be house-poor and at risk of defaulting on your home because you can’t afford it.
Personal Finance Resources
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