Review of The Trader's Guide to Key Economic Indicators (Hardcover)

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.



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Review of Greenspan's Fraud: How Two Decades of His Policies Have Undermined the Global Economy (Hardcover)

Ravi Batra is a Professor of Economics at SMU Dallas TX. This very readable book is partly about Greenspan's career in government, and politics, but mostly about the economic policies of the last three decades. Batra explains how the Federal Reserve has impoverished most Americans to enrich the wealthy, and attacked the middle class to benefit Big Business.

Chapter 1 tells the real impact of Alan Greenspan, how he unwittingly effected a global crash and spread economic misery (p.5). Greenspan's [...] swindled millions of families (p.6), while he benefited from his tax policies. Chapter 2, one of the most important, explains the [...] that was used to raise Social Security taxes in 1983 and then squander this money on tax cuts for the wealthy (p.12)! Greenspan's [...]was that he helped to raise payroll taxes, then sought to lower Social Security benefits (p.36). Chapter 3 discusses Greenspan's worship of "free profits" (p.48). Adam Smith was against mergers of competitors, and government regulation to restrict competition (p.50). The fallacy of Classical Economics is they could not account for depressions of falling output and rising unemployment (p.60). Batra explains the fallacy of "Supply Side Economics" (pp.68-70). Chapter 4 explains "Greenspan's Intellectual [...]" (p.74) as deceiving an audience by using fake or selective data for monetary gain. Greenspan saved the country from a Reagan Depression in 1987 by flooding the markets with liquidity (p.91). Afterwards he raised interest rates to regain this money and prevent inflation (p.92). Chapter 5 reports the global effects of Greenspan's policies. The 1981 tax cut led to soaring interest rates and a steep recession (p.123). Cutting the interest rate resulted in higher stock prices (p.136). The bubble of speculation inevitably burst (p.139).

Chapter 6 notes that economic theories can't explain the causes of a stock market bubble (p.141)! Batra says it is a mismatch between supply (productivity) and demand (wages and debt). When wages are high from productivity there is prosperity without a crash (p.143). Stagnant or falling wages create unemployment (p.146). Expansionary fiscal policies create a debt that comes due (pp.147-148). Regressive taxation and low wages create a global crisis. Chapter 7 explains how the income tax rate affects our standard of living. Reagan's tax cuts created a giant budget deficit and high interest rates (p.169). Clinton's raised income tax rates was followed by relative prosperity. Bush lowered the top income tax rate, which always hurts the economy and stunts economic growth (p.173). Chapter 8 documents another of Greenspan's [...], the claim that minimum wages create unemployment. This lie has been proven wrong since 1935. Greenspan wants increased immigration to keep wages down (p.191)! High money growth causes inflation (p.192).

Chapter 9 discusses the trade deficit, which could cause the budget deficit (p.199). A country that exports goods has a trade surplus, one that exports services or farm products has deficits (p.204). Prosperity comes from manufacturing (p.205). Regressive taxation has forced a gap between wages and productivity (p.214). A regressive value-added tax makes it worse. The merger mania results from a lack of competition and the desire for monopoly control of output. Chapter 10 tells how Greenspan's policies changed but still aimed at the economic destruction of the middle class (p.217). Most Americans have seen a drop in their living standards since 1973 (p.219). Regressive taxes, higher health insurance, and lowered pensions make it worse (p.220). The effect is rising bankruptcies, mushrooming debt, and a drastic decline in the household savings rate (p.221). Countries with ultra-regressive taxes like VAT (value-added taxes) experience the same slow growth and higher unemployment (p.229).

Chapter 11 lists the needed economic reforms. Batra lists the top-ten problems that need fixing (p.236). Returning Social Security to a pay-as-you-go system will benefit the economy (p.240). An ethical economic policy benefits all of us, an unethical economic policy creates massive debt and increasing poverty (pp.244-245). Batra lists 6 reforms for wages and taxes to bring back prosperity (p.247). A separate export exchange rate will benefit manufacturing (p.251). Reducing the wage gap will reduce recessions, inflation, and poverty (p.253). The long-run cure for economic imbalance is economic democracy (p.255). [But his proposals seem to idealistic, and lack the checks and balances needed in the real world. Batra does not mention that these regressive policies came about after Nixon's devaluation of the US dollar in 1971.]





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