Wifey

Wifey

27-08-2022

19:23

This thread will cover 11 macroeconomic indicators that are helpful for measuring πŸ‘‡πŸ‘‡πŸ‘‡ Inflation, Fear and Uncertainty This 🧡 will discuss when to look, where to look, what to watch for, what it means, what steps to take and risk level.

The Indicators covered are; 1) GDP Deflator 2) Gold Price 3) Misery Index 4) Producer Price Index 5) Retail Investment Activity 6) Credit Spreads 7) Ted Spread 8) Texas Zombie Bank Ratio 9) TIPS Spread 10) VIX Index 11) VIXEN Index

1) GDP DEFLATOR 8.30am ET, 3rd or 4th week of the month. Data comes out with GDP. FRED database / / Market Data Center Changes in relative inflation rates between two countries.

The currency of the country experiencing more inflation will eventually depreciate vis-a-vis the other. Buy the currency experiencing relatively less inflation and sit out the short-term fluctuations and government interventions. Risk Level: Astronomical

When demand for gold increases, investors fear inflation, near economic implosion or geopolitical instability. Long (short) gold on the first hint of inflation or catastrophe, man-made or natural. Risk Level: High

3) MISERY INDEX Whenever inflation rates or unemployment rates change. Get the components of the Misery Index from unemployment rate and CPI inflation rate. / A rising (falling) Misery Index

Incumbent politicians are in trouble and Fed bashing will be on the rise (decline) Look for changes (the status quo) in Washington and at the Fed. Risk Level: Average

4) PRODUCER PRICE INDEX 8.30 ET around the middle of the month / historical data is available via FRED Unexpected increased (decreases) in the core PPI three or five month moving average.

Inflation may be about to go wild (deflate drastically) Get in and out of inflation hedges like TIPS, Gold, less inflationary currencies, or call/put options on bonds. Risk Level: High

5) RETAIL INVESTMENT ACTIVITY Catch as you can. FRC doesn’t provide the funds flow data to just anyone. Have to be a big institution / corporation. View to estimate AUM flows.

Changes in retail investor sentiment as measured by investment flows into (out of) different types of funds. Look for record flows of funds into (out) different asset classes.

A record outflow (inflow) of funds from a certain asset could signal that the end of bull (bear) market. Buy when retail sells and sell when retail buys. Risk level: Medium

6) CREDIT SPREADS: THE RISK STRUCTURE OF INTEREST RATES Each business day FRED database Narrowing (widening) credit spreads

The economy is going to grow (shrink) that quarter and next. Buy stocks and commodities (buy US T-bills, gold and hold cash) Risk Level: Medium

7) TED SPREAD Look continuously. Calculate Ted Spread by taking Libor rates and subtracting US T-bill rates. Increases and decreases in Ted Spread.

Banks will be lending less (more) in the near future, slowing (stimulating) the economy. Appropriate cyclical investments. Lowering exposure incrementally to riskier assets like stocks as Ted Spreads widen. Risk level: Medium

8) TEXAS ZOMBIE BANK RATIO Look daily. The Federal Deposit Insurance Corporation (FDIC) data can also be accessed here Alternatively look at publicly traded bank stocks quarterly earnings 10Q or annual releases 10K.

Increases (decreases) in the Texas Ratio (nonperforming assets / tangible capital) The bank or banking sector is more (less) likely to fail. Sell (buy) the bank or sector esp as the ratio approaches the zombie land of 100%. Risk Level: Medium

9) TIPS SPREAD Look daily. FRED database / Sustained inflation > (<) 2% as measured by TIPS spread. Fed will likely hike (cut) interest rates Appropriate cyclical investments. Fed to hike, risk-off. Fed to cut, risk-on Risk level: Medium

10) VIX INDEX Most business days. Look continuously. Watch for upward spike in VIX (one should not quote VIX in % terms but look for > +20% intraday)

There may be excess fear in the markets and ready for a bounce in stocks. Buy SPY the morning after the spike and sell it at the end of the day. Risk level: Super Astronomical

11) VIXEN INDEX Look whenever you visit a restaurant. Also called the Hot Waitress Index. An increase in the attractiveness of local waitstaff. Well paid jobs where beauty is required are scarce. The economy is softer than the pudding you just ordered.

Ask out the hot waitress (only if you have no wifey or equivalent) then buy defensive stocks like utilities, food staples and pharma. Risk level: Depends on your game


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