Economy & Fin. Mkts 2 Summary Intro Quote Econ Basics Role - PDF document

Economy & Fin. Mkts 2 Summary � Intro Quote � Econ Basics � Role players � Macro Indicators � Forecasts Intro quote The economy is like raising children - everyone has an opinion but nobody is an expert 1

Econ Basics � Econ Def � Objectives / Scorecard � S factors/ Resources/ P factors � Entrep/ Coordinator � Human/ Labour � Nat Resources � Cap Goods (manmade) What makes you successful? Ranking Ranking Land Economy Country Area 1970 2013 RSA South Korea Land area does not explain economic ranking 2

What makes you successful? Ranking Ranking Land Economy Country Area 1970 2013 RSA 25 22 28 Germany 63 4 4 Production Factor Germany RSA It is not what you own , but what you ….. know If you think education is expensive, try…. ignorance Econ Basics � Econ Def � Objectives / Scorecard � S factors/ Resources/ P factors � Entrep/ Coordinator � Human/ Labour � Nat Resources � Cap Goods (manmade) � Ways to eke out S (Econ Systems) --> Objectives � Traditions � Mkt econ/ Priv. Sector/ Entrep/ Firms/ Capitalism � Primary Sector � Secondary Sector Price -> Profit-> Prod � Tertiary Sector 3

Econ Basics � Ways to eke out S (Econ Systems) --> Objectives � Traditions � Mkt econ/ Priv. Sector/ Entrep/ Firms/ Capitalism � Primary Sector � Secondary Sector Price -> Profit-> Prod � Tertiary Sector � Plan Econ/ Socialism/ Parastatals/ Gvt � Same sectors � Mixed – Comb Priv Sector & Gvt � How do they compare – Europe vs. USA vs. China? � Econ Systems -Advantages/ Disadvantages? � Some calcs on RSA Sectors Role players � Simple closed economy � Labour (HH) – sell labour to firm � Firm (Entrepr) – sell g&s to labour � Normal econ – add role players � Gvt, Foreign Sector, FM 4

Macro Indicators � Example 2 � Business Cycle Macro Indicators – RSA Bus Cycle 5

Macro Indicators � Bus Cycle & Asset Allocation Bus Cycle ->Asset Allocation Phases of Econ Cycle 6

Bus Cycle ->Asset Allocation Interest rates phases over the Econ phases Bus Cycle ->Asset Allocation Equities allocation over phases 7

Bus Cycle ->Asset Allocation Cash allocation over phases Bus Cycle ->Asset Allocation Bonds allocation over phases 8

Bus Cycle ->Asset Allocation All Assets allocation over all phases Macro Indicators � Leading, Coincident, Lagging � As FM drivers � Assumptions! � Ceteris paribus � All known econ info in FM EMH (surprises move FM) 9

Macro Indicators � Interest rates � Int rate central – determine asset mix for top- down mnger � Infl. Usually “last” link to int. rates � What is the link between int. rates &: � Inflation? � R/$? � Gold P? � BoP CA deficit? � Gvt bgt deficit? � Oil P? Macro Indicators � GDP – levels of econ activity 1970 - 1982 (12 yrs): +46% 1982 – 1994 (12 yrs): +12% 1994 – 2006 (12 yrs): +50% 10

Forecasts � Data types � Cross Section � Time series � Graphs essential -> Picture = 1000 words � Stats tools � Avg � Mode � Median � Std deviation Forecasts � Forecasting techniques � Extrapolation � Leading Indicator � Anticipation Surveys � Econometric Models 11