ADMS 4501 Lecture Notes - Lecture 6: Durable Good, Business Cycle, Money Supply

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In economic market, for leading indicators, we look at shipping, stock market. We also look at money supply, interest rates and inflation. For instance, when we look at inflation increasing in the future, we would reduce our bond holding , and this means leading indicators help with asset allocation . In the industry sector, we would look at business cycles, structural factors , industry life cycle and the competitive environment. When looking at characteristics of industry, we look at price to book value, p/e ratio etc. Note that cyclical changes are temporary cycles while structural changes are more long term and permanent in nature. At the lower economic cycle: trough, interest rates are lower, when people can borrow cheaply and invest in consumer durable goods and stcks . As the economy improves, investment in capital goods excel . But when it peaks, the interest rates are really high and people tend to reduce borrowings .

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