Test Your Economics IQ
Stocks can and do stray from valuations suggested by fundamental analysis. Despite this, it never hurts to understand the economic background. Understanding the economy helps to gauge earnings forecasts. This is especially important for stocks with a cyclical character.
Here are some statements about economic data and the market. For each statement you need merely to decide "true" or "false". We are not trying to serve up trick questions, but sometimes those citing the information do so in a tricky way. It is up to you to see through this!
- Home prices are now deflating at a 32% annual rate, versus 8% six months ago.
- Inflation, as measured by the CPI, shows housing costs to be increasing according to the "imputed rent" formula.
- Planned corporate layoffs rose 68% in April to a total of over 90,000.
- As long as the largest asset on household — and bank — balance sheets continues to deflate, the credit and consumption hits will keep coming.
- The US economy created about 2.5 million new non-farm payroll jobs last month.
- The TED spread is now at 86 bp’s, down from 204 in mid-March.
- The Baltic Dry Freight Index has plummeted, showing global economic weakness.
- The Fed has devoted about half of its balance sheet to "unusual" liquidity efforts.
- The BLS Birth/Death adjustment has reduced past predictive performance, as measured by actual state employment counts when the data became available (months later).
- Household liquid assets at $21.9 T and net worth at $31 T are about 1% below the all-time records as of the most recent published data.
Many wise and regular readers of "A Dash" will do well on this quiz. We will recognize the best scores submitted by email (note the link at the top left). Please do not show off by making your answers in the comments!
There will be ample time to discuss and disagree when we publish the answers.