The Trader’s Guide to Key Economic Indicators
By Richard Yamarone
Bloomberg Financial, 2012
$75.00, 320 pages
Lock any healthy man in a candy store for six months with nothing to eat or drink other than what’s in the shop and it doesn’t take a doctor to tell you that that a man’s health will be weakened, if not irreparably damaged. Likewise, it doesn’t take an economist to tell you that if an economy suffers high debt, low employment and stagnant consumer confidence over a period of time, the damage will seep into every household and enterprise. An economy can’t outperform its poor fundamentals forever any more than an individual can survive on a steady diet of junk without his health being adversely effected, but you can watch for signs of strength and weakness if you know what to look for and, more importantly, profit from such insight.
“Economic forecasts provide essential underpinning for stock and bond markets, industry, and company projections,” according to Benjamin Graham and David Dodd’s seminal work, “Security Analysis.” Just as a doctor has his tools of the trade — stethoscope, blood sugar tests, EKGs, etc. — to determine an individual’s health, by having a toolset of economic indicators at your disposal, you can glean insight into the health of the overall economy and plan a trading strategy accordingly.
That is what “The Trader’s Guide To Key Economic Indicators” by Richard Yamarone seeks to do by offering a detailed account of more than a dozen economic indicators to help you make more accurate forecasts of the economic forces at play.
Not knowing how to read the health or illness of the economic framework that you are working within is a bit like playing on the railroad tracks and not knowing when a train will come through. You may be able to survive and thrive, but all it takes is one Black Swan event and financial tragedy occurs. Yamarone attempts to bridge the mind-numbing challenge of droll economic theory to give you a working toolset of indicators to help you make accurate economic forecasts.
If the overall economy is flat or declining but New Residential Construction creeps up, do you know what that means and how to profit by it? If the Unemployment Report begins to decline, how does that affect you? What about Personal Income and Outlays?
One flaw of Yamarone’s book is that it is more “big picture,” or macro level economics, and takes a long-term view, so the indicators detailed here will lag compared to the stock market itself, which tends to be a leading indicator of economic health. While the two do not move in tandem all the time, Yamarone does a fairly good job of giving you a strong foundation in the essentials of what to look for to help you make better financial decisions in today’s markets.
That said, after reading this book, you will become more aware of what economic currents are in the air and have a better chance at achieving your goals as a direct result.
Billy Williams is a 20-year veteran trader and publisher of www.StockOptionSystem.com, where you can read his commentary and a report on the fundamental keys for the aspiring trader.