Outside of the stock market, consumers are feeling the ripple effects of rising rates. Mortgage rates on the 30-year fixed hit 4.8%. The median U.S. household now needs 34.2% of gross income to make that monthly payment, up from 29% a year ago. A five-year loan on a new car is 4.2%. That's up from 3.6% in January. And average credit card APR are ticking up as well, hitting 16.4% last week on average. That's up a little bit from January. Back inside the capital markets, the first quarter was a tough time to be a balance and diversified investor. A 60/40 portfolio, 60 stocks, 40 bonds, was down 5.3% in the first quarter. That's the bad news. The good news, according to Ryan Detrick at LPL Finance, the past five times it was down 5% or more saw pretty strong gains the following quarter. Could that be a sign of a bottoming and stabilization for U.S. markets?
Here are a couple of other reasons it could be a lot worse for equity investors. Real yields on government bonds are still negative. Real yields are what investors receive on U.S. government bonds after accounting for inflation. Despite the steep rise in Treasury yields this year, so-called real interest rates are still fairly low. For now, that is providing support for the economy and an incentive for investors to keep seeking returns in riskier assets. The yield on the five year Treasury inflation-protected securities, a benchmark gauge of real interest rates over the next half decade, clocked in at a -0.6%, according to Tradeweb. That was up from about -1.6% at the end of last year, but still well below the 1% level it reached in 2018.
Image courtesy Western Kentucky University
Kyla Scanlon is a writer, investor, researcher, and financial influencer. In addition to her blog, Who is kylascan?, Ms. Scanlon also has a Substack; a podcast, Let’s Appreciate; and is active on Twitter, TikTok, Instagram, and YouTube. Over the years, she has also been an investment partner with On Deck, an associate, with Capital Group, and a contributing author for Seeking Alpha. Additionally, Ms. Scanlon is currently building a new fintech company, Bread.
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Some of the smartest, most engaging content about finance and investing is happening away from traditional media outlets, don’t act so surprised. We do our best around here. But over the past few years, several important new voices have emerged around the financial media bubble, and they are building large followings organically. You’ve heard from many of them on the Express before: Earn Your Leisure, The Wallstreet Trapper, Morgan Housel.
Well, Kyla Scanlon is another rising star in that galaxy, but she didn’t just get here. She’s been trading and blogging for years, but she’s expanded her content platforms on Instagram, TikTok, her podcast, and her Substack, where she has hundreds of thousands of followers. You want to learn about Roblox and the creator economy? Follow Kyla. You want to understand the Fed and interest rates in a way that actually matters to the way you live. Follow Kyla. You want to know about the meaning of the metaverse? You know what to do, follow Kyla. And you know what we did? We brought Kyla onto the Express all the way from beautiful Denver, Colorado. Welcome, Kyla. So good to have you here.
Kyla:
"Yeah. Thanks so much for having me. Super happy to be here."
Caleb:
“Well, let’s start at the very beginning (or close to it). You’ve been trading options and you were trading options since you were a teenager. What got you into options and how did you learn and what were your first days like when you got into the options trading universe?”
Kyla:
“So, for me, it was just something that I could do over the summer. I just really wanted to explore that because I didn’t know a whole lot about money, and it seemed like a cool thing to do. So, I used tastytrade.com, and I went through a learning course and was able to trade through my broker by going through this course, right? Because you’re not supposed to trade under a certain age.”
"And so, that's what I did, and I was really bad at it. Just absolutely horrendous. But I learned a lot through doing a little bit of money at it and just trying to figure out how the market worked. And so, that was my first foray into the financial universe, which I don't really recommend that people do, sort of backwards like that. But it was definitely an interesting learning experience."
Caleb:
“Yeah, you just jumped right over equities, right over index funds and ETFs. You didn’t tiptoe your way in, you jumped into the hottest part of the frying pan to do that. Were you a math person? What was it about options that got you so interested?”
Kyla:
"I mean, it was just more about like the mechanics of it. My dad would talk about it a little bit. He was kind of… dads are sort of sometimes into that kind of stuff. And so, I was like, 'This seems like a cool thing to learn about,' and I really was fascinated by it. I was never like a math brain kid. I was always a reader and a big writer. So, it wasn't that I was drawn to it because of the pure mathematics behind it but definitely found that part fascinating too."
Caleb:
"Well, you started blogging about your trading, which really set the foundation for all the content you're producing today. How would you describe what you do today? What do you do?"
Kyla:
"So, I mean, I guess like a brief background on the blog: I started that back in college. So, a blog on options trading, it was called Scanlon on Stocks. And I wrote for Seeking Alpha in college and sort of had to stop all that once I worked for Capital Group after I graduated school, but kept up the blog in the meantime."
“So now, how I describe what I do is… sort of a synthesizer, a curator. I don’t really like saying ‘content creator,’ which I think is how most people would describe me. But I have a Substack that I publish once a week, and I talk about everything from wheat prices to oil prices to the Fed’s decisions. And then I have a daily TikTok where I try to break down different concepts around, like, the yield curve or what Brainard spoke about—one of the members of the Federal Reserve. And then I also have a YouTube channel where I do longer-form videos on the stock market. And then I also do a lot of different things on Twitter, on Instagram and then TikTok. So, just try to be everywhere. I have a podcast as well. That’s basically my clipped audio.”
"The main goal is just to help more people understand what's going on in the financial universe and to break it down in such an interesting way, or hopefully interesting way, hopefully unique way because I feel like there's not enough art made about finance, and hopefully that's something that I'm helping to to fill the gap in."
Caleb:
“Hey, man, we’re birds of a feather there. I’m an art major who turned into the editor in chief of Investopedia, so I got no business being here either, but I try to do some storytelling around it. So, you’re a puzzle solver also. You’re curious. What piques your curiosity these days about investor behavior, especially over the past year or so? It’s been a very strange time.”
Kyla:
“How much time do you have? I feel like we could talk forever about all the weird stuff that’s happening. I think the meme stocks are really interesting to me, and especially now that they’re upticking again. I found this safe-haven thesis around meme stocks, where people seem to be going towards them in times of uncertainty because they’re like, ‘These seem safe and good,’ and that’s a really confusing to me. I don’t quite understand the whole GME, AMC interest. So, I think that’s something that’s interesting.”
“And then also just how the stock market is responding to this broader uncertainty narrative. It seems like everything the Fed says the stock market is like… and it needs to go up. And so the big question for me is, is there a bubble? And is the bubble going to pop or is it just kind of chug along like this for the next little bit?”
Caleb:
“Let’s talk about consumers because I know you write a lot about them. U.S. consumers, since you and I are among them… Americans love to spend, Kyla, you know that. We’ve been doing a pretty good job of it, even amid raging inflation. As a market and economic philosopher, if you will, what is it about our spending resiliency that fascinates you?”
Kyla:
“I think a lot of people try to compare this to 2008, and I do think that you have a different consumer. Wage growth hasn’t matched inflation, right? But most consumers theoretically are better off than they were previously. So, I think that people are pretty resilient, as you said, right now. You see people spending on cruises, they’re still planning on vacations. There doesn’t seem to be a big pullback in the amount of spending that the consumer is doing.”
“And I think, broadly speaking, the consumer is relatively healthy. You see that in the applications for houses, even though those applications have gone down because mortgage rates have gone up. But you do see better creditworthiness from housing applicants. So, I think that consumers are just out there to spend. I’m not sure if… this is something I’ve also been thinking about: is it a sense of financial nihilism, where it’s kind of like, ‘I just have to spend money and this is just how it is?’ Or do consumers actually have this excess savings? The savings rate has declined, but it’s not terrible. People are doing relatively OK, but are they doing super OK? I don’t think so.”
Caleb:
"I don't either. I do think there are some revenge spending going on out there. You can't deny that. I'm guilty of it as well."
Kyla:
"What I have noticed that people really like to have nice things. I think that we have this sort of like showy, social media society. And if you want to keep up with the Joneses, and literally everybody is the Joneses right now, you kind of have to spend because we're just so chronically online. So, I think that that's a driving force of that as well."
Caleb:
“Guilty as charged as well. I know I’ve done some of that too, but these sometimes do not end very well. Kyla, we’re in April, which is Financial Literacy Month around these parts. Although at Investopedia, and on your blog and on your TikTok, it’s always Financial Literacy Month, but you’ve written about how we need to pare down financial literacy and improve it, not expand it. What’s wrong with financial literacy today? What are you doing to try to change it?”
Kyla:
"I think it is Simon… that said this is about financial literacy, that maybe we should think about what we can make better versus trying to add more things to it. So, the way that I think about it is it has to be almost entertaining. And that's not the best thing ever to say because our brains already melting because of TikTok. But I think that you have to make stuff a little bit more engaging, and you have to make it applicable."
“So, the way that I think about it is, ‘If I can get people to pay attention,’ and the way that you get people to pay attention is by making fun of something or memeifying it a little bit, then you can send them down a rabbit hole. So, my goal right now is to be a little bit more top of funnel for people. And then if they show interest in different concepts, hopefully they’ll look that stuff up. Ideally, as I continue to build out my own financial education concept and company, the goal would be to sort of take… not necessarily gamify it, but just think about how we can have people apply these concepts into things that they already know about, right? So, how can you sort of build your financial model of the world in your head relative to things that you already do?”
“So, everybody goes and spends money at Starbucks or Costco or whatever. And I think if people were able to see the path of how the money that they spend at Starbucks or Costco sort of reverberates down the Costco & Starbucks supply chains… So, you spend money on a coffee, that coffee was made with beans, that money pays a worker, the money pays for the beans, and then all of that goes up into corporate headquarters, all that stuff. I think that we need to do more visualization around the systems that we exist in because everybody is an economic entity.”
"And I think that the biggest issue with financial literacy is that we oftentimes treat people as like, 'Oh, this is something that's separate than you and is optional for you to learn about.' But really, you're part of it, right? And so, I think we just have to make people feel more welcomed, and the way that you can do that is be like, 'Hey, you're you're doing it. You're already doing it. Just… here's some extra knowledge about what you are already doing.'"
Caleb:
"You're a market participant or you're an economic participant, whether you know it or not. And the two key things people don't like talking about, as you know, Kyla: their health and their money. But those are kind of the two things that stress us out the most or that can have the biggest impact on our life. So, I love what you're doing. I can't wait to see what you're building. You started trading options at a pretty young age. You jumped right into the hot part of the frying pan, as I said. What attracted you to options and what have you learned by trading that has helped you in other aspects of your life?"
Kyla:
“Yeah. I mean, I think for me it was just confusing. So, grew up in Kentucky, I was fascinated by the idea of getting out of Kentucky. Figured that if I understood the concept of money that, ideally, I could sort of build a path out of there. And with options, I was more fascinated by what it meant relative to the Greeks and things like that. So, ‘What does a delta mean? What does a gamma mean? How does all of that work?'”
"There's so much mechanical math sometimes behind finance that's… and finance, like a stock, you can sometimes see it as something that like doesn't make sense. Like, why is Tesla going up? Who knows? But like Tesla's options market is so much more mechanical, and it like makes so much more sense because it has to. So, I think what was sort of interesting to me was the how it all interacted. The ecosystem of the options market was really, really fascinating."
Caleb:
“We just wrapped up our Financial Literacy Survey, we’ve put it out there for folks to see. One of the things it shows, Kyla, is that 30% of Gen Z and millennials own cryptocurrency, and a large percentage of them are counting on crypto to help fund their retirement, and they’re planning on retiring younger than older generations now. This is a big generalization. It’s a big survey that we did. But what’s your reaction to that?”
Kyla:
“Wow. I mean, no, that’s great. I own crypto. Huge fan of crypto in some aspects. Definitely have qualms with it too, which I think it’s healthy to not have a balanced take on things like that. But that’s good. I think that Gen Z, which I’m like an older Gen Z… I think that it’s good that they’re interested in crypto because it’s going to be the future of something, right? I think it has a big part of how we think about future interactions, the future of money. I do think that if the Fed ever figures out the CBDC situation, that would be really beneficial. And I think that there’s a lot that they can learn from the crypto universe from that.”
"With regards to retiring, that's something I have a little bit of a thing with because I think a lot of people see crypto as a way to get rich quick, which sure, a lot of people have. But I also think that is not the healthiest mindset to have with certain things. And that might sound preachy, but I just think that if you're going into something to try and make a lot of money off of it, you oftentimes miss the beauty of it. And then if you don't get rich, you get frustrated, and then you just end up like washing your hands entirely of the situation. So, not the biggest fan of that concept. I'm not sure if that's what they meant. But I do think it's very exciting that there's interest and people are purchasing crypto."
The 2022 Investopedia Financial Literacy Survey also found that 28% and just 6% of Gen X and baby boomer respondents, respectfully, own crypto. Twenty-eight percent of millennials expect crypto to help fund their retirement, yet 49% admitted to only having a beginners knowledge of cryptocurrency.
Caleb:
“There’s a lot of interest. It’s one of our most popular subjects here at Investopedia, we get questions about it all the time, and we’re constantly learning about it too. But I don’t disagree with you. In some form or another, digital currency is our future. And maybe the Fed here needs to take a field trip over to El Salvador and see how things are going there now that they made it legal tender. So, it’s so fascinating. Which investors, Kyla, or economists or financial influencers influence you?”
Kyla:
“A lot of people! A lot of people on Twitter I’ve just learn so much from. I was having a conversation, which is crazy, with the Odd Lots podcast. So, Tracy Alloway and Joe Weisenthal, and we were just chatting a little bit in the comments on Twitter, and they’re a huge influence to me. I think they do a great job breaking down macroeconomic concepts, and they’re always so on the ball with like everything that they talk about, and I just learned a ton from them.”
“And then Corey Hoffstein, I think that’s how you say his last name. He’s really great. Then Ben, who specializes in volatility. The whole indie ETF crew… The guys over at ETF Exchange. All those people, I learned a ton from. The Roundhill crew. I mean, there’s so many people. And then fellow finance creators, I learned a ton from Kayla Kilbride… and Dan Toomey. We all have like a little group chat where we talk about stuff. And so, that’s really helpful. And yeah, but I would say Twitter is where I learn the most, and then I am able to have a lot of different threads going on there. Not in terms of who I’m talking to, but just different people that I read, so I can’t even name them all. So, I’m so lucky because of that. There’s so many people, which is which is great.”
Caleb:
"Yeah, I hear you. And folks, we're going to list some of those folks in the show notes here, but I follow some of the same people, and I'll tell you what, Twitter takes its knocks for some things. One thing it's really good at is connecting the financial community. The FinTwit community is amazing. That's how Kyle and I know each other, and that's how I know a lot of the friends that I've met over the years. So, valuable. Kyla, let's do a lightning round. Three questions, quick questions. Ten second responses each, shoot right from the hip. No time to think. I'm just going to blast you, and you blast right back. Are you ready?"
Kyla:
"Yeah, I hope so!"
Caleb:
"Me too. Elon Musk and Twitter. Ten-second reaction."
Kyla:
"Oh, that's… he refiled his form. That SCC division of Elon Musk I'm sure is super happy with them right now."
Caleb:
"I think you're absolutely right. He and the SCC just love each other. They're getting together for the holidays. I can't wait to be there for that. AMC Entertainment buys a gold mine. Your reaction?"
Kyla:
"Berkshire Hathaway of meme stocks."
Caleb:
"Great one. And I will be with the Berkshire Hathaway crew in early May for their annual meeting. We're going to want to talk to them about that as well. OK, last one. Since you mentioned Berkshire Hathaway, Warren Buffett and Charlie Munger?
Kyla:
"They keep on going. I'm impressed. Longevity."
Caleb:
"Absolutely. Longevity in their 90s, still doing the thing and doesn't seem like they're ever going to slow down. I'm looking forward to seeing them next month. All right, Kyla, you know that we are a site built on our investing terms. So many people come to us to learn about those terms and find definitions for stuff. What's your favorite investing term and why? What's the one that speaks to your soul?"
Kyla:
“Oh gosh, I mean, right? The first thing that came to mind immediately, it was inflation, right? So, decline in purchasing power. I think that’s a misunderstood one almost. and it’s so important. I think that there was a survey that came out saying that that’s the thing that people worry the most about. And I think that a lot of people don’t even fundamentally understand what it means. So that’s probably my favorite definition, and I go to the Investopedia page a lot to read about it. So, yeah, that’s my favorite one.”
Caleb:
"You're the one. Thanks for coming by there. We appreciate that."
Kyla:
"I'm the clicks, yeah!"
Caleb:
"That's a lot of clicks. you must be on that page a lot, so we appreciate that. But I hear you, that is term of the moment right now. In our latest Sentiment Survey, that is issue number one, concern number one. And a lot of the other things that are going on are contributing to inflation. So, no matter what, you can't get away from it. Such a pleasure to meet you, Kyla Scanlon. Folks, follow her, kylascan on TikTok, Kyla Scanlan everywhere else, on Instagram, on Twitter. Check out the Substack, there are so many interesting articles and things to read about there. I just kept going through it and kept finding things that piqued my interest. Really good to meet you, and thanks so much for joining the Express."
Kyla:
"Thanks for having me. Appreciate it."
It’s terminology time. Time for us to get smart with the investing term we need to know this week. And this week’s term comes to us from Pat in Chillicothe, Illinois, right there on the Illinois River in lovely Peoria County. Pat suggests Treasury inflation-protected bonds or securities. We like to call them TIPS around here. TIPS are a type of Treasury securities issued by the U.S. government. TIPS are indexed to inflation in order to protect investors from a decline in the purchasing power of their money. As inflation rises, rather than their yields increasing, TIPS instead adjust in price the principal amount in order to maintain their real value.
Heading into 2022, funds focused on Treasury inflation-protected securities, or TIPS, as we call them, were among the top performing asset classes as worries about inflation surged. Then, as the Federal Reserve shifted into inflation fighting mode, those fears began to fade and TIPS performance cooled down too. But then Russia invaded Ukraine, sending energy and other commodity prices soaring. That drove investors back into TIPS to offset losses elsewhere in the bond market. Since February 10, the average inflation-protected bond has risen 1.2%, while the average intermediate core bond fund has fallen nearly 4%. TIPS generally outperform normal Treasury securities when inflation is trending higher than expected. If inflation starts to cool, given rising interest rates, TIPS should follow. Good suggestion, Pat. We're sending you some silky smooth Investopedia socks for your next walk along the Illinois River.
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