Class Flashcards
Inflation
Things are more expensive
Measured through an index that takes a basket of products
Business cycle
-
GDP rising = peak
Expansion
More jobs
More money
Low unemployment rate
Stimulate the economy
With more dollars= people are spending more
Inflation=increases
Companies rise prices
With all the spending in money=inflation= Fed will increase interest rates=GDP goes down and begins contraction=if continues past 2 quarter and 18 months past that=recession
Problem for fixed income
Inflation= primary factor in purchasing power risk
-
GDP lowering= trough
Less money Less jobs Lower interest rates Inflation down % IR down Higher unemployment
Business cycle stages
-
Inflation rises=
- Interest rates rise
- Money market instruments become a more attractive investment RIGHT when inflation happens
- short term is best
- don’t want long term obligations
Leading Indicators: future
Initial unemployment claims
M2=measure of where we are at
Higher=better position
Lower=worse position
Housing starts
Helped wanted ads
Manufacturer new orders
Lagging indicators: past
Corporate profits Personal savings Prime rate (last rate to move) Duration of unemployment Inventory
Coincident indicators: right now
- GDP right now
- CPI index (inflation up or down)
- Personal income (up or down for individuals) right now
- Industrial production (how much are we producing) right now
- employment RIGHT NOW
Cyclical industries:
If things are good these do good: Buy a new Cars Appliances Durable goods Steel products Don’t need to have but want
If things are bad these do bad
Counter cyclical:
If things are bad, these do good:
- Basic foods (grocery stores) cheaper
- Precious metals
If things are good, these do bad
*counter to a downturn
Defensive industries
Don’t go up and down a ton regardless good or bad:
Clothing Bread Utilities Pharmaceuticals Drug/alcohol
Growth industries:
Emerging markets (market that is new up and coming)
Growth
Blue chip companies (best companies)
- good track record
- good dividends
Special situation industries:
Spin offs
Mergers
Fiscal policy
Changes:
Taxes
Spending
Transfer payment
Government
Keynesian economic policy
Increase consumption
Government spending and then tax more to get the money back
Supply side economic policy
Reverse from Keynesian
Reduce taxes and incentives companies to do more
-hire mire people
Less government spending and more letting business lead the way
Monetary policy
Reserve board
M1:what’s in checking account, amount of money to be spent (smallest)
M2: M1 and different time deposits (cd) get to it quickly but takes alittle longer
M3: M1 and M2 even more?
L: broadest
Short term lending rates
Pretty boys don’t fight
P=prime rate=highest rate
Bank—>commercial
Last rate to change
B= broker call
Bank—>broker dealer
D= discount
US treasury—> bank
Fed directly controls
F=fed fund rate= lowest rate
Bank—>bank
Fed changes=discount changes=broker call changes=prime rate changes
Repurchase agreements
- Loosen credit
- Prime dealer sells bonds to the fed and agrees to repurchase them at a later date
Small risk
Fed giving money to banks.. injecting cash into the money supply so banks can loan money to individuals
Reverse repurchase agreement
Tightening
Fed sells bonds to banks and agrees to repurchase them at a later date
Fed sells bonds to dealer= less money for banks to loan out
Tools of the fed
DORM
Balance of trade
Deficit -Exporting less than we are importing Dollar to decrease in value over time Paying for products GDP going down Surplus Exporting more importing less dollar is stronger Selling stuff and money coming in GDP going up
Balance of trade generality
Getting paid in foreign currency
Exports buy puts
Importers buy calls
Getting paid in US dollar
Exports buy calls
Imports buy puts
Something analysis
Gross sales
Expenses
Operating income
Bond interest expenses
Net income before tax
Taxes
Net income after taxes
Preferred dividend
Earnings for common
Common dividend
Retained earningsTechnical analysis
What are other people doing What are the trends What do the charts say History of what charts say Price and volume histories
