Understanding Markets and Economies
Hey WSO,
I'm interested in learning how financial markets and the overall economy work together. For example, I'd like to better understand the fundamentals of all markets and their relation to the overall economy.
I have been trying to gain an intuitive understanding of how economies work, but there are too many books to choose from and many don't seem to talk about the interconnectedness of all markets in an economy.
I have read some of Ray Dalio's "How The Economic Machine Works," its main point is debt cycles and I have become familiar with his thought process. Essentially, I want to start thinking like a hedge fund manager, being able to understand securities and their relations to the overall economy.
Are there any books or articles, that are great starters for someone trying to get familiar with all aspects of the economy. For example, books on debt, stock market, how markets function in general, commodity markets, economy's main driving points and their relation to investing.
Thanks for any feedback and considerations.
- Al
Hi GTBAHFM,
While not a book, I recommend bookmarking PIMCO Insights and check in every now and then.
https://www.pimco.com/insights
PIMCO is known for developing rigorous macro views, and its PMs publish their thoughts on economic drivers and their effects on the markets.
Howard Marks at Oaktree is also an avid blogger, and you can find his materials at:
https://www.oaktreecapital.com/insights/howard-marks-memos
Kelvin
Howard Marks' memos are excellent.
Best route = undergrad degree in economics (macro, micro, labor, money & banking, intl trade, econometrics) (also, ideally, you double major with computer science)
Followed by working on a vanilla rates desk (treasuries, swaps, agencies, mortgages)
Don't you mean ideally double major in excel
Second getting an Econ degree BC you won't find one source to learn everything about the economy. Wealth of nations is a good start though
Here's what I would recommend, just dive in. Read everything you can find, nothing is 'bad' at this point. To start thinking like folks in the markets, you need to fully immerse yourself in them. I could give you a bunch of recommendations, but I don't think that is particularly helpful in this case. Read white papers from all the major banks, think tanks, etc. Most importantly, however, watch the markets. Read the news and always be thinking in relation to what is going on. There is literally no source, white paper or news story that you shouldn't be reading.
Here's one recommendation I will give you: Read older finance books and books about financial history. There is one called lord's of finance, for example, which gives you a great perspective on central banking throughout the early 20th century.
Thanks it's a goal of mine to read everyday for a couple hours. I've purchased the Lord's of Finance and am reading it.
Do you know of any white papers that are great introductions into the concepts of supply and demand, inflation, deflation, credit cycles, monetary and fiscal policies? I feel like these are sort of the top macro concepts that guide the overall direction on markets.
-Alex
http://www.wallstreetoasis.com/blog/stop-reading-the-news-thoughtlessly…
Try that thread out OP. Good stuff in there that should be what you're looking for.
How can I better understand the global economic environment of the past 3-5 years? (Originally Posted: 01/07/2014)
I am trying to keep current, and although reading: the FT, about the Eurozone crisis, China, the financial crisis, other macroeconomic topics that I never really understood has helped me understand the bigger picture and how things work together now, I still feel like I don't truly understand the details of the story of the last few years since the crisis because I only know it at a pretty general level. In theory, going back and reading all the WSJ/FT articles should fill me in, but obviously I don't want to do that. Does anybody know of a good way to pick up a good chronological and detailed understanding of the past few years?
Also interested in the question, good call elemental
Read "The Next Decade". It sums up the last few years and frames them in the context of how the general trajectory of the next decade or so looks. For the larger geopolitical overview, you only need a couple of books given the major powers have already baked in a certain amount of decision making. Start with "The Grand Chessboard".
As for the recession itself, everyone is trying to wrap their heads around it and although I follow it obsessively I haven't found a concise resource that sums it all up. I don't think one has even been written and there's still a LOT that isn't really obvious yet.
Watch the Inside Job
Okay, I'll take a look at those books. And I just watched the Inside Job. Obviously biased, but I did learn some useful things.
I think your best option is to read economic blogs to really get a variety of view points. The issue macro economists have is they treat macroeconomics like a science by sticking to one ideology to explain why something happened. When it is most likely a combination of their ideologies. I think Ray Dalio's video The Economic Machine very practically covers the crisis and stagnation that followed at a high level. Two blogs worth looking at are marginalrevolution(.com) and themoneyillusion(.com). MarginalRevolution focuses on many different aspects of economics; however the authors are very practical, and cover a lot of the information that you want. Also, the links they provide are often as good as the blog posts.
The second blog, themoneyillusion, is much more focused on US monetary policy. The author is biased towards the fed implementing NGDP targeting. Monetary policy likely will never implement the rule the way the author wants; however he does make some really good points that show how monetary policy contributed to the crisis, and until recently, the stagnant recovery. Also, he does spend a lot of time on China, and is one of the few economists that I have read that is arguing that they will continue to grow rapidly.
If you skim these blogs semi frequently you will have a good idea of what is going on in the economy. Also, they both have search functions tied to past posts that will allow you to see their views on stuff that has happened in the last 3-5 years.
Finally, the professors that write MarginalRevolution do offer free video based economic classes at MRuniversity. These courses break the material down into short videos allowing you to only watch the ones that interest you. They do have classes on The Eurozone Crisis and the American Housing Finance Sector.
-
I too agree with UFOinsider. You should read "The Next Decade".
A BBC documentary released in 3 episodes named The Love Of Money could eventually shed some light on the answers you are looking for. It focuses first on the fall of Lehman Brothers, then on the Macroeconomic context which led to the crisis to conclude with the analysis of how the world's key players battled to avoid the worse.
It is focused around the crisis itself but can provide you with some great insights on the period, some of the very people who had a role in all the covered events are interviewed and I found it to be interesting and a good way to refresh my memories.
Hope it will help you out
read:-
the world bank reports,
imf reports,
the economic outlooks,
the Basel 3's impact on the financial world: KPMG and others have analyzed the Basel 3
Reports of the Basel Committee
focus on China: their excess capacity problems since 2005, the interbank assets & related debt & city infrastructure, their interbank rate, the temporary slow down of their exports and expenditure
focus on Japan: Abenomics, deflation and their excess debt and the value of yen
focus on India's gold buying and then capital outflows
the financial crisis, the US dollar, the US mortgage market, Fed's activities
focus on Cyprus
countries trying to switch away from the dollar and the SDRs (Special Drawing Rights)
Commodities such as gold (who was buying, why, how much and for how long: iran, china, india), oil, etc
read Lazard's reports they are usually global in nature and are based on investing
check the CFA webcasts, podcasts
there is no book that can help you summarize all at once but books like The Currency Wars might help
find different articles that cover 2008 - 2013 http://www.forbes.com/sites/realspin/2013/04/12/the-worst-four-years-of-gdp-growth-in-history-yes-we-should-be-worried/
"Understanding the Crash" good elementary resource. I gave this book to a family member who is not very keen on financial theorem, I ended up reading the book and found it very well written.
Read ZEROHEDGE... the writers can sometimes be over dramatic and sensationnalist but they cover alot of topics. Read Yahoo! Finance thestreet.com
If you want to start on the 08 recession, I would highly suggest "After the Music Stopped" by Alan Blinder.
Something that helped me when I got started was and is finviz's news section. It's a news aggregate, brings together reuters/barons/wsj etc. and then you can skim headlines to find articles that pique your interest. It was pretty easy for me to keep track of oil and fed rate progression over the last year with minimal effort. They also incorporate blogger content which I have found informational at times.
Learning Macroeconomics (Originally Posted: 07/06/2011)
With all that's happening in Europe, I'm trying to learn about the global relationships between central banks, interest rates, the sovereign debt and all things related. I'm not sure if this is what is referred to as macroeconomics or is it monetary economics. Please correct me if I'm mistaken.
I'd like to be able to understand and know what the deeper implications are when let's say Portugal's downgrade or something else happens, besides what is written on the wall street journal, cnbc or any other news source or blog. In order to be able to see opportunities or prepare for any consequences that these events may cause.
So I'd like to ask for guidance as to what I should read/study, be it books, websites or blogs, in order to understand how rates and debt affect how the different markets move.
I've read a number of BondArb's posts on rates as well as some other useful ones I found using search. I also looked at the recommended reading lists under FAQ's but there was nothing on this topic.
Things I'm currently considering are the UC Berkeley video lectures on macroeconomics, a book called Interest Rate Markets by Siddharta Jha, and another book called Handbook of Fixed Income (Fabozzi).
Which one/s should I be going through or are there other things more suitable?
Thanks.
I don't know anything about macroeconics, but as far as macroeconomics go, here's a couple books:
The first is introductory and a light read, the second is pretty tough but worth it. I would also recommend Drobny's two books: Inside the House of Money and The Invisible Hands.
Let's be real all macroeconomic events in this age are controlled by politics. When you look at the situation in Greece you will realize that even when national governments themselves are faced with economic crisis, there is a larger institution that can significantly alter the way things should have played out. I say study politics first to understand macroeconomics in the 21st century. Economic theory is not fully applicable to market forces; no matter what your professor might tell you.
Market forces will always assert themselves, but the political / cultural overtones will indicate WHERE, WHEN, and HOW MUCH so. Read the Economist to get a general framework of thought
If you can take/audit a college class in Intermediate Macroeconomics or any kind of topics class (Asian Econ, European Econ, Financial Market Econ, etc.) that would be best. I think MIT Open Courseware might have some econ classes but they're all really calculus-heavy which is pretty useless for someone wanting to just understand macro events.
Honestly I've found the best thing to do is just keep reading WSJ, Barron's, Economist, etc. and if you want to know how something works, just google it. For example google "Greek Debt Crisis Explained" or "How Credit Default Swaps Work" etc.
I actually have a chart from one of my classes that shows how interest rates and trade deficits affect FX rates...PM me if you want me to send you the chart.
Thanks for the suggestions.
@KeepYourDistance, sent you PM.
international political economy!
apparently some guys at nuclearphynance are fans of hyman mynsky.
I think theres a lot of bad information in this thread so far. The macroeconomic fundamentals are a basis for understanding what politicians SHOULD do. Understanding the implications of actual policies also relies on a solid economic foundation.
Theres certainly an important intersection between politics and macroeconomics but if you're intention is to understand macroeconomics, learn that first, and then learn political implications.
Macroeconomics isn't so easy to get at first (not necessarily a natural way of thinking). You should buy yourself a solid intermediate macroeconomics textbook if you're actually dedicated to learning.
Sorry I dont quite understand the point of studying what someone should do if they never reach that outcome. All you macro analysts are the guys who are late to the party without a clue. I guess my problem was that I assumed he was looking for market insight. Didn't think this was just about studying an abstract social science that is an afterthought of real decision making.
Keep in mind that there are also contending theories regarding macroeconomics. Mostly Neo-Classical vs. Post-Keynesian.
Vague and Meaningless? Are you suggesting that you can use macroeconomic news to take directional positions in the markets? You are in fact late to the party. News travels faster than that magazine you just received this morning. If this gentleman wants to use macro analysis to get a better grasp on market sentiment than the majority, then he needs a divining factor. If you are reading it off of a bloomberg article or the Economist wouldn't you assume someone (the writer's friends, family of people in the story and everyone in six degrees of seperation) might have processed that news already?
His only hope is that he understands politics to such a capacity that he can translate his untimely macroeconomic information into future government action before the market can realise his discoveries.
The same can be said about discounting cash flows, ratio analysis, and any other market forecasting method. If you would like to lecture me on the efficient market hypothesis then I'd like you to know that I also was a senior in high school once. If markets are truly as efficient as you claim, and pure macro analysis is useless, then they market would have already handicapped the potential political ramifications as well. These political events of uncertainly would already be priced into the value of securities making your "divining factor" useless.
You know this forum is going to hell when people suggest learning macroeconomics is useless.
IDK why you keep spewing these increasingly negative words, no one ever claimed macroeconomics was useless. The ramifications of forming a market analysis based strictly on macroeconmic theory is, however, pretty ignorant. No one is talking about forecasting methods here to my knowledge. You are talking about news, plain and simple. Information that everyone has access to and forming a conclusion based on what the best outcome you think should happen because you are the brilliant economist hardly seems profitable.
Leave it to the macro guy to make a sweeping generalization about the whole forum based on one post. That's why no one listens to you.
Just because everyone has access to the news doesn't mean it's instantly priced in or the market gets it perfectly right every time. The big moves happen thanks to secular trends and interest rates which direct money flows from very large institutional investors. That's not an instant process by any means.
Agreed. At the same time, the news might have been anticipated and priced in before it's even officially released and hence people start fading the news once it's confirmed. I find trading the concept of trading the news quite difficult to grasp and hence I usually refrain from doing so, although few of my eminent trades have been primarily based on trading the news or the broader market hysteria.
I agree with GoodBread
Well goodbread don't leave us tempted, how do we use our macro analysis to notice these obvious market inefficiencies. Who do we study, what stories are we looking for to realize when the market hasn't priced the economic news properly.
You have to figure that out on your own. Market "inefficiencies" are never obvious but if you spend time scenario-building and something suddenly seems out of whack you could be on to something. Fading the news like someone mentioned is a good example. With good risk management, you don't even have to be right 50% of the time.
tbh economist gave some really bad advice in europe ... and it's krugman who says it.
Understand IS-LM framework. It will help you discern between demand-led cycles and those caused by balance sheet problems. The latter is closely linked to the mess in Ireland, and Spain.
The best macro text I used (and still use for reference to present day) is by Abel, Bernanke, and Croushore.
Understanding macro setting is very important; it gives you context and ultimately affects asset prices.
Best
Read This Time is Different by Ken Rogoff and Carmen Reinhart. Gives you a good history of sovereign debt crises.
Zbigniew Brzinski's book, 'The Grand Chessboard'. It's probably the best single source to start with IMO.
http://www.amazon.com/Macroeconomics-Policy-Practice-Pearson-Economics/…
On youtube search for Ray Dalio - How the economic machine works,
That's a good starting point, also you will admire Ray Dalio for the great Economist he is, probably the most successful Hedge Fund Manager of our era.
Material to read up on macroeconomy and derivatives (Originally Posted: 06/22/2016)
Hey Guys,
Currently preparing for S&T interviews and was wondering what I should read to be more comfortable with the ways macroeconomy affects the markets and derivatives since I was not really taught that in college. (Yes I was a finance major at a non-target).
If you want to read about derivatives, there's books and papers for that. If you want to read about how macroeconomic developments affect mkts, there's books and papers for that too. I don't think these two sets of books and papers will have much in common.
This is an ok read about macro: http://bwater.com/Uploads/FileManager/research/how-the-economic-machine…
Books explaining finance and financial markets in depth (Originally Posted: 08/17/2016)
I have a younger sibling who wants to go into finance and he would like a book that really goes into dumbing down depth of everything in finance and how it all comes to a whole.
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