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FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

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Page 1: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATION

Economy Update3.9.15

Page 2: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Market update

UnemploymentInflationPolicy rateLabor marketsFinancial marketsPolicy rate expectationsSummary

Page 3: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Economy approaches normal

• Labor markets showed steady improvement in 2014• Broader indexes of labor market performance have risen to their

long-run averages.• Lower longer-term interest rates and lower oil prices in recent

months should provide additional tailwinds for U.S. macroeconomic performance.

Page 4: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Interest rates

• The policy rate remains near zero, where it has been since December 2008, nearly six years ago.

• Can current macro-economic data rationalize the Federal Reserve’s exceptionally low setting of 0.25 percent interest rates?• One possibility is to cite the fact that inflation is running below target

Page 5: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Unemployment

• The unemployment rate has fallen much faster than the FOMC expected, and the fall has recently accelerated.

• Nonfarm payroll employment has also increased faster than anticipated.

• Unemployment and nonfarm payroll employment are the two workhorse indicators of U.S. labor market performance. • Though there are many other possible indicators

Page 6: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Summary for labor markets

• In summary, labor markets continue to improve and are approaching or even exceeding normal performance levels.

• Normal labor markets have not been associated historically with a policy (interest) rate near zero.

• Over the course of 2015, it will become more and more difficult to point to labor market performance as a rationalze for a near-zero policy rate.

Page 7: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Inflation

• The FOMC’s inflation target is 2 percent.• Inflation was above target as of January 2012, but has been running

below target in 2014 and 2015.

Page 8: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Inflation remains low

• The inflation target of the FOMC is 2 percent.• Currently, inflation is running below this target.• Global factors, including low inflation in Europe and lower oil prices,

may be temporarily holding inflation down in the U.S.• Generally, inflation is expected to rise toward the FOMC’s 2 percent

target.

Page 9: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Inflation expectations

• Inflation expectations are one of the most important determinants of actual inflation, according to modern macroeconomic theories

• Most likely, inflation will rise toward the FOMC’s inflation target in coming months and quarters.

• However, this bears careful watching. Inflation and inflation expectations moving away from target is a concern

Page 10: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Recent volatility in financial markets• During the late summer and continuing into October, global financial markets

began to price in the possibility of a global recession based largely on news of a weaker-than-expected European economy.

• My own view has been that such fears were overstated, in part because U.S. macroeconomic fundamentals seem strong.

• However, if such a scenario did develop, the Fed would most certainly respond.• Since mid-October of 2014, this issue has faded as U.S. economic data has

indicated continuing growth.

Page 11: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

The current expected policy rate path

• Currently, markets expect the Federal Reserve to raise the policy rate gradually across 2015.

• This is in accordance with most current projections.

Page 12: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Summary

• The FOMC has indicated that the policy rate is likely to rise this year, with the exact timing dependent on macroeconomic data in coming quarters.

• Analysts sometimes cite the current low level of inflation as a reason why the FOMC may wish to remain at the zero lower bound (ZLB) for even longer.

Page 13: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Alex

Curriculum…1. Financial Economics

a. quanitative finance, consulting, private equity2. stats

a. econometrics 3. Valuation finance

a. energy valuations vs. standard book value valuations, technical analysis4. macroeconomics

Page 14: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Dylan...potential areas of study● IO Economics● Transfer pricing ● b. analytics

○ financial analytics/modeling

Page 15: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Basics of Trading

• Basic Trading Definitions

• Different Products Available

• Fundamental Trading

• Technical Trading

• Overview of stock charts

• Rules for Battle of the Bulls

Page 16: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Basic Trading DefinitionsStock Ticker

- An abbreviation used to identify a stock that is being traded on a particular market

P/E Ratio

- Price to earnings ration, the smaller the better

Market Cap

- Total dollar market value of all of a company’s outstanding shares

Dividend Yield

- Financial ratio of how much a company pays out in dividends compared to it’s stock price

Open

- Opening dollar amount of stock

High/Low

- High and low dollar amounts of the stock throughout the day of trading

Page 17: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Different products available

• Stock• A type of security that signifies ownership in a corporation and represents a claim on part of

the corporation's assets and earnings. There are two main types of stock: common and preferred.

• ETF• Exchange Traded Funds (ETFs) are funds that track indexes like the NASDAQ-100 Index, S&P

500, Dow Jones

• Mutual Funds• An investment program funded by shareholders that trades in diversified holdings and is

professionally managed.

• Options• an option is a contract which gives the buyer the right, but not the obligation, to buy or sell an

underlying asset or instrument at a specified strike price on or before a specified date.

Page 18: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Fundamental Trading

What is fundamental trading:

Fundamental trading is a practice which takes into account the inherent value of a company in order to value it’s stock.

This is a widely used method of trading and is most common associated with Warren Buffet.

Fundamental traders are not interested in short term price changes but rather long term.

Page 19: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Technical Trading

What is technical trading:

Technical trading is a practice that takes into account past market data and current market data in order to predict the future stock price.

Technical traders look primarily at different factors such as volume, price, moving averages, patterns and formations in order to make technical decisions of when to buy and sell financial products.

Technical traders are looking for short term benefits by riding out trends and patterns. They often do not look past one year increments of time.

Page 20: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Page 21: FIANCIAL ECONOMICS ASSOCIATION Economy Update 3.9.15

FIANCIAL ECONOMICS ASSOCIATIONFEA

Battle of the BullsTimeline:

Team registration: April 8th

Battle begins: April 13th

Battle ends: April 27th

Awards and winners announced; April 30th

Rules:

Teams of 2-4

Top 3 teams win cash prizes

How to register:

Please email [email protected] with your team name, members, emails of members.

Further instructions will be received through email correspondence.