The Traders Guide to Key Economic Indicators

The Traders Guide to Key Economic Indicators

Yamarone, a former trader, academic, and current Wall Street economist, shows readers what to look for in new economic data reports, how to react, and how to use or avoid the popular tricks of Wall Street. This new, fully updated edition covers everything from GDP and employment to consumer confidence and spending, with two new chapters on commodities and fixed-income indicators. Yamarone’s clear and concise analysis focuses on the most important economic indicators in today’s marketplace.

User Ratings and Reviews

5 Stars Great book Overall
The book answers every question a trader/investor would have regarding the various key economic reports that move the markets. Very detailed and informative.

-JL

www.weeklyta.blogspot.com

5 Stars Great coverage of important indicators without messy details
I found this book to be very readable and balanced from start to finish. Sure, some of the material became a little dry, but each chapter was readable in a single sitting. The excellent consistency between chapters with respect to the writing style and use of charts made the book well worth the time to read. The author has done a great job in pointing out what matters for each index he described. I wish all books on finances could be written with such clarity. This book is ideal for anyone who wants to learn more about spotting trends in the economy by learning the significance of the dozen economic indicators the author presents.

3 Stars Useful as a reference guide, could have been much more
This book contains lots of factual information and useful overviews as to what the key economic indicators are, how they are constructed, what their purpose is, and how they work. With that said, it felt more like a pocketbook of facts and figures, similar to the ones published by The Economist, than an actual “guide” for traders.

In the introduction, the book is offered as a useful source for anyone new to these indicators, but Yamarone never really mentions one of the most important aspects of trading: how to prioritize information flow.

The drawback of fundamental trading is the susceptibility to “analysis paralysis,” i.e. the danger of information overload causing you to freeze like a deer in the headlights. On the other side of the coin, traders who try to digest a mountain of information without prioritizing it are more likely to make their decisions based on a handful of dominating factors, or even hunches, and then simply use the additional supportive data they find to justify those decisions. Studies of decision-making habits conducted on CIA intelligence analysts show that, when there is a surplus of information, it’s a natural tendency to use only a small portion of the information available, while incorrectly assuming that all of it is being utilized.

Yamarone does not mention these pitfalls, nor does he cover the reality of theme trading and indicator fashion. Indicators and market relationships go in and out of style, much like short skirts or thigh high boots on the catwalks of Paris and Milan. Traders will collectively switch their focus from one relationship to another, one data set to another, and so on; the trade deficit means nothing for a while, then suddenly it means everything. The Employment Situation is critical for a time, then later inconsequential as long term yields come to the fore. It’s all about context, and that isn’t addressed at all.

In writing for a large audience, Yamarone also made sure to keep his opinions bland and uncontroversial. I found this a little disappointing in terms of what was left out. For example, consider this tidbit from the chapter on New Residential Construction:

“Before the 2001 recession, housing starts were the most reliable and accurate measure of U.S. economic health… the 2001 recession broke this pattern. Housing starts remained strong during the downturn because historically low inflation kept mortgage rates low…”

For a student of economic history–or a trader wishing to profit from macroeconomic movements–this is highly provocative subject matter. Questions come tumbling forth: Has a longstanding relationship been declared invalid by the 2001 pattern, or was it a case of unprecedented doubling down via credit stimulus? Were mortgage rates low simply because inflation was low, or more because the fed was hell-bent on pumping easy money into the economy to avoid a reckoning? Is it historically a good thing to try and avoid all painful recessions, or are painful recessions occasionally necessary, as a cleansing process after a period of extreme speculative excess, with bad-to-worse consequences for putting them off? Is there greater risk when a paper asset bubble transitions into a real estate valuation bubble?

Yamarone sails past all of this, like an amateur checkers player doing commentary for a chess tournament. My guess is that he is well aware of these subtexts, but his overriding goal was to avoid fistfights and not offend anyone. When conflict avoidance is a key factor, milktoast commentary is often the lukewarm result!

In my reviews I occasionally suggest alternate titles that better reflect a book’s contents. I would call this one “the MBA grad’s guide to economic indicators,” or maybe “the junior analyst’s guide to economic indicators.” If it were truly aimed at traders, it would (or should) have more to say about prioritizing information flow, gaming expectations, and paying attention to context, context, context.

As it stands, Yamarone has put together a decent reference source to grab off the shelf when a wallflower data set becomes the latest belle of the Wall Street ball. By that measure, it’s a worthwhile purchase.

3 Stars Quality book but too factual
This is a quality book without question. However, it provides too much factual descriptions about all the indices rather than important, key insights. I often had a hard time finishing every chapter completely. It often proves difficult (if not impossible) to get a hold of the data mentioned in the book without subscribing to a professional service like Bloomberg. 20% of this book gives 80% of the insight : I’d rather had seen the author explore that 20% in depth.

5 Stars Not just for traders. Easy to read book for anyone.
This book was surprisingly easy to read and understand. Very interesting material for anyone curious about the factors that influence the economy and what measures to watch to understand where we are heading. Concentrates on the major indicators and tells you where the data comes from. Illustrated with lots of charts and tables to help you understand the relationships over time. Organized so that the information builds up to the more complex relationships. Though written by an economist, this book is surprisingly easy to read and the material was interesting (even for someone that slept through econ 101, like me). The most useful economics book I have run across. Highly recommended.

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