1. Securities Analyst Program
2016 – 2017 Academic Year

2. Plan for the Year Investment Styles / Famous Investors
Fall
Winter
Investment Styles / Famous Investors
What Makes a Good Investment?
Macroeconomic Analysis
Fixed Income
Valuation
Other Asset Classes (Commodities, Derivatives)
Industry Specific Analysis
How To Leverage Resources
Key Moments in the History of Finance

3. Agenda Key Concepts & Indicators The Top Down Investment process
Economic indicators
Macro Strategies
Understanding Monetary Policy
Central Banks
Negative Interest Rates primer
Forecasting Central Banks’ decisions
Oil Discussion
Questions

4. Key Concepts & Indicators1
Key Concepts & Indicators 2
Understanding Monetary Policy 3
Oil Discussion 4
Questions

5. The Top-Down Investment Process
Macroeconomic
Analysis
GDP
Consumer Price Index
Inflation Expectations
Fiscal & Monetary Policy
Balance of Payments
Consumer Confidence Index
Industry Analysis
Competitive Structure
Demand
Government Involvement
Buyer/Supplier Power
Company Analysis
Relative Valuation Techniques
Precedent Transactions
Discounted Cash Flow Techniques
Research Analyst Recommendations
Qualitative Considerations

6. Economic Cycles Drive Stock Market Returns
The Market Moves 6-12 Months Ahead of Economic Cycles

7. Economic Outlook Drives Sector Allocation

8. The Pros and Cons Pros Cons
Framework to organize stock selection effort
Possibility to put hugely profitable trades by getting a theme right
Correlations spike when market are in a downturn
Economic analysis has a lot of noise which distracts from fundamental analysis
Often tough to dissociate macro outlook and market outlook
“Economists have predicted five of the last three recessions”

9. The Economic Calendar – US
Traders & Investors Track the Economic Calendar to Take Investment Decisions

10. The Economic Calendar – Impact on Financial Markets
US Fed keeps rate unchanged
Release of Economic Indicators Impact Financial Markets

11. Key Indicators That Move The Markets
Non Farm Payroll, Unemployment Rate
Employment
Real GDP Growth, Net Exports, Industrial Production
Economic Growth
Personal Consumption Expenditure, Consumer Price index
Inflation
University of Michigan Consumer Confidence Index
Surveys
+ Central Bank Meetings

12. Economic Indicators: Pro-cyclical vs. Counter-cyclical & Leading vs
Economic Indicators: Pro-cyclical vs. Counter-cyclical & Leading vs. Lagging
Pro-cyclical vs. Counter-cyclical Indicators
Leading vs. Lagging Indicators
A pro-cyclical indicator has a positive correlation with real GDP
A counter-cyclical indicator has a negative correlation with real GDP
A leading indicator helps explain the future path of real GDP
The path of real GDP helps explain the future path of a lagging indicator

13. Summary of Business Cycle Facts
Economic Indicators: Pro-cyclical vs. Counter-cyclical & Leading vs. Lagging
Summary of Business Cycle Facts

14. What Makes Economic Forecasting Challenging?
Short Term is easy because persistent – turns are very hard to predict 1
No Regularity in the Amplitude of Business Cycles 2
No Regularity in the Frequency of Business Cycles

15. Making Money With Macro Trends: Currencies
Net Exports Impact the Value of a Currency
Oil Exporters Have Oil Prices Driven Currencies
Currency Appreciation
Net Exports Decrease
Currency Depreciation
Net Exports Increase

16. Making Money With Macro Trends: Risk & Volatility
Risk-On, Risk-Off Investing: Describes a process where investors move to riskier and potentially higher yielding investments when risk is perceived to be low, and towards safer investments when risk is perceived to be high
Very Risky
Growth Stocks
Value Stocks
Brexit
Corporate Bonds
Risky
Government Bonds
Brexit
Gold
Deposits
Safe

17. Making Money With Macro Trends: Risk & Volatility
The VIX Index – indicator of market fears
The VIX index measures the implied volatility of the S&P500 – It is forward looking and reflects sentiment
2008 Financial Crisis
Euro Debt Crisis
Fears of China slowdown

18. Key Concepts & Indicators1
Key Concepts & Indicators 2
Understanding Monetary Policy 3
Oil Discussion 4
Questions

19. Monetary Policy: Driving Financial Markets Worldwide
Monetary Policy Has a Large Impact on Asset Prices

20. Monetary Policy: Central Banks 101
What Are Central Banks?
The institution that controls the money supply in a country
Conventional tools: interest rates, reserve requirements, open market operations (buying and selling government securities)
Unconventional tools: negative interest rates, quantitative and qualitative easing, fixing treasury yields, etc…
How Do They Function?

21. Monetary Policy: Central Banks 101
Current Theme: Central Banks have been increasing the amounts of assets that they own to fight liquidity traps

22. Monetary Policy: Central Banks 101
Monetary Policy Objectives
US Federal Reserve (Fed) – “Maximum employment and stable prices (2% inflation target)”
Bank of Canada (BoC) – “Keeping inflation low and stable” (Target range for inflation: 1-3%)
European Central Bank (ECB) – “Maintain price stability” (Target inflation: 2%)
Bank of Japan (BoJ) – “Achieving price stability” (Target inflation: 2%)
Counter-cyclical Monetary Policy: Smoothing Out Business Cycles
Rate Hike
Peak
Trend Line
Rate Hike
Peak
Recession
Recession
Real GDP
Expansion
Expansion
Rate Cut
Through
Rate Cut
Through
Time

23. Monetary Policy Impacts Currency Prices
Appreciation Process
Interest Rate Increase
More Investors Want to Invest
Demand Increases
Currency Appreciates
Depreciation Process
Interest Rate Decrease
Less Investors Want to Invest
Demand Decreases
Currency Depreciates

24. Monetary Policy: Style Differs Across Central Banks
Janet Yellen, Chair of the US Federal Reserve System
Conservative – doesn’t like to surprise markets
Mario Draghi, President of the European Central Bank
Hero figure - nicknamed “Super Mario”:
“Whatever it takes to save the Euro” from the debt crisis - fueled a global rally in markets
Haruhiko Kuroda, Governor of the Bank of Japan
Specialist at surprising markets
Unconventional monetary policy: negative interest rates, buying ETFs and REITS, 0% 10Y yield target

25. Negative Interest Rates 101
Seem counter-intuitive – why would you pay someone to lend them money?
There is a cost to holding cash
You might think that the price of the asset will increase
You might be using the asset to speculate on the currency
You might be required to purchase certain type of assets (insurance company or pension fund)
Swiss food and drink company

26. Monetary Policy: Predicting Changes in Monetary Policy
Mimicking the Central Bank’s Decision Process
Statement Wording Analysis
Central Banks care about Economic data:
Economic Growth
Inflation
Labor Market
Developments in Financial Markets
Qualitative Analysis
What Would You Do If You Were the Central Bank?
Source:
Changes in the Central Bank’s Wording Can Provide Useful Insights

27. Quick Analysis of the Chances of a Rate Hike in December in the US
Economic Growth Analysis
Labor Market Analysis
Inflation Analysis
Inflation Expectations Analysis
Source:
Economic Fundamentals Seem In Line for a December Rate Hike

28. Quick Analysis of the Chances of a Rate Hike in December in the US
Fact: In the last 25 years, the Fed has never raised interest rates when the market implied probability of a rate hike was less than 70%

29. Key Concepts & Indicators1
Key Concepts & Indicators 2
Understanding Monetary Policy 3
Oil Discussion 4
Questions

30. Oil Discussion
New technologies have enabled oil production to increase leading to drop in prices

31. The upside for oil prices in the short-term seems limited
Oil Discussion
Supply/Demand Analysis: Rough Balance
Stocks are Down But Remain High
Highest Marginal
Increase
The upside for oil prices in the short-term seems limited

32. Producers accept lower $ price Pressure on fiscal budgets
Oil Discussion
The USD-Oil Cycle
The USD and Oil Are Inversely Correlated
Oil prices decrease
Supply Increases
USD Strength
Producers accept lower $ price
Pressure on fiscal budgets
Flight to Safety
The upside for oil prices in the short-term seems limited

33. Key Concepts & Indicators1
Key Concepts & Indicators 2
Understanding Monetary Policy 3
Oil Discussion 4
Questions