economic indicators and indices

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Economic Indicators and Indices

By Mike Lee CFP, RFP, FCIS, MCIM

(Licensed Financial Planner)

No. CMSRL/A3201/2007

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Some Economic Indicators

Money Supply / Liquidity Gross Domestic Product / Income Interest Rate / Interest rate cycle Economic Indices – Leading, Coincidental and Lagging Trade Surplus / Bank Negara Reserves Economic / Business Cycle What is Inflation / Deflation / Stagflation? The Baltic Exchange Dry Index The Volatility Index (VIX) or “Fear” Index The US Dollar Index

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4 Possible Trends in a Recovery

QuickRecovery

DoubleBottom

GradualRecovery

SlowRecovery

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What is Inflation?

Demand exceeds Supply? Too much money chasing too few goods? Money is what money does? Costs of goods and services go up? Value of money goes down?

“The rate at which the general level of prices for goods and services are rising, and subsequently, the purchasing power of money is falling” - Investopedia

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What is Stagflation?

Two words – ‘Stagnant economy & Inflation’

“A condition of slow economic growth and high unemployment – a time of stagnation, followed by high prices and inflation” - Investopedia

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Are economic indicators always beneficial or relevant?

It depends on what is happening in the country and the world. Generally,

economic indicators provide a good guide and direction for planning

purposes.

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Market Change After Crisis(Dow Jones Industrial Index)

Event Reaction Date

Market

Drop1 mth 2 mths 3 mths 8 mths

Iraq invades Kuwait

02 – 23 Aug 1990

-12.6% -0.30% 3.10% 18.9% 23.6%

Gulf War 16 – 17 Jan 1991

3.7% 11.5% 16.2% 16.2% 28.2%

Asian Financial Crisis

07 – 27 Oct 1997

-10.8% 10.8% 11.8% 23.7% 22.1%

US 911 Terror 10 – 21 Sep 2001

-11.6% 14.4% 18.5% 18.9% -12.7%

US-led War against Iraq

20 – 31 Mar 2003

-3.5% 7.5% 9.2% 13.1% 20.4%

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14 Oct 2009

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21 June 2010

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14 Oct 2009

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12 Aug 2009

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21 Dec 09

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6 JAN 2010

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Aug 09

Nov 09

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Nov 09

Aug 09

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Asset Class(Gold Index)

• Gold Coins, jewelry etc.

• Gold Funds (mining stocks)

• Gold ETFs

• Gold Certificates (banks)

• Others

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22.9

Market is down-Be greedy when others are fearful?

Market is up-Be fearful when others are greedy?

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19.23

40.10

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Reversion to the mean

• The Pendulum Swings both ways equally

• What goes down must come up again and vice versa

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Q & ASession