SIE 19 - Economic Factors

  1. What are leading economic indicators?
    • Building permits, private housing units
    • Mfgr. new goods orders, consumer goods, non-defense capital goods
    • S&P 500 Index
    • Initial claims for unemployment insurance
    • Interest rate spreads, 10 year t-bonds
  2. What are coincident economic indicators?
    • Index of industrial production
    • Non-farming payrolls
    • Personal income (less transfer payments)
  3. What are lagging economic indicators?
    • CPI for service
    • Prime rate charged by banks
    • Unemployment duration
  4. What are the 4 interest rates?
    • Prime rate - bank charged to corporate clients
    • Discount rate - federal reserve bank charged to member banks
    • Federal funds rate - bank to bank for overnight loans
    • Call money rate - bank loaning to B/Ds for margin
  5. What is a cyclical stock?
    • They run parallel to changes in the economy (e.g. tool companies, automotive).
    • Good for expansionary times.
  6. What is a growth stock?
    • Stocks that grow faster than the economy
    • They reinvest most earnings, pay little or no dividends
    • They are riskier but with more potential
    • High P/E
    • Low div
  7. What is a defensive stock?
    • They are less reactive to changes in the economy (e.g. utilities, tobacco, alcohol, cosmetic, pharma, and food)
    • They do well during contraction.
  8. What is a value stock?
    • They trade at lower prices relative to their worth.
    • Investors may ignore these companies, and investors are considered contrarians.
    • Low P/E
    • High div
  9. Compare Keynesian vs Monetarist policies
    • Keynesian - control taxes/expenditures, fiscal policy, controlled by president and congress
    • Monetarist - control the money supply, controlled by the Fed
  10. What is regulation T?
    Extension of credit by broker-dealers.
  11. What are reserve requirements?
    • The amount of money that a bank must maintain based on a % of deposits.
    • A lower rate means more growth and it's cheaper to buy treasuries.
    • A higher rate means less growth and you want to sell treasuries.
Card Set
SIE 19 - Economic Factors
SIE 19 - Economic Factors