Money Matters Episode 305- 2023 Wrap Up: Silicon Valley Bank, Inflation Challenges, and the AI Revolution

Money Matters Episode #305

Good morning, everybody. Welcome to the special edition of money matters podcast ever wondered how the tenacious events of financial world in 2023 affect you today? We're unraveling these mysteries from the astonishing collapse of the Silicon Valley bank to the surprising twist in inflation. Federal reserve policies and the explosive growth that we've [00:01:00] seen in AI this year.

We've got it all covered with actionable advice for you. And you know, this episode, I really wanted to do something a little bit different. It's been years since I've done a solo episode, right? Just the idea of, um, not having a guest interview this time and doing a wrap up episode for 2023. So we're not going to put a time constraint on it, but we're going to look at.

All of the different, uh, headlines that were the biggest headlines, right? For the 2023 year and really kind of break it down and how did it affect each and every one of us and maybe even get some actionable items. What can we do with this? So the first one that I wanted to start with is the Silicon Valley Bank Flaps, right?

So this one. You know, I'm going to take you back to spring break for me, because this, this article really broke in, um, in [00:02:00] March. Right. It was when we were all in, in, uh, in spring break mode. Right. And we had decided to go back to San Diego, uh, during COVID we planned a vacation to, to go to San Diego, but that did not work out for most people during COVID, uh, We, we found ourselves in San Diego, but everything was shutting down around us.

Um, and we ended up, you know, leaving halfway during the vacation and instead of flying back, we drove back. Right. So 2023 was going to be our vacation redo for that. And, uh, as we were out in San Diego and we were enjoying the San Diego Zoo and really trying to have a good time there, I remember that Friday, right?

This headline, uh, breaking about the Silicon Valley bank collapse. And we kind of just go through it, um, you know. Step by step here. As far as what happened, um, March 8th, Silicon [00:03:00] Valley announced a 1. 8 billion loss on the sale of securities, including treasuries and mortgage bonds, which had lost significant value over previous year due to aggressive series of interest rate hikes at the Federal Reserve.

So they're kind of blaming the Fed on this one, but we, you know, we'll go to find out that there's more than just the Fed's interest rate. Hikes involved in this, right? There was some mismanagement there. Uh, cryptocurrency had a hand in it, right? Uh, March 9th, shares of Silicon Valley bank fell 60 percent in response to investor concern about the bank's distressed financial position.

And I remember my phone starting to blow up. I was in California when this was going on, but, um, you know, as an invest, uh, investment advisor, uh, the financial sector is one of those areas where even if it's a small regional bank, You're going to see sympathy pains when something this big happens. So people started asking questions, right?

What's going on? What's going on? Um, [00:04:00] you know, and then by the weekend, um, You know, this was one of those things where they had an emergency meeting, right? You know, the administration called in some of the CEOs from some of the biggest banks and, you know, at one point it was, is this bank going to collapse?

And then by Monday morning they had met and they had found a buyer. Right. Um, and so I remember them saying, um, that the FDIC was going to cover the initial, uh, uh, depositors not to exceed the 250, 000 limit. Um, oh, no, I'm sorry. It would include those that exceed the 250, 000 limit. So that was a big deal, right?

When that happened. Um, and then they, You know, they eventually got it hashed out and they got it worked out, but, you know, some of the takeaways from this, how does it, um, does it translate to our everyday life? Right. Um, it, you know, some of the things that, that we need to take into consideration, that's [00:05:00] just good investment advice, right.

Is diversify your banking, right. So having, you know, there's an argument for, um, simplification, making sure that you can see how everything works and that you've got a different accounts in, in one spot, right? But then there's the idea of, of the, uh, SIPIC coverage and the FDIC insurance. Right. And knowing that typically it's up to 250, 000 per depositor.

And so moving that around from different banks, if you are up at that limit, that's one way that, um, that we can learn from this. Right. Um, I know. This didn't affect most people, but the Silicon Valley CEOs that had, you know, 2 million and north of that, they were invested in this. This was a big deal, right?

So, um, and it was a big deal for us when we heard these are this, this, uh, headline drop in early March, we've almost forgotten about it, but it really was a big deal at the beginning here. Right. And then, you know, what else can we do from this? So understanding the FDIC insurance [00:06:00] limits on each of our accounts, where we have our money at, what do we know about those limits?

And just staying informed, right? Having your finger on the pulse, knowing, uh, what's going on in the market. Um, this is one of those things as an IT manager, um, I'm able to react real time. Um, other people will have kind of a buy and hold approach. And so each one is going to be different when it comes to how they would react to something like this in the market.

Right. Um, Okay. And let's go on to, uh, the next topic that I wanted to talk about. And this one is going to be, this is a biggie, right? This is going to be the inflation, uh, and federal reserve policies. Right. So, you know, this has been a thing all year. The, the, the fed has been a thing all year. Um, and we have what I call recency bias, uh, or even let's just call it amnesia, right?

Cause every time the fed raises [00:07:00] rates, um, the market goes down and then it usually will get a prop, uh, you know, a couple of months after that, or a month after that, about 30 days after it. And we forget, you know, you know, this is the pattern that we see, um, this, how has this affected us, you know, over the.

2023. So personally, I can remember, uh, the meme headlines coming up with the, the eggs, right? The price of eggs being super duper expensive. When you go into the grocery store, people freaking out about the price of gas, right? Um, the, these are all very real things that affect us on a day to day basis. We talk about inflation all the time, but no, you know, many years inflation was somewhere between three to 4%.

And so when we see it spike up, um, that, that is a big thing. Right? Um, and the feds really got only one tool in its toolbox. It can either lower rates or, uh, uh, raise rates. Right? And [00:08:00] so one of the things that they, they've done a really hard job, right? It's a tough job. It's an art, not a science, right?

They're trying to find that sweet spot where interest rates are attractive enough to get people that, like myself, who will go to cash and downturns, um, not across the board, but in, in, um, in certain sectors, I'll go to cash. And they're trying to get people like me to come off of the sidelines and go back into bonds, right?

And, um, there, I'm going to, you know, point people back to, uh, let me bring. This up here, I'm going to point people back to episode number. 1. 20, where we had Dr. Robert Johnson on the show. Um, Dr. Johnson wrote a book called, um, invest with the Fed. Right. And so I, I, you know, I strongly encourage people go to go back and listen to this because none of this stuff should be a surprise, right, right.

[00:09:00] Um, we, we should, um, you know, I'm half joking here, but we should see a pattern here, um, So, you know, the, the, the feds job is to get people who are in cash back into bonds. But what does that mean to us as an investor? Um, you know, if you look in these periods where they raise rates, uh, your drag in your portfolio often is going to be the bond section, right?

So you can look and you might see equities going up, but you'll see bonds going down and people are shocked by that because they think, you know, If I'm a conservative investor, they tell me to put money in bonds. Bonds can only go up. Well, straight bonds can go only go up, but bond funds can actually go down.

Right. And they usually don't go down a whole bunch. It's like single digits. Um, but in general, people aren't expecting that. Um, and so that's, that's something to know. It's something to, um. To take into consideration, what can we do? What are some actionable, [00:10:00] actionable steps from the whole Fed thing? I mean, if we look at what's going on, this is today, right?

This just happened in December, the Fed met again, and the picture's changed, you know, now, uh, we're, we're standing steady on interest rates. And now there's even whispers on Wall Street that they might lower rates next year, or, um, you know, They might lower rates next year, right? Uh, and so that's good.

That is a, that's a thing that we're not expecting, right? Or, or I'm sorry, raise interest rates. So, um, because of what's happened with inflation, the idea that they're going to bump up, uh, Interest rates again seems crazy, but that means that they've kind of got this soft landing and that what they wanted to happen has actually started working.

Right. Um, so what I would tell people is to reflect on past insights. Let's, you know, I would definitely encourage you to, to go back to, um, episode number one, 20, uh, where we, Spoke with, uh, Robert Johnson about his [00:11:00] book, Invest with the Fed, and it will give you some ideas of what happens when these interest rates things come up.

It's not every year that it works like this. These are, these are, um, uh, exception years, right? When they're raising interest rates on us and, and it's going to affect the market. Uh, re evaluate your finances, right? Re evaluate your finances. And, uh, it might be a good time to adjust your budget investments, keeping in mind that Potential, uh, rate hikes or decreases in the near future.

How does that affect you? Right? Build your emergency funds. So, you know, if inflation's a thing and stuff costs more, having, uh, your cash reserves that you hear me talk about all the time, three to six months of living committed expenses. Uh, it's not a guest number. It is a, um, it's a number that we can work in backwards after we do our budget, right?

We work into having that cash cushion of three to six months. Uh, huge, huge. So, um, And then seeking expert guidance, right? If you have questions on this, if you look at your statement and you see that you're [00:12:00] losing money in the bond funds and it doesn't make sense, ask for help. Reach out to somebody, uh, financial advisor like myself or anybody, um, if you're with Vanguard or Fidelity, uh, they offer some free resources as well.

So go through your retirement, your employer sponsored retirement plan and see what is free and that you can use. To help you kind of go through this and then, you know, tap, definitely tap the hand of the shoulder of an expert. If you need help as well, as we mark a decade of money matters, podcasts, I have a small favor to ask from each of you are valued listeners.

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Your support means the world to us. Now back to the show. And let's go on to the third topic that I wanted to talk about, and that's. AI, right? So this is, this is the kind of what we would say the year of AI, right? Um, but we talked with, uh, Robbie Coca on episode two 96, and he reminded us that, uh, this is not something that is brand new, right?

AI has been a role that, you know, we've been working on this for 20 years or more, um, and you know, what we're seeing recently. Um, with Chet GPT and Claude and Bard and all of those are things that, uh, they've been built on the backs of pioneers like Ravi here. [00:14:00] Um, but this has really been a game changer, you know, as a, uh, as a business owner.

Um, I'll, I'll share with you, you know, my personal thoughts on ai, right? So I'm a contr. If you haven't realized this by now, I'm a contrarian thinker. Um, a lot of times if I hear stuff, um, I'll have to see, you know, like, eh, I don't know. You we're all sick of AI by now, right? It's one of these things that's gotten in the headlines, and we've heard it and we've heard it and we've heard it, but this is one of those things that I did have to go back and look at and examine and decide, you know.

Am I going to, um, to partake Right. in, in ai, right? Because it is a very real thing. Um, in fact, I, you know, kind of got on it as a, I'm late to the party here, right? Um, AI has been one of these things that's been a game changer for both the podcast. And for my business, right? So, um, I [00:15:00] decided to go all in on AI.

I went out and got a, uh, data analytics certification through Vanderbilt. Um, this is if you're a spreadsheet nerd, like myself, or you, you like visualizations, this is a way to a different way than just the prompt engineering, where you can look at AI, but. You know, for the, uh, just for the day to day practice, I've got a team of two.

It's me and my assistant Maria. Um, it's allowed us to use AI as a leverage point where we can compete with these larger companies, right? Uh, we don't have to wait for a team of 12 to make a decision. We can act real time, the two of us, and that Uh, the, the advantage of AI is that there's many things that we're able to automate, um, doing research, day to day things that we're able to do.

Right. Uh, on the podcast side, it's huge. So you, you've probably seen a bump in the amount of stuff that I've been putting out. If you, you know, it is kind of annoying, these emoticons that are on there when chat GPT writes it, it puts all these emoticons on [00:16:00] there. So that's kind of the telltale thing. Um, and so I'm not going to insult your intelligence and say that we're not using AI, we are, and guess what other people are as well, this is the thing that's here to stay.

Right. So, um, so, but I, we call it human assisted, right? Because AI can't really do anything without. Guiding it and pointing it in the right direction. And you know, there is the you know, the ethics of it. But I look at it as any technology. Um, a lot of times we're going to have to go back and put guardrails on it, but the trains already left the station.

Right? Um, I would encourage people. Actionable tips, race, AI tools, uh, if you're a business owner, even if you're, even if you're just, uh, you're not a business owner, but in your current career, right? Think about how many positions that's one of the risks, right? That AI is going to come in and replace, uh, roles that we're currently doing.

But that risk has been around forever as we age and we get older. Um. You know, we evolve [00:17:00] technology evolves, our roles evolve, and we've always had to retool and relearn and keep up with technology. So this is not a new thing. Um, and if anything that you, we, and somebody who's forward looking and we can see the writing on the wall, this stuff is already in, in Microsoft word.

It's. Everywhere that we look, we're seeing, um, AI come on board. So I encourage people to get out of their comfort zone and embrace the tools to go out and learn about it. Um, the course that I just mentioned to you earlier, that Vanderbilt university, that's the Coursera. Uh, it was free. Uh, they also have one that I'm in the process of taking on prompt engineering, which is also free.

So those are two really good ones that I can point you in the way. Be agile, use AI to make quick informed decisions, especially in, in, you know, marketing, uh, if you're a business owner and then listen to the experts. So I would, again, let me pull up, uh, Ravi's, uh, information [00:18:00] here. I would, um, encourage you to listen to episode two 96 and we are right here towards the end.

What I want to do is take this time to share with listeners some of the, um. The things that we're going to be doing in 2024. Um, I want to give you a huge thank you to all who've joined us and, um, dissecting these twists and turns of 2023. Remember each piece of knowledge is a step towards your financial success.

If our show has given you insights, please subscribe, leave a review, or even better drop us a voicemail with your questions or comments. And our new website features this, uh, voicemail thing on the side of it that you can use, uh, your voice matters to us. And we'd love to address your financial curiosities and upcoming episodes.

Stay connected for more empowering content. And until next time, keep navigating your financial journey with confidence. Thank you for being part of the money matters podcast family.

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