Course Goals & Overview:
Economics – if not dismal, the “science” can certainly be frustrating. Ask yourself, do weak employment figures portend a decline in corporate profits and falling equity prices, or does it signal potential intervention from the central bank and rising equity prices? Exasperating, right?
The application of economic data to real world investment decisions often requires a secondary and even tertiary analysis of its meaning. Said differently, using economic data in the real world is more a “sentiment game” than a mathematical formula. What is a sentiment game? Keynes would describe it as a newspaper beauty contest, but more technically it’s a strategic interaction between multiple players seeking to ascertain not necessarily their interpretation of a given set of information, but the interpretation and reaction of the other players in the game.
This Global Macroeconomics course examines the practice of interpreting economic information in a way that is helpful to decision makers. We address key theoretical concepts including basic macroeconomics, the business and debt cycles, monetary and fiscal policy, and international trade; but also leave the ivory tower to examine actual economic releases and discuss not what “should” happen but what does or can happen.
The course is broadly divided into two sections: Core Concepts and Key Economic Indicators & Data Series. The Core Concepts section of the course covers introductory economic theories and models that are required background information for economic analysis. This is done through an explanation of content followed by a real world example taken from a leading financial news source. The second portion of the course looks at key economic data series including among others, employment figures, price levels, monetary policy measures, and business/consumer activity measures. We use recent economic data to make it more applicable to current investment decisions and avoid the obfuscation that often accompanies older data sets.
Students should walk away with a better understanding of basic economic theory, how it translates into real world application, and knowledge about the distribution of and meaning behind important economic indicators. This is perfect for investment decision makers looking to integrate economic analysis into their decision making process or more experienced “economists” looking for a review of key concepts.
- Basic Macro: fundamental understanding of the global economy; aggregate supply/demand, gaps, stagflation, etc
- Business & Debt Cycles: determinants of economic growth, Neoclassical vs. Keynesian economics and implications
- Monetary and Fiscal Policy: monetary vs. fiscal policy impacts and trading implications for rates trading desks
- International Trade: comparative advantage and impact of trade treaties on trading strategy
- Balance of Payments and FX: impact of balance of payments and foreign exchange trade strategies
Key Economic Indicators & Data Series:
- Understand what each indicator is, importance of and strengths and limitations of each of the following:
- Business Activity: business outlook, durable goods & factory orders report, production, capacity utilization and others
- Employment: employment cost index, employment situation, jobless claims report and related employment figures
- Real Estate: existing home sales, housing starts, new residential sales
- Prices: consumer price index, headline vs. core, producer price index
- Monetary: Federal Reserve Beige Book, Fed communications and signaling, money supply, commercial banks
- Consumer: consumer confidence index, consumer sentiment index, consumer credit report, personal income
- International and Output: international transactions, GDP, productivity and costs
- Other: commodities, 10-year government bonds, currencies, other miscellaneous indicators