Soft Patch

What Does it Mean?
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A period of economic slowdown amid a larger trend of economic growth. This buzzword is most often used in the financial media and by the U.S. Federal Reserve to describe a period of economic weakness.

Investopedia Says:
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This term gained popularity when former Federal Reserve Board Chairman Alan Greenspan used it in his review of the overall U.S. economy. Central banks often cut interest rates in an attempt to spur the economy through the soft patch. An example of a soft patch would be an economic slowdown due to rising commodity prices, which is believed to be short term, with the economy growing at a faster rate after the slow patch. 

Shareholder Value

What Does it Mean?
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The value delivered to shareholders because of management's ability to grow earnings, dividends and share price. In other words, shareholder value is the sum of all strategic decisions that affect the firm's ability to efficiently increase the amount of free cash flow over time.

Investopedia Says:
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Making wise investments and generating a healthy return on invested capital are two main drivers of shareholder value. It is no wonder why there is a fine line between responsibly growing shareholder value and doing whatever is needed to generate a profit. Reckless decisions and aggressively chasing profit at the expense of the environment or others can easily cause shareholder value to decline.

Downswing

What Does it Mean?
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A reduction in the overall level of economic or business activity. Downswings may be caused by fluctuations in the business cycle or a variety of macroeconomic events. Downswing may also refer to the downward movement in the value of a security following a period of stable or rising prices.

Investopedia Says:
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A downswing is one of many buzzwords related to poor performance in the market. When interest rates rise, the economy will typically experience a downswing. The new rates make it more difficult for businesses to acquire financing, which results in a lower number of new firms and less expansion.

A downswing in the stock market or a single security will usually occur after the market has peaked. At this point, a bear market starts to occur as prices swing lower.

Stabilization Policy

What Does it Mean?
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A macroeconomic strategy enacted by governments and central banks to keep economic growth stable, along with price levels and unemployment. Ongoing stabilization policy includes monitoring the business cycle and adjusting benchmark interest rates to control aggregate demand in the economy. The goal is to avoid erratic changes in total output, as measured by Gross Domestic Product (GDP) and large changes in inflation; stabilization of these factors generally leads to moderate changes in the employment rate as well.

Investopedia Says:
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Stabilization policies are also used to help an economy recover from a specific economic crisis or shock, such as sovereign debt defaults or a stock market crash. In these instances stabilization policies may come from governments directly through overt legislation, securities reforms, or from international banking groups, such as the World Bank.

As economies become more complex and advanced, top economists believe that maintaining a steady price level and pace of growth is the key to long-term prosperity. When any of the aforementioned variables becomes too volatile, there are unforeseen consequences and effects to the broad economy that keep markets from functioning at their optimum level of efficiency.

Most modern economies employ stabilization policies, with much of the work being done by central banking authorities like the U.S. Federal Reserve Board. Stabilization policy is largely credited with the moderate but positive rates of GDP growth seen in the United States since the early 1980s.

VIX - CBOE Volatility Index

What Does it Mean?
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The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge".

There are three variations of volatility indexes: the VIX tracks the S&P 500, the VXN tracks the Nasdaq 100 and the VXD tracks the Dow Jones Industrial Average.

Investopedia Says:
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The first VIX, introduced by the CBOE in 1993, was a weighted measure of the implied volatility of eight S&P 100 at-the-money put and call options. Ten years later, it expanded to use options based on a broader index, the S&P 500, which allows for a more accurate view of investors' expectations on future market volatility. VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.

Account Reconcilement

What Does it Mean?
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The process of confirming that two separate records of transactions in an account are equal. This can happen internally with a bank or broker, such as between general ledger entries and individual account records. Reconcilement also occurs when a customer of a bank or broker confirms that his or her personal records match what is reported on periodic statements. Ther term can also refer to balancing the books and records of a business with software programs and data entries.

Investopedia Says:
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Account reconcilement within financial institutions is a key regulatory and compliance function, and it is a primary focus for outside regulators in their routine audits of the firm. Customers of these firms should also keep an accurate record and report discrepancies promptly.

With the advent of computer systems to record transactions and client positions, reconciling often amounts to fixing small discrepancies of a few dollars, or even pennies, between one source and another. The longer an error goes uncovered, the more difficult it will be to reconcile the two records.

Credit Crunch

What Does it Mean?
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An economic condition in which investment capital is difficult to obtain. Banks and investors become wary of lending funds to corporations, which drives up the price of debt products for borrowers.

Investopedia Says:
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Credit crunches are usually considered to be an extension of recessions. A credit crunch makes it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults, which results in higher rates. The consequence is a prolonged recession (or slower recovery), which occurs as a result of the shrinking credit supply.

Recognition Lag

What Does it Mean?
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The time lag between when an actual economic shock, such as sudden boom or bust occurs, and when it is recognized by economists, central bankers and the government.

The recognition lag is studied in conjunction with implementation lag and response lag, two other measures of time lags within an economy. Recognition lags may be days, weeks, or months, depending on the nature and severity of the economic shock or shift.

Investopedia Says:
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Followers of the market are familiar with the phenomenon of when economists signal a recession in the economy several months after it has actually begun. This is because it can take several months for data metrics that are studied to predict economic shifts to be aggregated and published for the investing public.

Recession

What Does it Mean?
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A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP).

Investopedia Says:
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Recession is a normal (albeit unpleasant) part of the business cycle; however, one-time crisis events can often trigger the onset of a recession. A recession generally lasts from six to 18 months. Interest rates usually fall in recessionary times to stimulate the economy by offering cheap rates at which to borrow money.

Bailout

What Does it Mean?
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A situation in which a business, individual or government offers money to a failing business in order to prevent the consequences that arise from a business's downfall. Bailouts can take the form of loans, bonds, stocks or cash. They may or may not require reimbursement.

Investopedia Says:
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Bailouts have traditionally occurred in industries or businesses that may be perceived no longer being viable, or are just sustaining huge losses. Typically, these companies employ a large number of people, leading some people to believe that the economy would be unable to sustain such a huge jump in unemployment if the business folded.

For example, Chrysler, a large U.S. automaker was in need of a bailout in the early 1980s. The U.S. government stepped in and offered roughly $1.2 billion to the failing company. Chrysler was able to pay the entire bailout back, and is currently a profitable firm.

One of the biggest bailouts is the one proposed by the U.S. government in 2008 that will see $700 billion put towards bailing out various financial organizations and those affected by the credit crisis.

Credit Crisis

What Does it Mean?
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A crisis which occurs when several financial institutions issue, or were sold through securitization, high-risk loans that start to default. As borrowers default on their loans, the financial institutions which issued the loans stop receiving payments. There follows a period in which financial institutions redefine the riskiness of borrowers, making it difficult for debtors to find creditors.

Investopedia Says:
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In the case of a credit crisis, banks either do not charge enough interest on loans or pay too much for the securitized loan, or the rating system does not rate the risk of the loans correctly