This is not remotely true with respect to macroeconomics. It's absolutely routine that you can find even two orthodox economists (or hedge fund managers, or other practical folks if you prefer) who look at the same situation and predict incompatible outcomes. You don't even need to go down the various heterodox rabbit holes; people ostensibly operating from the same theory routinely make opposed predictions.
It's still worth learning some of the vocabulary, because it is useful for understanding what people are talking about. Of course learning is also gratifying for its own sake, and don't let anyone dissuade you if that's what you're up to. Still, I don't think it makes sense to learn macroeconomics on an expert level for a practical purpose. I don't think it's possible to define what an "expert level" even is.
Your central premise is flawed -- in particular
> Last 3 years has shown that to be a good investor you need to know macroeconomics
This is not true. It is true that 'macro' events (central bank actions, supply/demand shocks, wars, pandemics) affect prices, but it's not true that you need to be a macroeconomic expert to be a good investor:
1. Any understanding of macro you get from reading in your spare time is unlikely to be good enough to use as the basis for an investment strategy (although you may think it is -- but this will just lead to you making bad, or at best random, market timing decisions)
2. Even if you could become an expert, there isn't a clear mapping from macroeconomic outcomes to asset prices. So you not only need to be right about the macro picture, you need to be right about the effect it will have on asset prices (including the second- and third-order effects, e.g. central bank and other investor reactions to the macro outcomes)
3. Even if you do become a macro expert, and you have the correct mapping from macro outcomes to asset prices, it's not enough. You don't only need to be right about the macro outcomes, you need to be more right than the market. The market is made up of a huge number of diverse actors, many of whom have access to vast resources and spent literally all of their waking time trying to use macro data to predict asset prices. Are you better than them?
4. Even if the above can all be overcome -- is this really the highest return use of your time (compared to e.g. getting better at your day job and increasing your income, or starting a company in your area of expertise and getting rich that way)
That all sounds daunting, but fortunately there's a solution! Simply buy a diversified set of investments in a tax-efficient wrapper for a total cost of < 10 basis points annually, and add capital to the pot regularly, and you will get great investment results over any 25-30 year time horizon, with essentially zero effort.
You've got the global scale, where nations compete, best described by Beau of the Fifth Column as a game of poker where everyone cheats to gain power.
You've got the corporate scale, where the boards of directors are political and overlap across most of the Fortune 500. Legally they are supposed to act in the Fiduciary interest of investors, but that is a polite fiction.
You've got the competing oligarchs, both foreign and domestic, engaged in their own egocentric excesses.
You've got the financial sector, which has distorted the price of money so hard that it effectively swallowed the economy, that the price signal is as effective as light trying to exit a black hole.
Not to mention the high frequency trading shenanigan's, where front running the market is accepted practice, bots with some huge bugs are given control over billions of dollars.
Oh, and the derivatives market, in which any corporation might have off the books obligations that exceed the annual sum of the world economy.
Economics is truly the dismal science.
PS: I fear I've been too optimistic in my outlook. ;-)
I think it's great for people to learn about macro but I don't think you're going to get what you are looking for out of this with regards to investing- economists are generally good at studying and trying to explain why things happened in the past. Like any other group of people, they're not very good at predicting the future, and certainly not the stock market.
Among the most amusing wrong predictions to me is a theory that was gaining steam in 2006 was that there hadn't been a recession in a while, since the dot-com bubble, maybe because newer companies would do all their design and research for themselves but outsource the manufacturing, so could withstand decreases in demand. And as a result, maybe there just wouldn't be any more significant recessions in the US.
That said, Romer's Advanced Macroeconomics, Acemoğlu's Intro to Modern Economic Growth and Ljungqvist and Sargent's Recursive Macro Theory are good books.
But if you want to be a good investor, just put your money into index funds. You'll easily outperform a large majority.
edit: in addition, the topics you're looking for are only very loosely related to macro. You're looking more into monetary policy, asset pricing and financial economics. Don't take the advice of people who bundle them all together.
Having an interest in these topics myself, I find that they are less about macroeconomics as a whole, which, in the mainstream formulation, is about national income accounting, aggregate demand, general equilibrium, production functions, the business cycle, etc., and are more about the microeconomics of particular markets e.g. the market for money, the market for bonds. I'd have a solid grasp of microeconomics, and then learn national income accounting (`C + I + G + X - M = Y` i.e. the sum of consumption, investment & government spending, less imports equals the national income (GDP/GNP), as well as the capital accounts identities), some ideas about the business cycle and maybe a bit about aggregate demand. Then I'd dive into something purely about money and banking. You'll have the tools you need to think about how markets work, and ideas like the efficient market hypothesis should make sense (within the frame of the model).
I learned this stuff in school, so it's hard for me to give great concrete advice beyond topics, but I've heard good things about Sowell's "Basic Economics," Malkiel's "A Random Walk down Wall Street," and then a personal favorite of mine Vernon Smith's "Rationality in Economics." The latter is truly insightful, but might be difficult if you don't have some of the ground matter (e.g. "what are supply and demand?" "What is a firm?") covered first.
None of this has anything to do with being good at investing on a personal level. Like nothing, in fact I would argue that it’s probably harmful and in my experience causes people to overthink things.
Economics as a profession has a fucking terrible track record of predicting financial markets or broad macroeconomic trends. At this point I’m not sure it’s even clear what economics is for but I can say with confidence that it’s definitely not the place to start if you want to get better at investing.
0. Don't try to make your money investing, learn a skill and develop it to get paid.
1. Find an undervalued company. Calculate the value of a company using DCF and be conservative. Try to buy at a high discount rate-- a dollar for $0.50
2. Just dollar cost average into your value picks and index funds. Don't try to time the market ever. All of your holdings should have a large enough time horizon that a 3-year bear market is a blip on your radar.
I think anything regarding an understanding of macro econ is going to be speculative, i.e. not actually based on the intrinsic value of a security, but trying to chase inflows and outflows of capital, which is the opposite of investing.
I am a baby in the world of money but the two books that I thought were amazing at de-mistifying investing were the Intelligent Investor and the Little Book of Valuation. Also Martin Shkreli's series of livestream videos on valuation are very entertaining and free on Youtube.
https://www.amazon.com/Macroeconomics-N-Gregory-Mankiw-ebook...
I've used Khan Academy to quickly get up to speed on totally unfamiliar topics. Seems they have a Macroeconomics course, probably a good place to start: https://www.khanacademy.org/economics-finance-domain/macroec...
Beyond that Investopedia is a fantastic resource for looking up the meaning behind financial terms.
Best book I've read on investing is A Random Walk Down Wall Street by Malkiel - if you're prepared to dive into Investopedia to explain the new concepts you'll inevitably encounter in books of this type you'll learn a lot: https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
[1] https://www.youtube.com/watch?v=KNEouYM5wRE&list=PLSuwqsAnJM...
He's got quite a few (albeit politically tinted) interviews with the Hoover Foundation on Youtube.
> predicting/understanding what feds
This is the most unpredictable element since their goals seem to shift with politics and have little to do with economics. They've allowed asset prices to get pumped up for a long time and it's still not clear whether they have the guts to actually increase rates to stop inflation (or if they even should...).
> markets
Everything is supply/demand. Asset prices are all about supply/demand for the ASSET itself, fundamentals don't matter in the short run.
> rates
Are more or less set by the Fed. Which is somewhat directed by politics.
(Bonus tip: buy an international edition on eBay. It's the same content.)
Modern macroeconomics is an extremely controversial field to say the least and if you start from top (the propaganda-like crazy statements that both sides make), the result would be that none of the viewpoints would ever make any sense to you :)
Every desk I ever sat on talked about macro, but none of them ever made any money from it. Equity options, fixed income (the home of macro traders), trend following, HFT, and so on. Everybody throws around macro vocab, nobody has anything resembling an idea of how it affects markets. Or rather, nobody has a convincing framework for how things connect. Bonds, STIRs, Fed Funds rates, inflation, growth, unemployment, all that, all you ever seem to get is individual stories that sound good but that don't fit into any kind of explanation of how the economy works.
I did a degree in economics too, and unsurprisingly that also did not bring everything together. Contrast that with eg thermodynamics where over time all the stuff makes sense, and it even connects with information theory.
Even if you did have a coherent macro story, you would struggle to answer the most important question: What is priced in? This is mostly a question about local dynamics rather than macro. Why are used cars expensive? What about chips? What about bonds and currencies and so on? All things that you can learn about, just not in a macro book.
There might be some useful insight you can gain by going through the motions of studying it but -- the value to learning it by the people who practice isn't accuracy.
(source, ivy-league econ degree holder here)
Macroeconomics can still help you tremendously, but it is only a small piece of the puzzle. For long term success, I would recommend that you pick an industry and study that industry to its core. Become an expert in energy markets, or financial markets, or travel/transportation...etc.
Economic policy and climate will affect different companies in different ways, and its an enormous task to understand how economic variables affect all industries.
You have to think, even the Fed doesn't know what their policies will bring. They deal in possibilities and probabilities, and move very slow to not break everything.
What are you planning on doing with this? Investing?
You've got an opportunity cost here. You can either spend a lot of your surplus effort on learning macroëconomics in the hopes that it'll enable you to spend a lot of time in the future making investment decisions that might let you time the market a little better. Alternatively, you could just put your money in index funds and spend that effort on improving your standing in your current profession so as to make more money which you could then invest in those index funds.
Which one is going to give you the biggest return by the time you're old and ready to retire? What kind of life do you want to lead?
For more on macro models, from a central bank perspective, Smets-Wouters and FRB/US are two workhorses. Ljungqvist and Sargent will enable you to read academic journal articles
[1] https://press.princeton.edu/books/hardcover/9780691164786/mo...
https://www.piie.com/blogs/realtime-economic-issues-watch/ne...
https://mainlymacro.blogspot.com/2013/12/microfoundations-il...
the models people use to explain/illustrate are more toy models, micro-founded DSGE models, for forecasting typically people tend to use empirical models.
One approach would be to do a college intro to macro textbook or MOOC and then possibly a course on forecasting, like https://www.edx.org/course/macroeconometric-forecasting-2
there isn't much of a consensus on what 'properly' means but IMHO a good start is just understanding the IS/LM analysis and what the curves look like under assumptions from classical models, keynesian, and keynesian-classical synthesis (basically says more keynes in short run and more classical in long run), phillips curve, lucas critique.
then some monetary economics (old school macro tends to ignore financial sector), international trade, open economy macro.
with maybe a time series forecasting book/course thrown in
complementarity is king https://scholar.harvard.edu/files/laibson/files/seven_proper...
doing macro as an investor is a little bit like doing weather forecasting as a sailor ... it's important to understand the kinds of conditions you might be sailing in but probably a bit futile and pointless to do a very deep dive into the math of it.
my question would be what is the best book or course for time series analysis?
If it helps you at all, I just published a new post on rising interest rates, what effects they might have and how you might cope better with them: https://ericvanular.com/rising-interest-rates
1) Risk Parity: How to Invest for All Market Environments
2) Balanced Asset Allocation: How to Profit in Any Economic Climate
1) Professors who compete for prestige and make fun sounding theories like MMT and tend to have very little skin in the game if their theories create value.
2) Portfolio managers who stand to make or lose enormous sums of money if they can make detailed and accurate predictions based off of macroeconomic analysis.
I'd rather spend my time listening to group 2. If you want to listen to what people like that are thinking about markets in real time, there are plenty of youtube channels and podcasts where you can do that:
Recently my favorite is blockworks Macro (diverged off a crypto channel but this is their non crypto macro content) https://www.youtube.com/channel/UCkrwgzhIBKccuDsi_SvZtnQ
If you want to understand what some of the lingo and concepts mean, NPRs whiteboard series is where I send most people
https://www.youtube.com/watch?v=qF11rk1M_Rw&list=PLA33D9F40D...
Source: I have a degree in economics and trade my own money.
If you wouldn't mind letting me know when you figure this out, let us all know. :)
In all seriousness, I think learning complexity science is a good step to learning macroeconomics.
Economics is one of the most important disciplines to understand even at a base level. So much of the world and human behavior can be explained in terms of supply and demand.
PDF: http://leeconomics.com/Literature/Henry%20Hazlitt%20Economic...
The best thing you can do is be open to hearing all opinion/theories. Some people will contradict others, but over time you figure out who is right and who is not.
In addition, I also watch a few indices in my stock app for a high level overview. These are the treasury yields, corporate credit spreads, dollar index, s&p 500, nasdaq, etc. I used to follow much more, but it's not needed for higher level macro.
Predicting what the Fed is going to do is relatively easy. Look at the US debt. It's trivial to know what the Fed can and can't do accordingly. They're bound tightly. Beyond that, who cares if the Fed hikes rates by a quarter point. These things are meaningless if you're a serious long-term investor. If you're a flipper, a short-term trader, sure then it matters, because you're looking to trade on waves of short-term sentiment.
The Fed can: talk a lot about how they plan to raise rates, to try to talk asset bubbles down or otherwise restrain them. They use this bullshit talking approach a lot. They start jabbering about how they plan to raise rates far ahead of when they actually do it. They leaned on that con heavily after the great recession and stretched it a long ways, and they're still relying on it. That's because they can talk a lot and can't take a lot of actual action. Somehow the morons on Wall Street still haven't figured this out, that clown show still thinks the Fed can hike rates consequentially.
The Fed can't: actually raise rates by very much, because it'll crash the economy, smash the big asset classes, and make the giant pile of US debt more expensive (which the US Government can't afford to do).
Inevitably by the time the Fed gets around to a modest actual hiking program, we're in or near another recession, and like magic rates go back to zero, they get their excuse to reverse course (something always happens eventually, something they can point to to stop the hiking process).
The Fed and rates are one of the easiest parts of the equation. You can know generally what they're going to do over the next few decades, because you know their constraints. And you can know what the outcome of their behavior will be (Japanification + more asset bubble cycles).
Yeah, but what about inflation? Increasingly huge mountains of debt (which, up to a point, act as a potent heat sink for robbing economic expansion and inflationary pressure) plus mediocre US and global growth will drain that problem given a relatively short amount of time. The US is facing Japanification, not persistent 1970s style traditional consumer inflation. We'll be back to hearing about how the Fed would like to spark higher levels of inflation (ie they'd like to debase more of the US debt away faster).
For the current 2022 problems let's zoom in on what happened over the last three years. In 2020 there was a collapse in the US economy from covid. The fed jumped in and saved the day by expanding their balance sheet and dumping billions per day into the American economy.
With QE the fed sets the federal interest rate to 0% and increases the money circulating in the economy. The fed buys up long-term securities from banks with zero interest and pays those banks tasty capital in exchange. Most of that new money gets lent out from the bank to consumers and businesses but ~10% is retained for capital reserves (in case the loan goes bad).
A side effect of QE is that it can heat up the economy a little too much which causes inflation. The reason behind inflation is that more money is being created so the value of the currency weakens. In theory the fed would time the QE just right so it could help correct a market crash but end it before inflation gets too bad.
When things got hot in 2020, they got super hot! There was the covid stimulus and a bunch of complex things that caused that. The fed kept QE in place to help boost business and lower unemployment. They had certain goals in mind for what "good enough" looked like and wanted to keep QE until we got there.
Another potential danger of QE is that it can create "easy money" for businesses since consumers are spending more and commercial loans are cheaper. In a perfect world businesses would use this increased revenue to improve their business fundamentals, like investing into R&D, improving employee wages, creating new products, etc. In reality, a lot of companies used the revenue for stock buybacks instead.
When a stock buyback happens it decreases the number of available shares and gives a payout to shareholders. The payout from the buyback usually comes in the form of an increase to the stock price or dividend. That's a sweet deal for anyone that happens to own the stock already. The decision for that comes from people at the top of the company who usually happen to own an outsized number of shares. Wahoo, party! When that stock buyback happens in a market that's already hot, stocks are more likely to become overvalued.
Another factor in stock destabilization was the speculation that took over during the strong market. Bull markets usually favor growth stocks because they can deliver higher returns than core and value stocks. Growth companies remove extra expenses like dividends to focus on reinvestment so they can keep growing. When things are going well their stock price can shoot up like a rocket.
That hotness tends to attract speculators that want to make money fast. They often buy shares of the stock without trying to understand what the intrinsic value might be. This can introduce volatility into the stock price as people buy and sell high amounts based on minor events or company rumors. Over time the speculation can cause a stock's price to diverge strongly from its intrinsic value. For example, when a certain car rental company triples in value in a single day because they came into contact with a popular electric car maker. Crazy sauce.
My best guess for why the market turned at the start of this year is that firms were moving back to more realistic valuations with the federal interest rate going back up in March. That interest rate hike causes the economy to cool down. With the speculation being high some firms may have been playing it safe. The US equities were highly overvalued though.[0]
This isn't guaranteed to be totally spot on but it's probably kind of close for the major issues.
The classic books by Benjamin Graham are a solid place to start for learning about stock investments. Bonds, commodities, derivatives, etc. are all different beasts that have their own complexities. Just learning about stocks and bonds might be a better foundation. If you really want to learn more after that then go wild.
A more advanced technique for analyzing stocks would be fundamental analysis which requires knowledge of corporate finance and accounting. At that point you might as well just become an analyst at a financial firm though...
btw this PBS Frontline documentary is pretty cool for explaining some of the recent QE problems https://www.pbs.org/wgbh/frontline/film/the-power-of-the-fed...
[0] Search for "(cape)" in this 2022 Vanguard outlook. They weren't alone in this overvaluation conclusion. https://corporate.vanguard.com/content/dam/corp/research/pdf...
I've always felt that macroeconomics is a subject that's best learned from a tutor. There are so many different concepts in macroeconomics that you need to get a good grasp on. Each of these concepts are equally as important as each other and there are so many of them that it's hard to learn everything on your own. You can read all the textbooks and see all the YouTube videos you want but there is nothing like having someone highly specialized teach you the material and help you apply it.
If you don't have the time or money for a tutor, try taking a macroeconomics course at a local community college. This option will be cheaper than hiring a private tutor but still provide you with the guidance and direction you need to learn macroeconomics properly.
Best of luck!
Economists focus on the economy and how it affects individuals, businesses, and society as a whole. Macroeconomists look at the big picture: GDP growth, unemployment, inflation, productivity growth, business cycles, and so on.
Macroeconomics is the study of how national economies work. It looks at things like gross domestic product (GDP), unemployment rates, and inflation rates.
It also tries to figure out why some countries have high or low economic growth rates compared to others.
The key question macroeconomists ask is: How can I learn macroeconomics properly?