Money Rehab with Nicole Lapin - Is Beyoncé Making Inflation Worse?

Episode Date: June 21, 2023

On this week's recap of the financial headlines and what they mean for your wallet: how this bear market will affect your investments, what New Zealand's housing crisis tells us about the United States real estate market and why some people are blaming Queen B for inflation in Sweden. ... we're not so Crazy in Love with this Beyoncéflation phenomenon.

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. it's time for some money rehab. On this weekly roundup of headlines that affect you and your finances, I'm coming to you from Cannes, France, the home of a gigantic marketing conference that I'm at right now. It's called Cannes Lions. It's like the Cannes Film Festival, but for nerds. I might sound a little different right now, and that's because I'm taping on my cell phone from my hotel room.

And that's because the show must go on. The financial news cycle does not stop, and neither do we. So let's dive in. Are recession fears just bull? As we enter a bull market, some investors are wondering the exact same thing. Now, let's start off with a little refresher. A bull market is a market that has risen 20% from its most recent low point, and a bear market is a market that is down 20% from its most recent high point. But let's

establish a couple of facts right away. These are just popular definitions. This isn't some legally binding investing term. It also only really tells you where the market has been and doesn't tell you anything about where the market will go. Plus, in a bull market, it can still feel like you personally are down. So really, it's just a math problem. For example, if you have a hundred bucks invested and a bull market hits, the market will go up 20% and you could make, let's say 20 bucks. Yes, yes, I know it's way more complicated than that, but let's just play along. So at the peak of the bull market, you have 120 bucks, but then a bear market hits. The market and your account goes down 20%. Are you back to where you started? No, you are not. You now have $96 and that really sucks. And when that bull market comes back, you'll have $115.20, which is

more than what you started with, but less than your all-time high. I think this is the best way to visualize the point that it takes more momentum to make money in the stock market than it does to lose money. But for our purposes, what matters in this example is the reality that just because it's a bull market doesn't mean that you're doing better than ever before. So while your accounts might be up, they may not be back to their all-time high, leaving you wondering what the heck the fuss with this bull market is all about. Also, remember when I said that a bull market or a bear market only tells you where the market has been? So this bull market could be the start of hot stock summer or it could be as high as it goes. Only time will tell.

This is why timing the markets is mostly impossible and time in the market is what matters most. So I know I've actually been ragging on these market cycles a little bit, but they actually are worth paying attention to. Knowing if it's a bull market or a bear market gives you a sort of vibe check on the economy. And while the past rarely repeats itself, it can also be instructive. We can also learn from other countries. That's why for this weekly roundup, I wanted to zoom all the way out and look at two different economic problems and how they've shaped up around the world, inflation and the cost of housing. Let's talk about inflation first.

The fear with inflation is that it will diminish people's spending power so that they will buy less, triggering a recession and all that awful stuff that goes along with it, like widespread job losses and a shrinking economy. But the real world outcome can be way more complicated. For one real-time example, let's look at Argentina. Like the United States, Argentina is experiencing demand pull inflation. Prices are up because they have been pulled up by demand. In the early 2000s in Argentina, the government instituted a lot of widespread welfare programs that drove government spending up beyond what the government could afford. Currently, the Argentinian government

is pretty much printing money to pay for costs and service the debt. The result? Out of control inflation. Look, we were freaked out because inflation went up to 9% in the States. In Argentina, the inflation rate has shot past 100%. This has completely widened the gap between the rich and the poor in Argentina, and many of the country's poor are deeply struggling and going hungry. Yet for the middle and upper class, there is no better time to go out to dinner, and therefore the restaurant scene there is actually thriving. Partly this is because inflation has put a vacation or even a new car out of reach for most people, and there's no point in saving when inflation eats away at the value of a family's money. So people go out and they

eat cake because it seems like doing anything else with their money is pointless. And guess what all that demand does? It pulls up food prices. And so the spiral goes on. This economy is dealing with some terrifying inflation, and yet you wouldn't know it from the crowd at brunch. But inflation doesn't always look the way we expect it to, nor does its causes. In Sweden, the inflation rate, which is around 8%, didn't go down as much as expected in May. The reason was the queen. Not the queen of Sweden, but rather Queen Bey. Beyonce's renaissance tour kicked off in Sweden in May with fans flying in from all around the world to see the icon in action. The result? Sweden's inflation numbers stayed steady and failed to drop as much as had been projected. Well, not everyone agrees with the Beyonce theory

of supply and demand causing the strong inflation numbers, but as she says, she's just that girl. What is hard to believe, depending on where you live, is a recent report that inflation is basically over if you're in the correct zip code, but still blistering hot in other locations. All of those new hot cities like Miami, Phoenix, and Atlanta, which have experienced a big influx of new residents, are suffering under some crazy inflation rates. In Miami, for example, inflation is up 9%. Those high costs are driven in large part by the increase in housing costs in those areas. For cities and states that have experienced an exodus of residents, the experience has been quite different. For New York, Los Angeles,

and Honolulu, inflation is currently below the 4% mark. That doesn't mean that will be your experience at the pump or in line at the grocery store, but that's what the latest data suggests. Now let's wrap up by focusing on the housing prices story and use New Zealand as our real life example. Now they have long had one of the most notoriously expensive housing markets. It's a small island with a limited supply of houses, so supply and demand is not on the homebuyer's side. But during the pandemic, this already overpriced market got far worse, with housing prices rising 40%. And that's not 40% of an

affordable price, that's 40% on some of the most expensive housing in the world. More recently, housing prices are down 18%, but interest rates are up. So even though houses are slightly cheaper, the interest still makes them unaffordable. The high cost of construction coupled with strict zoning laws makes it difficult to build more housing to meet the demand. To compound the issue, the country recently dipped into a recession. The result is that people are living in houses that are worth less than what they paid for them and are unable to sell them because no one has money to buy them. Unlike Beyonce in Sweden, the problem is deeply rooted and has a longer history than even Argentina's trouble.

While these examples all have something to teach us, they don't necessarily predict anything about the state of the U.S. economy any more than the terms bull or bear market can tell you about what will happen to the stock market in the future. We can only understand what has been. What will be is always much more difficult. But if we do understand what has been, we can make informed, smart decisions around how to protect ourselves in an uncertain future. For today's tip, you can take straight to the bank. If you have extra money in savings and you're worried that your bank doesn't offer enough interest to combat inflation, you can invest in a CD ladder, which is like spacing out high yield investments. You can do this by dividing up your money into equal parts, say 12 parts, and start buying CDs. If you buy

one year CDs every month for a year, you will consistently have some savings available as they mature while the rest is locked up but earning extra interest. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you.

No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.