Check the Nictionary!

Think fast!

Quick–do you know what “basis points” and “monetary policy” are?

What about “bull market” or “bear market”?

You’re hearing a lot of financial terms during the pandemic. But WTF do they even mean?

Remember, money is a language just like anything else. Once you can speak it and understand it, it’s all way less overwhelming. I’ve said it a million times, but it never gets old: they don’t have a Rosetta Stone for money. So let me be that for you. Here’s a quick breakdown of some money terms you might be hearing a lot about right now–straight up, sans jargon

• Recession. Recession is a macroeconomic term that has been traditionally defined as 2 consecutive quarters of economic declines using markers of GDP and unemployment. Now it is seen as a few months of economic decline using real GDP, real income, unemployment numbers, industrial production and wholesale retail sales. We won’t know if we are technically in a recession because economic data is a lagging indicator but many economists say we are.

• Bear Market. A Bear Market happens when the market is off 20% from 52-week highs. We are officially in a bear market. A “bull market” is the opposite and when investment prices go up and the market, well, “charges” ahead.

• Treasuries. Bonds (or “debt” or “paper”) issued by the U.S. government are called Treasuries. They are issued in different increments so sometimes they are called “bills” (T-Bills have less than a year of duration), “notes” (T-Notes have 2, 3, 5, 7, or 10- year durations) and “bonds” (10-30 year duration).

• Corporate Paper. Corporate Paper are bonds issued by companies. They typically have a higher interest rate because they are considered riskier.

• Credit Spread. Credit Spread is the difference between highly rated corporate debt or paper and US Treasuries with the same maturity. “Widening” is bad. “Narrowing” is good. For example, if a US Treasury is trading at 2% and a Corporate bond is trading at 4%...the spread is 2% or 200 basis points. Currently, the credit spread is the widest it has ever been in 20 years except for the financial crisis.

• Basis Points. Basis Points is a fancy way to talk about percentages. One basis point is 0.01%...10 basis points is 0.10%....100 basis points is 1.00%. Wall Street people also say “bps” (read: “bips”).

• Monetary Policy. Monetary Policy refers to moves made by the Federal Reserve. Monetary policy moves typically mean changes in interest rates and the money supply. Fiscal policy, in contrast, refers to what governments can do, namely changing tax rates and levels of government spending to affect the economy.

Now, practice!

Here's the good news: these definitions aren't going anywhere. You don't need to cram in a study session to try and memorize this vocab right this very second. This article, and my Bulletin at large, is a resource for you whenever, wherever you need it. The next time you see "bear market" in the headlines, you can open this article again and refresh your memory. Rinse, lather and repeat until you don't need the Nictionary to decode the headlines. You got this!

xo,

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