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Ahead of the Curve: A Commonsense Guide to Forecasting Business And Market Cycle

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Economic and stock market cycles affect companies in every industry. Unfortunately, a confusing array of anecdotal and conflicting indicators often renders it impossible for managers and investors to see where the economy is heading in time to take corrective action. Now, a 35-year Wall Street veteran unveils a new forecasting method to help managers and investors understa Economic and stock market cycles affect companies in every industry. Unfortunately, a confusing array of anecdotal and conflicting indicators often renders it impossible for managers and investors to see where the economy is heading in time to take corrective action. Now, a 35-year Wall Street veteran unveils a new forecasting method to help managers and investors understand and predict the economic cycles that control their businesses and financial fates. In Ahead of the Curve, Joseph H. Ellis argues that the problem with current forecasting models lies not in the data, but rather in the lack of a clear framework for putting the data in context and reading it correctly. The book explains critical economic indicators in nontechnical language, identifies and documents the recurring cause-and-effect relationships that consistently predict turning points in the economy, and provides the tools managers and investors need to position themselves ahead of cyclical upturns and downturns. Economic events are not as random and unpredictable as they seem. This book helps readers recognize and react to signs of change that their rivals don't see—and win a sizeable competitive advantage. Joseph H. Ellis was a partner at Goldman Sachs and was ranked for 18 consecutive years by Institutional Investor magazine as Wall Street's No.1 retail industry analyst.


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Economic and stock market cycles affect companies in every industry. Unfortunately, a confusing array of anecdotal and conflicting indicators often renders it impossible for managers and investors to see where the economy is heading in time to take corrective action. Now, a 35-year Wall Street veteran unveils a new forecasting method to help managers and investors understa Economic and stock market cycles affect companies in every industry. Unfortunately, a confusing array of anecdotal and conflicting indicators often renders it impossible for managers and investors to see where the economy is heading in time to take corrective action. Now, a 35-year Wall Street veteran unveils a new forecasting method to help managers and investors understand and predict the economic cycles that control their businesses and financial fates. In Ahead of the Curve, Joseph H. Ellis argues that the problem with current forecasting models lies not in the data, but rather in the lack of a clear framework for putting the data in context and reading it correctly. The book explains critical economic indicators in nontechnical language, identifies and documents the recurring cause-and-effect relationships that consistently predict turning points in the economy, and provides the tools managers and investors need to position themselves ahead of cyclical upturns and downturns. Economic events are not as random and unpredictable as they seem. This book helps readers recognize and react to signs of change that their rivals don't see—and win a sizeable competitive advantage. Joseph H. Ellis was a partner at Goldman Sachs and was ranked for 18 consecutive years by Institutional Investor magazine as Wall Street's No.1 retail industry analyst.

30 review for Ahead of the Curve: A Commonsense Guide to Forecasting Business And Market Cycle

  1. 5 out of 5

    Weibo Xiong

    A great book showing readers how to digest economic information in the correct order. Bear in mind the cause-and-effect relationships, and never use the lagging indicators to predict the movement of the leading ones.

  2. 4 out of 5

    Matthew

    Slightly disappointing as it came with rave reviews from a colleague; my expectations were probably too hyped. Could've been revolutionary in its time -- published a massive 4 years ago, but the market adopts new practices like 'snap' -- but I think a lot of what he discusses are already integrated into leading i-bank analytical work so is perhaps less stunning than what I expected. Still, a logical and clear read, with some interesting points, below: 1). Basic schematic of US economy (actual fig Slightly disappointing as it came with rave reviews from a colleague; my expectations were probably too hyped. Could've been revolutionary in its time -- published a massive 4 years ago, but the market adopts new practices like 'snap' -- but I think a lot of what he discusses are already integrated into leading i-bank analytical work so is perhaps less stunning than what I expected. Still, a logical and clear read, with some interesting points, below: 1). Basic schematic of US economy (actual figure more complicated than I can depict here): Real consumer spending => w 0-6m lag Industrial Prod and Services => w 6-12m lag Real Capital spending All 3 above => Corporate profits => Stock market and Employment IP always swings more than Real Con, b/c of inventory effects that increase amplitude of swing. Even more so for capital goods as they are further up the value chain. The volatility of production (at consumer, inventory supplier, and capital goods supplier levels) all lead to big swings in corporate profits at respective levels, leading to stock price changes. Declines in Real Con don't always lead to recession, but do almost always lead to bearish stock markets. (Note he describes the business/stock cycle here, not structural changes -- I think this is a big point that could cause one to misinterpret the strength and applicability of Ellis conclusions). 2). Track (i) YoY rates, not actual levels, not MoM or QoQ. (ii) use 2 charts, showing cause and effect Other tips: using a rolling 3m avg to smooth monthly data, use different scales, have vertical and horizontal lines to aid perception 3). Unit purchasing power, or real wages, determines consumption of 93-96% of the workforce (assuming 3-7% unemployment; I adjust this too for those out of workforce). Hence, changes in real wages are more significant factor in driving consumption, than are changes in unemployment. If you consider both (i) YoY changes in Real Wages (= Nominal hourly wages x PCE deflator which is CPI), as well as (ii) YoY changes in employment, this gives you most of what is driving US real consumption. The third factor is consumer credit, discussed in the appendix. 4). The role of credit -- interestingly, when he charts real wage change against real consumption change (graph 10-10, p 134), it looks to me that real consumption change always stays above real wage change. I.e. in good times, it improves faster and reaches higher levels of change, than in bad times, when the lowest rate to which it falls is the rate of change of real wages. To me, this shows that structurally, the ratio of real consumption is rising relative to real wages, which reflects the role of credit in the US economy. Ellis comes to this conclusion too -- that credit amplifies the impact of real wage growth. Interestingly, he presents a simply numerical eg that shows persuasively that it is new borrowing (ie. change in debt) that adds to consumer purchasing power, and thus it is the rate of change of new borrowing -- ie, the second derivative of credit levels -- that an analyst should track. He also says that borrowing increases strongly when employment growth is strongest and consumers are confident on outlook to take on more debt => this means though that credit growth is a coincident to lagging indicator, not a leading one. But he doesn't discuss -- and no fault of his, since he couldn't have foreseen the GFC in 2009 -- structural changes in the level of credit; e.g. qns like when the interest cost burden of debt cripples an economy, or what happens in a structural deleveraging cycle. (To his credit, he does not in his final chapters that US discount rate, prime rate, and 10 yr bond yields were, in 2004, at historic lows, and cautions investors to watch for higher yields and a structural bear market.) Possibly, this omission could throw off his conclusions -- real wage changes would still lead real consumption, but what changes is that the contribution of credit is negative, rather than positive, and while real consumption still follows the cycle, on a through the cycle basis it trends downward, rather than upward. 5). Interest rates -- also a good lead indicator, from his charts. But he argues that only about 7% of consumption in the US is tied to interest rates -- big consumer durables, home furnishings, jewelry and the like. However, he says, it is because interest rates are driven by, and lag slightly, inflation, which does affect real wages. He also notes that interest rates drive expected returns on different asset classes, but the book is less concerned about strategic asset allocation and he doesn't delve into this.

  3. 4 out of 5

    Ridzwan

    Joseph H. Ellis has over two decades of dabbling in the stock market. Over the years, he argues that analysts have been fundamentally flawed in forecasting the next booms and busts in the economy. Reading over the number in quarters instead of annuals have resulted in noise that disallows you from seeing the macro picture, according to him. In Ahead of the Curve, author Ellis proposes an alternative way to look at market cycles and how you can apply them to your business and investments. The read Joseph H. Ellis has over two decades of dabbling in the stock market. Over the years, he argues that analysts have been fundamentally flawed in forecasting the next booms and busts in the economy. Reading over the number in quarters instead of annuals have resulted in noise that disallows you from seeing the macro picture, according to him. In Ahead of the Curve, author Ellis proposes an alternative way to look at market cycles and how you can apply them to your business and investments. The reader will be briefed on leading and lagging indicators such as inflation rate, unemployment rate, GDP growth - and how these numbers can be harbingers of either good or bad news. But be warned though, the work is graphic intensive and it would be a good idea that you have basic knowledge in investing before you pick up this 276-page hard cover.

  4. 4 out of 5

    Vito

    If you want to know how to properly use the economic data we all get for free to help in making strategic decisions for your investments, company, or clients, this book will take you step by step through the process conceived and built by one of Goldman Sachs' most respected industry analysts. Please use the information in this book to help yourself make sense of the business cycles in your industry. I highly recommend it to valuation experts, economists, marketing researchers, corporate strateg If you want to know how to properly use the economic data we all get for free to help in making strategic decisions for your investments, company, or clients, this book will take you step by step through the process conceived and built by one of Goldman Sachs' most respected industry analysts. Please use the information in this book to help yourself make sense of the business cycles in your industry. I highly recommend it to valuation experts, economists, marketing researchers, corporate strategists and students.

  5. 5 out of 5

    Dave Maddock

    80% of US GDP is consumer driven. Ellis details his method of forecasting with a focus on the consumption side of the equation. He makes his case with helpful, full-page 40-year charts of macroeconomic data.

  6. 5 out of 5

    Mahuang59

    This is an very insightful reading with regards to market forecast techniques. It really break's down the market cycle from an macro view that anyone can understand. I am glad that I read this book in early 2007! This is an very insightful reading with regards to market forecast techniques. It really break's down the market cycle from an macro view that anyone can understand. I am glad that I read this book in early 2007!

  7. 5 out of 5

    Jon

    Again, another HBP book that is very easy to get into and understand on the Market conditions and cycles from a Macroeconomic view for any level of understanding. Great book to make sense of the complex area of business and market forecasting.

  8. 4 out of 5

    Ming

    Very cool book on economic forecasting, specifically the important factors to watch for

  9. 4 out of 5

    Aubrey

    This book is pretty dense, I would only recommend it to those who are serious about studying the economy and markets.

  10. 4 out of 5

    Jeff

    Good book on economic indicators from the prospective of an ex-Stock Analyst. Conclusion of the book is that Real Consumer spending is the backbone of the economic cycle.

  11. 4 out of 5

    Paul Tennant

    an absolutely fabulous and easy read. it goes in to why consumer spending is 2/3 of gdp. and the cycles of the retail industry. youll love this read, and learn a thing or two along the way.

  12. 5 out of 5

    Mephisto

    Superb

  13. 4 out of 5

    Khang

  14. 4 out of 5

    Qiswrk Harle

  15. 4 out of 5

    Russ

  16. 4 out of 5

    Peter Carew

  17. 5 out of 5

    Rajesh Iyer

  18. 5 out of 5

    Wes Henderson

  19. 5 out of 5

    Humbleopinion

  20. 4 out of 5

    Kyle Brouwer

  21. 4 out of 5

    Fidel

  22. 4 out of 5

    Mike S

  23. 5 out of 5

    Tobias

  24. 4 out of 5

    Robert Farr

  25. 4 out of 5

    Gregory E Reichardt

  26. 4 out of 5

    Michael

  27. 5 out of 5

    Erik Semrud

  28. 5 out of 5

    Jake Jang

  29. 4 out of 5

    Carson

  30. 4 out of 5

    Guru Prasad

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