Economics and the Stock Market
The stock market is full of economics. In fact, some of the best investors of all time are economics graduates. Some of the most famous economics graduates are Warren Buffet and George Soros. Both of these fine men are billionaires.
The stock market can be predicted by leading and lagging indicators. The leading indicators predict future activity and lagging indicators help to point towards a recovery. Some leading indicators are inventory, unemployment claims, building permits, and production efficiency. The two leading indicators that are the most useful are unemployment claims and inventory. Firms will build up inventory before it shows up in earnings and other data. That makes it a good predictor. When unemployment claims go down, it is a good predictor that people are hiring and things are going to improve.
Some of the lagging indicators are the duration of unemployment, interest rates, credit to income ratio, and changes in labor cost per unit sold. The most watched lagging indicators are duration of unemployment and interest rates. Like any economics venture, it is still nearly impossible to predict.
| |
