The Indicator from Planet Money - Economic lessons learned from Investopedia (and Ferris Bueller)

Starting point is 00:00:00 NPR. This is the indicator from Planet Money. I'm Daryan Woods. And I'm Whalen Wong. Daryon, how many browser tabs do you have open right now? Very personal question, but I have 15 open. You have 15? That's more than me. I'm under 10 today.

Starting point is 00:00:27 Should I feel bad? No, that seems like a very reasonable number of tabs to me. I feel like these days, every new headline has me running to open a new tab, because there is so much to keep up with. I'm reading like you are about trade deficits, the bond market, value-added taxes. And when I'm doing this research, I often find myself on Investopedia.

Starting point is 00:00:50 It's a website with around 40,000 articles on economics and finance topics. It's a really comprehensive website, takes the academic terms, and distills it in this way that is super accessible. The articles are constantly getting updated. Amazing resource. Caleb Silver is the,

Starting point is 00:01:07 editor-in-chief of Investopedia, and he's a friend of the show. What have the last few weeks been like for you? Extremely busy. We have had so many of our readers and people interested in learning or re-learning how global trade works, how the stock market works, we're seeing people get educated or re-educated on how everything works in our economy and how it's changing right now. Trade wars, like life, can come at you pretty fast. So today on the show, Caleb helps us make sense of our current economic moment. He'll walk us through three vocab terms that are spiking on Investopedia lately. Yeah, we have a little US tariff history, plus two ways that

Starting point is 00:01:44 describe how people are trying to play the stock market. Caleb Silver of Investopedia has come on the indicator in the past to talk about the year's most popular terms. And with everything going on in the news, we had to bring them on for a special first quarter look at what people are curious about right now. We asked Caleb to compile a list of hot topics from the last couple of weeks. The lineup included things like countries with the highest tariffs and how to survive a recession. You know, just a little light reading. This is a recession indicator in and of itself. Oh my gosh. It's so true. And we are going to look at three topics today. The first one goes out to all you economic history buffs. It is what were the Smoot-Hawley tariffs, also known as the

Starting point is 00:02:36 tariff act of 1930. Signed by the President Herbert Hoover, despite a thousand economists who are urging him against it, that tariff act, was added an additional 20% tariffs and already a highly tariff goods. And they wanted to protect prices here in the United States. It had the opposite effect. The Smoot-Hawley tariffs have become a historical cautionary tale. Of course, we can't talk about the Smoot-Hawley tariffs without playing this famous clip from the 1986 teen comedy Ferris Bueller's Day.

Starting point is 00:03:06 You know the scene. Oh, yeah. Tariff Act, which anyone raised or lowered, raised tariffs in an effort to collect more revenue for the federal government. A high school teacher played by the actor Ben Stein is lecturing about these tariffs to a bunch of slack-jawed unresponsive students. Did it work? Anyone?

Starting point is 00:03:27 Anyone know the effects? It did not work. And the United States sank deeper into the Great Depression. And this clip has been making the rounds again on. It's fascinating that you have a 95-year-old trade law resurfacing as front and center in the conversation and what's happening with the tariffore and the negotiations today. History doesn't repeat necessarily, but it does rhyme. If we're going to take him literally, what actually rhymes of Great Depression.

Starting point is 00:03:53 How about possible recession? That's very good. Caleb says Investipedia readers do have recession fears on their minds. He says they're also interested in how to navigate the big stock market swings of the last couple of weeks. And that brings us to the next two topics. They're both related to investing. The first one is, what does don't try to catch a falling knife mean? Yeah, I know this one. It's a classic. Yes, it means wait until a price has truly bottomed out before buying. A lot of investors say, hey, maybe I should buy this or that stock because it's down 10% or 20% or maybe I can catch the

Starting point is 00:04:29 bottom here. So we always say at Investopedia, don't try to catch the falling knife. You don't know when the sell-off is going to be over. And yeah, you may miss some of the upside if it rebounds, but at least you're not going to cut yourself if he keeps falling in the process. You know what, Waylon? I actually saw some people juggling knives in the park yesterday. Were they really, you really saw people juggling knives? Would I lie to you, Wailon? No, it's true. You can't conceal these knives. They're just gigantic swords. They were juggling swords. Don't try to catch a falling samurai sword. I don't know how sharp they were. I'm hoping they were a little dull.

Starting point is 00:05:03 But were they catching that? Like when you catch them, when you're juggling, you catch them by the handle? Yes, yes. I should be clear they were catching the handles. But still, it was frightening to watch. That's a good metaphor for the stock market right now. Wow. Don't Catch a Falling Knife is one of these investing tips you might hear,

Starting point is 00:05:22 especially when the stock market is volatile like it's been lately. On the contrary, another trading aphorism is buy the dip. That argues you actually should take advantage of falling prices to, buy a stock or an asset for cheap. So we don't want a dip that is actually a falling knife? No, because in that case, you're going to have a jumbled metaphor and competing advice about how to behave when stocks are dropping. That's true.

Starting point is 00:05:47 Adding to the recent confusion, last week, President Trump posted on Truth Social in all caps, this is a great time to buy. Once again, with feeling, Waylon. This is a great time to buy. This was just hours before he paused a bunch of the new tariffs and stock went up. Caleb says Investapedia readers started searching for the term insider trading when this happened. And we actually did an episode on this yesterday that we'll link to on the show notes. The president was basically saying, there is no falling knife. It's time to buy by the dip.

Starting point is 00:06:19 This has just been one of those times of just intense volatility and uncertainty. And the good side of that is that people are actually trying to get smarter about it and try to figure out what exactly is this and how do I need to interpret it to take action in my own life. Speaking of volatility, we have arrived at our third and final trending Investopedia topic. And this one's a little wonky. It's inverse volatility ETFs. Ooh, that is a mouthful. Don't worry, we will break it down. First, we have ETFs or exchange-traded funds. These are a kind of investment that represent a basket of securities. Those securities could be something like the S&P 500, but also things like gold or Bitcoin. Then you've got volatility.

Starting point is 00:07:02 Financial markets use a measure of volatility called the VIX. It's also known as the Fear Index. The index captures how certain investors are betting stocks will behave in the next month. And lately the VIX or Volatility Index has been very high, screaming like a toddler in a toy store when it's time to go home. And when you see that happening, well, you typically see market declines and a lot of choppiness in the stock market. That's exactly what's been happening.

Starting point is 00:07:27 Combine volatility with ETF and you get an investment fund that tracks this volatility index. But remember, the term is inverse volatility ETF. So with this kind of investment, you make money if the volatility index goes down. Right. So you profit when all the chaos subsides. For every crisis in the stock market or for all the madness that we're seeing, we're seeing a lot of people trying to bet on it and express that bet through these ETFs. Yeah, I mean, this is so interesting to me given what we just talked about, which is this advice of don't try to catch a falling knife. I mean, trying to game out and profit from volatility seems like trying to catch, I don't know, a bucket of falling knives. This seems like, this seems very scary to me.

Starting point is 00:08:16 This seems like a very scary strategy to try to do. It's like trying to catch all the knives in the entire toolkit being thrown at you from above. But those that know how to trade volatility ETFs, hopefully they know what they're doing. This is for advanced investors and advanced traders that have experience with these financial products. If you look up inverse volatility ETFs on Investopedia, you'll actually see some warnings about how risky they are compared with other investments. Not all Investopedia articles merit warnings, but Caleb says this one does. Maybe the Smoot-Hawley tariff article should come at the warning. Yeah, like warning, these tariffs help push the U.S. further into the Great Depression.

Starting point is 00:08:55 Proceed with caution when using this economic policy today. Anyone? Anyone? And once more with feeling. Anyone? This episode was produced by Angel Correras with engineering by Harrison Paul. It was fact-checked by Sierra Juarez. Kicking Cannon is our show's editor and The Indicator is a production of NPR.

Starting point is 00:09:19 And just a heads up for Indicator listeners. We will not have a show tomorrow on Friday, but we will be back Monday with another indicator quiz. Have a great weekend.

The Indicator from Planet Money - Economic lessons learned from Investopedia (and Ferris Bueller)

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