Why Investors May be Irrationally Exuberant Right Now

Liz Young, Chief Investment Strategist at SoFi, climbs back aboard The Express to explain why investors may be overly optimistic right now, and what key signals to watch for in the coming months to tell us that the coast is really clearing. Plus, consumer credit stretches to new all-time highs as the Federal Reserve battles sticky high inflation. We discuss why this may become an even bigger problem as the economy slows.

Meet Liz Young

Liz Young is SoFi’s Head of Investment Strategy, responsible for providing economic and market insights to a variety of audiences. Prior to joining SoFi, Liz was the Director of Market Strategy at BNY Mellon Investment Management, where she formulated and delivered views on macroeconomic themes and their effects on capital markets.

What's in This Episode?

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Terms of the Week: Business Cycle and Short Selling

You heard Liz Young's favorite term these days—the business cycle. Business cycles are comprised of concerted cyclical upswings and downswings in the broad measures of economic activity—output, employment, income, and sales. Those are key indicators that foretell a recession or an expansion.

We're going to do a daily double this week and give you two terms for the price of one. And this week, our term suggestion comes from Maria Jose Leiva on Instagram, who want to learn more about short selling, and what it means to short a stock or a security. Well, according to my favorite website, a short, or a short position is created when a trader sells a security first, with the intention of repurchasing it, or covering it later, at a lower price.

In short selling, a position is opened by borrowing shares of a stock or other asset that the investor believes will decrease in value. The investor then sells these borrowed shares to buyers willing to pay the market price. Before the borrowed shares must be returned, the trader is betting that the price will continue to decline and they can purchase the shares at a lower cost. The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity.

Great suggestion, Maria. We're going to be sending you some of our finest socks for picking this week's term. And a pro tip—they don't go great with shorts, but i guess that depends on who's wearing them.

Links for Show Notes

• SoFi: Liz Looks at How Long This Will Take
• The Important Part Podcast: Investing with Liz Young
• Business Cycle: What It Is, How to Measure It, Four Phases
• Short Selling: Definition, Pros, Cons, Examples
• Short Selling Basics
• Explanation of the FAIR Plan
• Black Business History Month: Ernesta Procope
• Federal Reserve Bank of New York: Household Debt and Credit Report (Q4 2022)