Transcript Irwin / McGraw-Hill

1
Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
Chapter 12
Macroeconomic and
Industry Analysis
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
2
Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
Framework of Analysis
• Fundamental Analysis
• Approach to Fundamental Analysis
– Domestic and global economic analysis
– Industry analysis
– Company analysis
• Why use the top-down approach
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
3
Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
Global Economic Considerations
• Performance in countries and regions is
highly variable
• Political risk
• Exchange rate risk
– Sales
– Profits
– Stock returns
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
4
Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
Key Economic Variables
•
•
•
•
•
Gross domestic product
Unemployment rates
Interest rates & inflation
International measures
Consumer sentiment
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
5
Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
Federal Government Policy
• Fiscal Policy - government spending
and taxing actions
– Direct policy
– Slowly implemented
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
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Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
Federal Government Policy (cont.)
• Monetary Policy - manipulation of the
money supply to influence economic
activity
– Initial & feedback effects
• Tools of monetary policy
– Open market operations
– Discount rate
– Reserve requirements
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
7
Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
Demand Shocks
• Demand shock - an event that affects
demand for goods and services in the
economy
– Tax rate cut
– Increases in government spending
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
8
Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
Supply Shocks
• Supply shock - an event that influences
production capacity or production costs
– Commodity price changes
– Educational level of economic participants
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
9
Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
Business Cycles
• Business Cycle
– Peak
– Trough
• Industry relationship to business cycles
– Cyclical
– Defensive
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
10
Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
NBER Cyclical Indicators: Leading
Leading Indicators - tend to rise and fall in
advance of the economy
Examples
– Avg. weekly hours of production workers
– Stock Prices
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
11
Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
NBER Cyclical Indicators: Coincident
Coincident Indicators - indicators that tend
to change directly with the economy
Examples
– Industrial production
– Manufacturing and trade sales
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
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Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
NBER Cyclical Indicators: Lagging
Lagging Indicators - indicators that tend to
follow the lag economic performance
Examples
– Ratio of trade inventories to sales
– Ratio of consumer installment credit
outstanding to personal income
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
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Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
Industry Analysis
• Sensitivity to business cycles
• Factors affecting sensitivity of earnings to
business cycles
– Sensitivity of sales of the firm’s product to
the business cycles
– Operating leverage
– Financial leverage
• Industry life cycles
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.
14
Bodie • Kane • Marcus
Essentials of Investments
Fourth
Edition
Industry Life Cycles
Stage
Sales Growth
Start-up
Consolidation
Maturity
Relative Decline
Rapid & Increasing
Stable
Slowing
Minimal or Negative
Irwin / McGraw-Hill
© 2001 The McGraw-Hill Companies, Inc. All rights reserved.