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- The Week Ahead: Economic Data Incoming
Hi Everyone š,
Welcome to our Sunday newsletter! Hereās what weāre discussing this week:
GRITās BIG News of the Week:
Hottest News This Week š PPI
Matt Allenās Corner š The Collapse of AIG
Cominā Up š Earnings and Economic Data
1. Hottest News This Week
š£ PPI
On Tuesday, the Producer Price Index (PPI) will provide a key update on wholesale inflation. This indicator measures the price changes that producers receive for their goods, offering insights into inflationary trends. A higher PPI could signal rising inflation, potentially impacting Fed decisions, while a lower PPI might ease inflation concerns
š£ CPI
On Wednesday, the July Consumer Price Index (CPI) will be released, providing crucial insight into consumer inflation trends. Last month, the CPI dropped to an annual rate of 3%, and this release will show whether the downward trend continues.
š£ Retail Sales Numbers
On Thursday, retail sales numbers will be in focus, following July's surprisingly strong report that highlighted robust consumer spending. Investors will be watching to see if this trend continues, as sustained consumer demand could indicate economic resilience.
2. Matt Allenās Corner
The Collapse of AIG
In the chaotic days of the 2008 financial crisis, one of the biggest names to fall was American International Group, better known as AIG. At its peak, AIG was one of the largest insurance companies in the world, but its collapse nearly brought down the entire global financial system. Hereās how it happened
AIG wasnāt just your average insurance company. It was a massive, global financial powerhouse with operations in over 130 countries. While most people knew it for traditional insurance products like life and property insurance, behind the scenes, AIG was deeply involved in complex financial products that ultimately led to its downfall.
The root of AIGās troubles lay in something called credit default swaps (CDS). These are a type of insurance policy for financial institutionsāif a borrower defaulted on a loan, the CDS would pay out. In the early 2000s, AIG became a major player in selling these swaps, especially on mortgage-backed securities (MBS). As the housing market boomed, AIG raked in huge profits by insuring these securities.
Source: Forage
But there was a catch. AIGās Financial Products division, which handled these swaps, didnāt set aside enough reserves to cover potential losses. The assumption was that the housing market would keep growing and defaults would remain low. But when the housing bubble burst, the reality was far different.
As the housing market collapsed in 2007-2008, mortgage defaults soared. This meant that AIG was on the hook for massive payouts on the credit default swaps it had sold. The company didnāt have nearly enough money to cover these obligations, leading to billions in losses.
Investors and counterparties quickly lost confidence in AIG, and its stock price plummeted. Without enough cash or collateral to cover its obligations, AIG faced the very real prospect of bankruptcy. Given AIGās size and its connections to virtually every major financial institution, its failure would have triggered a catastrophic chain reaction across the global financial system.
Recognizing the threat of AIGās collapse, the U.S. government stepped in. In September 2008, the Federal Reserve and the Treasury Department provided AIG with an $85 billion loan, eventually ballooning to over $180 billion in taxpayer money, to keep the company afloat. In return, the government took a nearly 80% equity stake in AIG.
The bailout was hugely controversial, but it was seen as necessary to prevent an even greater economic disaster. Over time, AIG was able to stabilize, sell off assets, and eventually repay the bailout funds, though the episode left a lasting stain on its reputation.
Cheers,
Matt Allen
3. Cominā Up
EARNINGS AND ECONOMIC DATA
š° Earnings:
Monday: Barrick Gold
Tuesday: Home Depot
Wednesday: Cisco Systems
Thursday: Walmart, Alibaba, Applied Materials, John Deere, JD.com
Friday: Flowers Foods
š Major Economic Events:
Monday: N/A
Tuesday: PPI
Wednesday: CPI
Thursday: Initial Jobless claims
Friday: Housing starts
You make most of your money in a bear market, you just donāt realize it at the time.
Shelby Davis
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