The Investor’s Guide to Economic Fundamentals

The Investor’s Guide to Economic Fundamentals can be read from beginning to end of course, but it is also designed to allow the reader to dip into any chapter as desired. For example, the reader interested in the fundamentals of stock markets can go straight to Chapter 13. Or if the immediate interest is in understanding monetary policy, the reader can go directly to Chapter 5. Also, in the glossary the reader will find most of the jargon that is commonly used in the markets, from arbitrage investing to yield curve. A section on websites lists some of the most useful resources, noting especially sites with good links.

Introduction:

The book is structured as follows. Part I (Chapters 1–10) looks at economic fundamentals for investors, to explain how economic forces combine with monetary and fiscal policy to determine interest rates, economic growth and inflation. The chapters start with economic growth and the cycle, moving through inflation, deflation and unemployment to monetary and fiscal policy. In Chapter 4 an assessment of the socalled ‘new economy’ is made. Chapter 7 discusses the feedback from asset prices to the economy and policy, an increasing area of interest to policymakers and the markets. Chapters 8–10 look at international aspects including the exchange rate, trade and globalisation and emerging markets.

Part II (Chapters 11–17) then takes each of the major asset classes in turn and explains how they are assessed using fundamental techniques. Individual chapters cover money markets, bonds, stocks, currencies, property, emerging markets and commodities. Part III concludes with three chapters. Chapter 18 provides a summary of the main body of the book with a table showing the typical response of each asset class to economic events. Chapter 19 looks at different approaches to investment, from market timing to hedge funds and discusses how economic fundamentals are used in each case. Chapter 20 looks at how the fundamentals have changed over the last 10 years and hazards some guesses about future developments.

Although it is very much the author’s contention that the fundamentals are just that, fundamental, in practice there are substantial shifts over time, sometimes caused by changing policy approaches and sometimes due to changes in the economy. Over the last 10 years the most significant changes have been the widespread adoption of inflation targeting, the emergence of deflation, the collapse of the ‘Asian miracle’ and the emergence of historically high stock market valuations. Throughout the book the reader will find sections focusing on a market over a specific period, for example a profile of the last US business cycle or an explanation of the Asia crisis, explaining what happened and why. Naturally, considerable attention is paid to the US economy, but the reader will also find detailed discussions of Japan, Euroland, the UK and emerging economies.

Contents:

• Why Economic Growth Matters
• Business Cycle Fundamentals
• Is Inflation Dead?
• The New Economy: Myth or Reality
• Understanding Central Banks
• Fiscal Policy
• Asset Prices and the Economy
• Globalisation and Capital Flows
• International Linkages
• Emerging Economies
• Money Markets
• Bond Markets
• Stock Markets
• Currency Markets
• Property Markets
• Emerging Markets Investments
• Commodity Markets
• Summary: Economic Fundamentals and Market Performance
• Economic Fundamentals and the Investment Process
• Ten Years of Changing Fundamentals

The Investor's Guide to Economic Fundamentals By John P. Calverley pdf