Forecasting the Economy, GDP
OK, it's already pretty hard to forecast stock prices - but at least every stock factor ties down to earnings eventually.
How the hell do banks forecast GDP or rates? Are there any commonly accepted frameworks analogous to a DCF for stocks?
My guess is they have to break down the C + I + G equation, forecast the flow for each component of GDP using leading indicators, then sum it together.
For rates, I guess the shape of the yield curve at least tell us the expectations. Well if Bernanke laid of QE, then the curve tells us a lot of info. I have no idea how someone can forecast rates when it's so in lock with the FED
for S&P - I pulled this from a GS article. "We use six valuation approaches including DDM, uncertainty-based P/E multiple, cyclically-adjusted P/E multiple, price/book and ROE relationship"
.
Can someone point me to a model?
For GDP, I seem to recall using regression forecasts in school, however never really cared because of how flimsy I find that whole process.
Forecasting GDP = reaching into a hat and pulling out a number.
i.e., regression forecasting
I prefer throwing darts at a board, but to each his own.
Economists use multivariate econometric regression analysis to create their forecasts. I agree with other posters that the process is a crapshoot.
Here is how the OECD does it:
http://www.oecd.org/eco/outlook/forecastingmethodsandanalyticaltools.htm
How to truly predict economic and real estate trends (Originally Posted: 01/19/2015)
It's no mystery that our economy is cyclical. Having the ability to predict what the economy will do, when it will occur, and what sectors will flourish is an extremely valuable skill in my opinion. I am aware of the typical indicators that measure our economy, such as GDP, ISM, Capacity Utilization, GDP deflator, etc., but I feel like they are useless at times.
How were investors and developers able to use those metrics to predict the booms/bubbles occurring in Denver, Portland and Seattle? Houston, Dallas and Austin?
I applaud you for giving real estate developers more credit for their intellect than anybody I've seen.
I tend to agree with this. My guess is luck and market diversification are the reasons why certain organizations "bet right" on certain markets.
Well played.
If you build it, they will come. Dyersville, Iowa is clearly the next hot spot for development. I'd start investing immediately to make sure you're ahead of the pack.
Hahaha SB'd. I worked for a small developer whom no one has ever heard of. He was a bonafide Billionaire with a capital B. He was also the most short sighted cook I've ever met. Raising rent on a property at 68% occupancy? Check. Firing over 90% of his property managers in a span of one week and hoping that the corporate office could handle the work remotely? Check. Hiring new property managers and then firing them in less than 10 weeks? Check. Firing, rehiring, refiring, and rehiring the CFO? All on emails cc'd to the entire company for the drama to be publicly displayed? Check.
The fact is that most developers are not highly savvy businessmen; especially in my geographic area, they're simply skilled craftsmen (many if not most have hands on construction experience) who got into the business at the right time. In my old boss' case it didn't hurt that his father in law was a wealthy developer himself.
Population growth, demographics, employment, and industry-specific trends are one place to start. There are short-term cycles to think about if one is a developer but real estate is a long-term, macro game in my mind.
It's helpful to compare costs PSF relative to the last peak (2006-07), and relative to replacement cost. This may seem obvious but it's mind-blowing what people talk themselves into when debt is this cheap
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