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
What are coincident economic indicators?
- Index of industrial production
- Non-farming payrolls
- Personal income (less transfer payments)
What are lagging economic indicators?
- CPI for service
- Prime rate charged by banks
- Unemployment duration
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
What is a cyclical stock?
- They run parallel to changes in the economy (e.g. tool companies, automotive).
- Good for expansionary times.
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
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.
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
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
What is regulation T?
Extension of credit by broker-dealers.
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.