Seven Indicators That Move Markets: Forecasting Future Market Movements for Profitable Investments

by Paul Kasriel, Keith Schap

Overview

How to understand­­and profit from­­reliable and easy-to-use indicators that are often overlooked by the popular press

Seven Indicators That Move Markets reveals easy-to-use indicators that have been shown to actually forecast where the financial markets are going next. These indicators, widely available in daily newspapers and on the Internet, provide continuously updated figures and data that describe what market users are thinking today­­and where the markets could be headed tomorrow.

This timely book shows savvy investors where and when to look for these market indicators, how to use them to structure investment strategies, and which asset allocations work best for specific market conditions. It contains hands-on techniques for:

• Filtering fact from rumor in the financial press
• Understanding relationships between indicators and investment choices
• Evaluating market data in relation to Fed policy

Product Details

ISBN-13:	9780071399852
Publisher:	McGraw Hill LLC
Publication date:	12/21/2001
Sold by:	Barnes & Noble
Format:	eBook
Pages:	224
File size:	4 MB

About the Author

Paul Kasriel, director of economic research for The Northern Trust Company, is responsible for making the corporation's economic and interest-rate forecasts. Through his economic and financial commentaries, Kasriel has developed a loyal following in the financial community. He is often quoted in national publications including Barron's, BusinessWeek, Investor's Business Daily, and The New York Times, and he has appeared on CNN, CNBC, and PBS.

Keith Schap is a writer in the market and product development department of the Chicago Board of Trade. Previously a senior editor with Futures magazine, where he developed market outlooks for numerous markets, Schap has contributed over 300 articles to magazines and journals including Futures, Treasury and Risk Management, and Derivative Strategies.

Table of Contents

	Preface	xi
Chapter 1.	Market Indicators for a New Investment Era	1
	Who	2
	The Legendary Perfect Trade	3
	Patience, Persistence, and Probability	4
	Concrete, Public, and Forward-Looking	5
	A Market Can't Think, or Maybe It Can	9
	A Glimpse at the Structure of This Book	10
	A Suggestion about How to Use This Book	11
Chapter 2.	The Role of the Fed	13
	The Fed's Balancing Act	14
	Where the Government-Sponsored Enterprises Fit In	15
	How the Fed Works	18
	The Fed Is Irrelevant? Guess Again	20
	Two Basic Ideas	22
	Transfer Credit and Created Credit	23
Chapter 3.	Fed Funds Spreads Can Shed Light on Future Fed Actions	29
	Defining Fed Funds Futures	30
	Deriving the Market Consensus	31
	Tracking a Shifting Consensus	34
	Shifting from a Stable Outlook to Expectations of Tightening	36
	Tracking a Growing Consensus	38
	Finding the Probability of a Fed Policy Shift	40
	A Valuable Tool	41
Chapter 4.	Yield-Curve Shape Changes Foretell Economic Developments	43
	Flatter-Steeper	45
	Yield Curves As Indicators	45
	Accounting for Yield-Curve Shape	47
	Complicating Our Understanding of Yield-Curve Shape	49
	Supply-Demand Pressure Counts, Too	51
	Don't Forget This Is the Information Age	53
	Credit Supply-Credit Demand	54
	The Problem with the Treasury Yield Curve As Benchmark	57
Chapter 5.	TEDs, TAGs, and the Credit Story	59
	Pricing Credit in the Bond Market	60
	The Plot Thickens	61
	The Original TED Spread	65
	The Market Took a Longer Look at the TED	69
	Term TEDs Reflect Market Concerns	70
	TAG Spreads Tell the Same Story As Term TEDs	73
	Calculating the TAG Spread	74
	Relating TAGs and TEDs	75
Chapter 6.	Volatility--An Indicator of Market Potential	79
	Looking Back and Looking Forward	81
	Scaling Volatility Information to Your Investment Horizon	86
	A More Advanced Idea	87
	A Note on the Psychology of Volatility	90
	Volatility Can Help with Timing	92
	Why Heating Oil Is Relevant	93
	Developing a Sense of How Far Down Down Might Be	99
	Tying Stock Prices to Oil Prices	100
	What the Markets Suggest	102
	A Word of Caution	103
Chapter 7.	Futures Price Relationships Enrich the Story	105
	The Basis	106
	The Force of Arbitrage	107
	Commodity Spreads	109
	A Sense of History	112
	The Energy Markets Signal Similar Storage Messages	114
	Gauging the Profitability of Refining	118
	The Time to Act	120
Chapter 8.	Commodity Prices--The Next Link in the Chain	123
	The Trouble with Commodity Indexes	123
	Supply Shocks Can Blur Signals	124
	A Demand-Driven Index Seems a Better Forecaster	126
	Copper: Everyman's Economist	128
	A Look at the Futures Price Spreads	130
	The LME Markets Reinforce the Copper Story	138
	Oil Matters in Evaluating the Potential for Inflation	138
	The Trouble with Gold	142
Chapter 9.	Changing Rules and Noisy Markets	145
	Deregulating a Good Indicator	146
	The Effect of Deposit-Rate Deregulation on the Relationship between the Yield Curve and Economic Growth	147
	The Treasury Buyback Distorts a Useful Indicator	148
	The Traditional TED Was Not "Too Big to Fail"	149
	Markets Can Get Noisy	151
Chapter 10.	Putting the Market Indicators to Work	161
	A Framework for Predicting and Interpreting Economic Events	161
	Investing a Step at a Time	164
	The Yield Spread Provides Early Warning	164
	Reading the Exhibits	168
	Motivating the Use of Aaa Corporate Yields	168
	Industrial Commodity Prices Should Follow the Yield Curve	170
	Credit Spreads Provide Further Evidence	170
	Assumptions about Investing	174
	Market Indicators Prompt Asset Allocation Shifts	175
	The Conflict between Good Policy and Human Nature	176
	Indications of When to Shift Assets	178
	Volatility Can Help You Think about Turning Points	179
	Typical Consumer Behavior Argues for Strategic Discretion	181
	Housing Starts Tell a Similar Story	181
	A Framework, Not a Final Answer	184
	Glossary	187
	Index	193