What is economic indicators
Various economic indicators are used as a tool to determine the trend of equity because of the significant relationship between equity prices and the prevailing economic situation in the country.
The importance of following economic indicators
An investor must therefore follow up on developments at the economic level through the indicators that we have discussed in this chapter. It is not necessarily necessary for an investor to make himself an economic expert in order to be able to explain what these indicators mean. The investor must know that these indicators are figures issued by the government concerned, and the investor can follow the change of the figure from a period of time. For example, the cost-of-living index is a powerful indicator that reveals whether or not prices are inflation, and by reading the results of the index every month, the average investor can know the overall direction of the interest rate.
Follow-up of figures from the Central Bank also helps investors to make sound decisions. For example, when the central bank raises the interest rate two or three times in a row, the investor may delay the decision to enter the market for some time, or may consider it appropriate to depart from some of the shares that are heavily affected by the decisions of the central bank.
Through these indicators, an investor may take its own approach, forming a bunch of indicators that it continuously follows up and builds its investment decisions on, such as deciding when to buy when there is a certain increase in the offer of money (M2) and a reduction in the interest rate by a certain percentage.
This is accompanied by a certain decrease in the level of unemployment, and so on. There are many professionals and non-professionals who build a model of calculation (Model) that they use to determine stock prices as dictated by a certain number of variables (or indicators), known as Multiple Regression model.
The market indicators mentioned here are one of the main indicators, usually used to measure market hot, if you will, and can be easily followed by an investor via the Internet.
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Where does the fortune come from?
Some people ask why there are rich and poor nations. Why? The obvious answer.
There are States that have natural resources (go, troll, fertile land, skilled labour, and so on) and there are States that do not. But one might ask what prevents a poor nation from printing large sums of its currency to become rich! The answer is that all States are already printing their currency and doing so frequently, sometimes to replace the currency in circulation in order to keep it in good shape, and often to simply increase the amount of their currency available in the country. Here comes the problem of the fact that the printing of large quantities of currency will eventually lead to rapid consolidation and, consequently, to the bankruptcy of the State.
Example
Imagine if a new country had emerged in one of the islands that didn't exist. There is life and no civilization, except for some beautiful beaches and a number of new inhabitants. Let us assume that this country has printed millions of local securities. Let us call it the local currency, the price of which has been fixed by one dollar. There's no problem with this country, and you can actually print more of this currency, but the important question is who's gonna buy it? No one, in fact, has come up with a desire to deal with this nation, perhaps to visit its beautiful beaches and eat its fish and fruit, or to open up and develop manufacturers in one form or another. This is where the features of this fortune begin to appear.
How does that come?
The recipient of this country needs to buy the local currency and pay its value in dollars. And if we do this island has begun to flourish, has established a number of tourist hotels, has opened up a number of national factories, and has grown various agricultural products. There will be acceptance of this country, which means more dollars (other than dollars) in its safes. This country has become rich, and its Government can print more of its domestic currency to move its economy from within, but it must remain ready to convert its currency to dollar (or other currencies) when needed. For example, their factories may need externally available raw materials, foreign experts and so on that require conversion to foreign currencies. As long as it continues to operate well, people around the world continue to accept its products and tourism, its financial position (and its exchange rate) will remain strong.
And you can imagine how its economy would change if this strong turnout suddenly changed, because of competition from other States or as a result of domestic political problems, what would happen to their exchange rate and foreign exchange monitoring? What does that have to do with her unemployment level? And do you expect the interest rate to drop?
She has or is she rising? What options does her Government have to improve this situation? These questions and these economics and finance are answerable and at the heart of it, which is of great importance to any nation, and it's beneficial to all of us.
It's very important to keep track of these events in the world.