MoneyFitt

15 February 2023

Happy Wednesday! 🐪

US large-cap S&P 500 closed 0.03% DOWN 🔻 Tech-heavy Nasdaq Composite closed 0.57% UP ▲ Pan European STOXX Europe 600 closed 0.08% UP ▲ HK’s Hang Seng Index closed 0.24% DOWN 🔻 Japan’s Nikkei 225 closed 0.64% UP ▲  

📝 Guest Feature: Part Two of our Series with the MAIAs

What is the best age to learn financial literacy?

📊 In the Markets

US inflation feels sticky99% Inflation in Argentina!Overspending isn’t Romantic

📖   MoneyFitt Explains

🎓 OPEC

📝  Guest Feature: The Money Awareness and Inclusion Awards (MAIAs)

The MoneyFitt team wants to help you make better personal finance and investment decisions. This week, we’ll be showcasing the work of the MAIAs, the first global financial literacy body aiming to solve the problem of weak financial literacy by finding and celebrating the best solutions. We sat down with Founder Michael Gilmore to learn more about the financial literacy problem. 

Part 2: What is the best age to learn financial literacy?

We all learn about money from a very young age. Badly.

We see our families argue about it, where it’s come from, who got it, who spent it, and how much there should be of it. Our families criticise people poorer than us, gossip about people richer than us, and even if our families don’t do that (ok, maybe yours is different), then the families of our school friends do, and we hear that talk parroted in the classroom and the playground. 

If we can learn about money badly, then we can learn about it well. We can learn simply what money is, what it does, and what it can do. We can learn a lack of embarrassment around it, a lack of shame. 

More importantly, I think the thing that can be taught best while young is the concept of investing. While children still retain those huge ambitions and dreams that later school years somehow bashes out of them, we could teach them about what investment achieves… everything. Every toy they have, every game they play, every movie they watch, all results of investments. 

Probably all the greatest human endeavours, and certainly so of this modern age, have been built on or supported by investments. If we can use that to inspire the youngest minds, they’ll want to know more about money later, and more healthily.

Look out for the final part tomorrow!

About the MAIAs: The Money Awareness and Inclusion Awards are the first global financial literacy body aiming to solve the problem of weak financial literacy by finding and celebrating the best solutions. The winning solutions in 2022 ranged from academic research on gamifying education, to 12-year-old influencers making videos about money. Enter MAIAs2023 before March 28th at enter.maiawards.org

📊 In the Markets

Markets didn’t do much overnight, having been waiting for the US inflation report that was a bit worse (meaning higher) than expected, but not by a huge amount. Mixed commentary from the financial press, perhaps reflecting some confusion among the traders they speak with. FT: “US inflation cools slightly in January.” CNBC: “Inflation turned higher to start 2023.” WSJ: “U.S. Inflation Eases, but Pace of Moderation Slows.” Reuters: “U.S. consumer prices accelerated.”

Oil prices fell a little after the US unveiled a plan to release supplies from the Strategic Petroleum Reserve, signaling a willingness to offset price pressures from rising demand in China (see yesterday’s MFM) and 5% lower output planned by Russia. The Department of Energy will sell 27mn barrels from its reserves of 370mn barrels, which is enough for 18 days’ use. Since its 1975 creation after the OPEC 🎓 oil embargo, American presidents had ordered just three emergency drawdowns before president Biden tapped the reserves in 2021, 2022 and then again this year. (The oil in the SPR is almost entirely crude oil that needs to be refined into fuels such as gasoline, diesel, and kerosene.)

Meanwhile, the International Energy Agency (IEA) reported that the oil and gas industry worldwide earned US$4 trillion last year, a massive jump from the average of $1.5tn in recent years.

Yesterday’s MFM had a piece about expected wage growth in the UK for 2023, and how the gap between that and inflation suggests something akin to profiteering from consumer companies. Official data released on Tuesday for the three months to December shows wages accelerated by more than expected… but still lagged inflation. By a lot.

Average pay excluding bonuses rose by 6.7%, faster than the 6.5% expected by The City’s Finest, but well shy of CPI inflation running at 10.5% at the end of 2022, and even further off the semi-unofficial Retail Price Index (RPI) at 13.4%. In other words, the buying power of UK workers continued to collapse, the main reason the number of strikes last year hit 30-year highs, with the UK losing more working days to strikes in 2022 than in any year since 1989.

And the Japanese government has formally named Kazuo Ueda to become the next Bank of Japan (central bank) governor, turning to a respected expert to help wean the country off its decades-old ultra-loose monetary policies. An academic and an MIT PhD, he was once described as “Japan’s Ben Bernanke” by former US Treasury secretary Larry Summers. Excitement in Japanese Government Bond (JGB) and currency (JPY) circles that he was not a continuity appointment waned a little when Ueda told reporters that the BOJ should continue current easing measures.

Finally, higher interest rates are expected in HK as the HKMA, Hong Kong’s de facto central bank, spent HK$4.2 billion (US$535 million) yesterday to defend the peg to the US Dollar, buying up HK dollars for the first time since November (see the MFM from the last time.) The operation will reduce the city’s aggregate balance and interbank liquidity, driving up local funding costs and squeezing the bearish trades on the currency. (Traders had been borrowing in HK$ at very low rates, to buy higher yielding US$, which weakened the HK$.)

US inflation feels sticky

The main US inflation indicator, the consumer price index (CPI), which measures a broad basket of common goods and services, rose by 6.4% in January compared to a year earlier, lower than December’s 6.5% but not as low as the 6.2% that Wall Street’s Finest had been expecting. Same pattern for the “core” figure at 5.6%, which strips out volatile food and fuel prices. These don’t look like terribly big differences, because they really aren’t, and most of the time, statistics get (sometimes heavily) revised the next month anyway. But it shows that while the trend toward lower inflation seems to still be on track, the pace of declines has slowed and it remains well above the Fed’s target. 

Stickier than expected inflation means interest rates could be staying higher for longer, as brainiac market experts have started to expect after other economic data, such as the recent blowout jobs report, shows that the labour market remains red-hot and overall US growth remains healthy. Oh, and also as voting and non-voting Fed officials, Chairman Jay Powell included, have been hammering home to them for several months.

Sticky mid-single digit inflation is still better than…

99% Inflation in Argentina!

Perennial economic basket case Argentina saw January prices rise by 6% from December, with the annual inflation figure, i.e. comparing January with January the year before, hitting 98.8%. 

Hyperinflation, if you need to put a figure on it, is anything over a 50% annual rate. To control inflation, the central bank has hiked interest rates to 75%, but once an inflationary mindset sets in (especially in the face of printing buckets of money and running terrible fiscal policies, i.e. government spending and taxes), it’s a massive task to rein in.

The latest figures are the highest since Argentina’s inflationary highs in the 1990s… the peak was in March 1990 at a mind-numbing 20,263%. From 1975 to 1990, the annual rate averaged 300%. After a relatively stable period, Argentine inflation has been steadily rising from about the 20% range in 2015 to where it it now largely as a result of massive amounts of money printing, which drives the currency lower and exacerbates the problem with the prices of imported goods (oil, cars, soybeans etc) shooting up. Argentina only managed to fend off yet another default on its debt in 2022 thanks to an IMF bailout (having most recently defaulted in 2020.)

There’s been talk in recent weeks of a common South American common currency (“the sur”) anchored by Brazil and Argentina, rather like the Euro, but we’re not holding our breaths… The “gaucho” was proposed for Argentina-Brazil trade back in 1987 and we’re still waiting. 

Overspending isn’t Romantic: A Guide to Valentine’s Day

We hope you survived Valentine’s Day (or “Black Tuesday”, as some people call it) with your soul and wallet intact!

Click here for the MoneyFitt take on Valentine’s Day… its dark origins, the impact on retail and “Better Ways to Spend your Valentine’s Day (On a Budget)!”

📖 MoneyFitt Explains

🎓 OPEC – The Organization of Petroleum Exporting Countries (and OPEC+)

A cartel of large oil-producing countries led by Saudi Arabia, which coordinates (but can’t dictate) output in order to influence oil prices.

The 13 nation members produce 40% of the world’s oil and own over 80% of proven reserves. They include Iran, Indonesia, Nigeria and Venezuela but not other major oil producers like the USA, Russia, the UK, Malaysia or Norway. In 2016, OPEC+ was formed, a loose alliance with 10 other top oil-exporting countries (including Russia).

OPEC’s mandate is for fair returns for investors, steady income for suppliers and efficient supply for consumers. Not all about higher and higher oil prices, though in the popular press it my seem that way

The concept’s simple: if the supply of almost anything (such as a raw material) is limited, then the price tends to go higher. But if supply is too little and the price is too high relative to its uses, then the world has a way of finding substitutes. (Also, selling very little at a high price preserves oil reserves but may make less money for producers right now than selling a lot at a lower price.)

When OPEC says it is looking at output cuts, commodity markets react quickly by raising prices, with oil company share prices following suit… even before any output changes happen.

The 13 nation members produce 40% of the world’s oil and own over 80% of proven reserves. They include Iran, Indonesia, Nigeria and Venezuela but not other major oil producers like the USA, Russia, the UK, Malaysia or Norway. In 2016, OPEC+ was formed, a loose alliance with 10 other top oil-exporting countries (including Russia).

OPEC’s mandate is for fair returns for investors, steady income for suppliers and efficient supply for consumers. Not all about higher and higher oil prices, though in the popular press it may seem that way.

The concept’s simple: if the supply of almost anything (such as a raw material) is limited, then the price tends to go higher. But if supply is too little and the price is too high relative to its uses, then the world has a way of finding substitutes. (Also, selling very little at a high price preserves oil reserves but may make less money for producers right now than selling a lot at a lower price.)

When OPEC says it is looking at output cuts, commodity markets react quickly by raising prices, with oil company share prices following suit… even before any output changes happen.