The Lemonade Times Vol. 19

🍋 Hi, Lemonade Squad! It's Summer! 👋

This week we're going to learn why stock market grown-ups talk about BULLS and BEARS all day. 🐂🐻 Then we'll find out what a "recession" really means (spoiler: it's when the economy gets a cold). And in Lemonade Picks, get ready for a BIG surprise about McDonald's. Hint: their biggest secret isn't even about food!

Oh, and the stock market just finished its 9th week in a row of gains. NINE! That hasn't happened in a long time. Let's go! 🍋

Stocks finished ANOTHER positive week, making it 9 weeks in a row of gains! Remember our cookie tree from last week? The market is having one heck of a cookie season right now. 🍪

The big news this week:

1. Iran Peace Hopes Heating Up 🕊️ Talks between the U.S. and Iran kept moving forward last week. Just the HOPE of a deal helped keep stocks calm. Oil prices stayed steady, which is good news for everyone!

2. AI Stocks Went CRAZY 🤖 This was the wildest part of the week:

3. PCE Inflation Came In HOT 🔥 On Thursday, the government released the April PCE report (remember? The Fed's favorite way to measure inflation). The number came in at 3.8%, the highest since May 2023. That's WAY above the Fed's 2% goal.

Normally, hot inflation would scare markets. But this time, stocks kept climbing! Why? Because investors think AI excitement is more important right now than inflation worries. (Be careful, though. Markets can change their mind FAST!)

You've probably heard grown-ups on TV say things like "It's a bull market!" or "We're in a bear market." Why on earth are they talking about animals when they should be talking about money?

Don't worry, Lemonade Squad. Today you'll understand the secret language of Wall Street!

When the stock market goes UP for a long time (months or years), grown-ups call it a bull market.

Why a bull? Imagine a bull fighting. How does it attack? It throws its head and horns UP into the air! 🐂⬆️

So when stocks are going UP, it's a BULL market. Easy to remember, right?

In a bull market:

Right now, we're in a bull market! The S&P 500 just had its 9th week in a row of gains. That's a happy bull stomping its hooves! 🎉

When the stock market goes DOWN a lot (usually 20% or more from its high), grown-ups call it a bear market.

Why a bear? Imagine a bear attacking. How does it strike? It swipes its paws DOWN! 🐻⬇️

So when stocks are going DOWN, it's a BEAR market.

In a bear market:

Bear markets are scary, but here's the cool thing. Throughout history, EVERY bear market has eventually ended, and the bull has come roaring back!

When markets are bullish, people get excited and want to buy everything. When markets are bearish, people get scared and want to sell everything. But smart investors do something different. They stay calm.

Remember Warren Buffett, who we've talked about? He once said: "Be fearful when others are greedy, and be greedy when others are fearful." That's a fancy way of saying: don't follow the crowd!

Last week we learned about economic GROWTH (more bread, more toys, more haircuts!). But what happens when the opposite happens? When the economy STOPS growing and starts shrinking?

That's called a recession. Let's break it down!

Think about a time you had a really bad cold. You felt tired. You couldn't do as much as usual. Maybe you stayed in bed for a few days. You didn't feel like yourself.

That's basically what happens to the economy in a recession. The whole country feels tired and slow.

A recession officially happens when the economy SHRINKS (instead of growing) for at least 6 months. Remember GDP from last week? When a country's GDP goes DOWN for 6 months in a row, that's a recession.

When the economy gets a cold, lots of things happen at once:

1. People Lose Jobs 😔 Companies don't sell as much stuff, so they don't need as many workers. Some people get laid off.

2. Stores Close 🏪 Smaller businesses might not have enough customers to stay open.

3. People Spend Less 💸 When folks are worried about money or losing jobs, they buy less stuff. Birthday parties get smaller. Family vacations get postponed.

4. Stock Market Drops 📉 That's when bear markets often show up! Companies make less profit, so their stocks go down.

It's like a domino effect. One thing leads to another, leads to another.

There are a few common causes:

The COVID recession in 2020 was the SHORTEST in history. It only lasted 2 months. But other recessions have lasted longer. The famous "Great Recession" of 2008 lasted about 18 months!

Here's the important part. Just like a cold, every recession eventually ENDS.

After every recession in U.S. history, the economy has come back STRONGER than before. People got jobs again. Stores reopened. Stock markets hit new highs.

This is called the business cycle. The economy is like seasons. It grows in spring, blooms in summer, then slows down in fall, rests in winter, and grows again in spring. Round and round it goes! 🌸☀️🍂❄️

You might be wondering, "Summer, I'm just a kid. Why do I need to know about recessions?"

Here's why. The whole reason we learn about money is so we're PREPARED for both the good times AND the tough times. People who understand recessions don't panic when they happen. They know it's just the economy taking a nap. And they know how to take advantage of LOW stock prices to plant more cookie trees! 🍪

This week's Lemonade Pick is a company you've DEFINITELY been to. McDonald's!

Ticker: MCD | Traded on: NYSE | Stock Price: ~$279.20

But here's something you probably DIDN'T know. McDonald's biggest secret has NOTHING to do with burgers. Get ready, because this is one of the wildest business stories you'll ever hear. 🤯

McDonald's started way back in 1940. Two brothers named Richard and Maurice McDonald (yes, that's where the name comes from!) opened a small restaurant in California. They invented the "Speedee Service System," which was basically the first super-fast burger kitchen.

Then in 1955, a milkshake machine salesman named Ray Kroc visited their restaurant. He saw something special. He thought McDonald's could be HUGE. He convinced the brothers to let him open more locations all over America.

But here's the problem. Ray Kroc started losing money. Selling 15-cent burgers wasn't very profitable. The company was almost going broke.

Then someone gave Ray Kroc a HUGE secret that changed everything...

A financial expert named Harry Sonneborn told Ray Kroc:

"You're not in the hamburger business. You're in the real estate business!" 😮

What did he mean? Here's the trick.

Instead of letting people who wanted to open McDonald's restaurants (called franchisees) buy or rent their own land, McDonald's would buy the land first and then rent it to the franchisees.

So McDonald's makes money two ways:

And guess what? The rent payments are WAY bigger than the burger fees!

Today, McDonald's has over 36,000 restaurants in over 100 countries.

And guess what? McDonald's owns the LAND under about 45% of those restaurants. They also own about 70% of the buildings!

That makes McDonald's one of the BIGGEST real estate owners on planet Earth. Their real estate is worth over $40 billion! 🏢🏢🏢

A former McDonald's executive once said: "We're not technically in the food business. We're in the real estate business. The only reason we sell hamburgers is because they bring in customers who pay our tenants, who pay us rent."

WOW. Mind = blown. 🤯

Here's why McDonald's real estate strategy is genius:

1. Steady Income 💰 Burger sales can go up and down depending on the economy. But rent? Franchisees pay rent EVERY month, no matter what. Super reliable!

2. Land Gets More Valuable 📈 Over time, land usually gets MORE valuable, not less. So McDonald's is sitting on land that's worth more every year.

3. Low Risk 🛡️ McDonald's doesn't have to actually run most of the restaurants. Franchisees do! That's less work and less risk for McDonald's.

It's almost like McDonald's invented a money cookie tree that just keeps giving cookies. 🍪

Sometimes the most successful companies make money in surprising ways. McDonald's sells burgers, but its REAL business is owning land. Apple sells phones, but its REAL business might be selling services (apps, music, iCloud).

When you look at companies, always ask yourself: "How do they REALLY make money?" The answer might surprise you!

Five questions! How many can you get right?

Q1: When the stock market goes UP for a long time, grown-ups call it a:

Q2: What is a recession?

Q3: What is McDonald's biggest hidden business?

Q4: Why did the stock market keep going UP last week, even though inflation came in HOT?

Q5: What's the BEST thing smart investors do during scary bear markets?

🕵️‍♀️ Check Your Answers!

Scroll down to see if you are a Wall Street Wizard.

"Summer, last week you said quantum computer stocks can jump 25% in one day, then fall 10% the next day. That sounds super scary! Why would anyone want to buy stocks like that?" — Ethan, age 10, New York

Ethan, that is SUCH a smart question! And the honest answer is... most regular people PROBABLY shouldn't buy stocks that are that crazy. 💡

Here's why some investors still do it: they're betting on the FUTURE.

Imagine if you could go back in time to 1976, when Apple was a tiny new company started by two guys in a garage. If you bought $1,000 of Apple stock back then, today it would be worth MILLIONS. But back in 1976, lots of people thought Apple was risky. Why would anyone buy stock in a tiny garage company? Many people thought it would fail.

That's how quantum computer stocks feel today. They MIGHT become the next Apple. Or they might fail completely. Nobody knows for sure!

So who buys these risky stocks?

Here's the key: Smart investors never put ALL their money in one risky thing. They keep most of it in safer investments (like ETFs we learned about) and only use a TINY bit for risky bets.

It's like dessert. Cake is awesome, but you wouldn't eat ONLY cake for every meal. You need real food first, and THEN you can have some cake. Smart investing works the same way! 🎂

Mission 1 — Bull or Bear Spotter 🔍 Watch a TV news clip about the stock market with a parent. How many times do they say "bull" or "bear" or talk about markets going up/down? Make a tally! It might surprise you how often they use those words.

Mission 2 — Recession Time Machine ⏰ Ask a parent or grandparent: "Do you remember any recessions you lived through?" Listen to their stories. What was it like? How did people get through tough times? Real stories teach us SO much!

Mission 3 — McDonald's Detective 🕵️ Next time you pass a McDonald's, look at the building. Ask a parent: "Do you think McDonald's owns this land, or do they rent it?" Then think about what the land in that spot is worth. Bigger cities = more valuable land!

Summer's Reflection: This week we learned that markets have personalities (bulls and bears!). We learned that economies sometimes catch colds (recessions). And we learned that the biggest companies often have hidden secrets (McDonald's is a real estate empire!). The world of money is FULL of surprises, Lemonade Squad. The more curious you get, the more amazing things you'll discover. Keep asking questions, keep learning, and keep planting those cookie trees! See you next week! 🍋

📌 This newsletter is for learning only. Investing always carries risk. Always ask a trusted adult before making any money decisions!