Decoding the Wall Street Journal: International Flavor Friday

Front Page: “Draghi Warns of Lingering Weakness”

Title decoding: important person thinks something is going to be weak?

Poor guy I guess is sick in bed? Wait, who is this Draghi character again? Any article on Europe, China, India you name it will be a tough read for those WSJ subscribers (sound smart pitching: “subs”) living in the U.S. Although we as humans have access to a seemingly endless amount of information with the flick of a computer mouse, there continues to be this monumental disconnect with learning things happening overseas other than a “Greek debt crisis” or “geopolitical upheaval.” Believe it or not, the average investor does little homework on events in China and the UK, accept to have a couple of sentences jotted down on a stock “watch list” (sound smart: a list of stocks one wants to own) from watching CNN.

We think investors are hesitant to jump beyond their domestic comfort zones and read up on the nuances of currencies not called the euro or the dollar, how years of overinvestment in China (sound smart: “hot money” has flowed into the country) will impact our economic fortunes, or how a famine in a remote land will raise the cost of a Starbucks latte. As a good friend of mine has said before, “the economy is like a cycle, baby.”
But understanding the interesting components of what makes an economy spin like a top is vital to ultimate investing success and at the same time, blowing your local newspaper reading boss away at the water cooler. Without further ado, here is your list of Decodable Moments, with an international flare for this Friday the 13th. Let’s finally start to decode the world!

Decodable Moments

• “Mario Draghi”: Newly appointed head of the ECB (that is European Central Bank for newcomers). We would characterize him as comparable to Federal Reserve Chairman Ben Bernanke in job stature, except is a better dresser and likely speaker of more languages than our bearded domestic wonder child.

• “Dovish tone”: Doves are friendly looking birds, and doves in finance encompass the same role as they represent policymakers that favor low interest rates. Also like a bird, the concept of policy doves flies overseas to their elected officials.

• “Accommodative monetary policy”: Could also be called “loose monetary policy.” By keep interest rates low (sound smart today: the rate the Federal Reserve controls, the Fed Funds rate, is currently at 0.25%), the Fed is being “accommodative” to consumers (can buy things with debt on the cheap) and businesses (same deal as consumers).

• “BOE stimulus”: Bank of England maintains a low interest rate for its consumers and businesses to borrow at.

• “Drawing on a refi-operation”: No pens, papers, crayons, or needles here! If a country is drawing on a refi-operation, to keep it simple, it’s begging a central bank for money so that it could meet its financial obligations. One of those obligations could be satisfying “maturing debt” (not 19 year old debt, debt that is due to be repaid) or paying for garbage cleanup.

• “Restructure Greek debt” (or any other debt for that matter): The act of reaching out to creditors and offering them guaranteed money, but less of it than previously expected. Key thing: the guarantee the creditor will get some money.

• “Fiscal tightening measures”: Tightening fiscal plans is a pullback in government spending originally designed to spark economic growth (less building bridges to nowhere).