Simon Constable: Economic Indicators That Really Matter

Simon Constable joins Coach Pete to discuss The Wall Street Journal Guide to the 50 Economic Indicators That Really Matter. This August 2012 interview explores how to make economic information more understandable and useful. Call 800-661-7383 or text PLAN to 600-700. Transcript Automatically transcribed from this episode; timestamps are approximate. 00:00 In this FinancialSafari.com interview from August 2012, Coach Pete interviews Simon Constable, writer for The Wall Street Journal. Today we have a very special guest. His name is Simon Constable. He works for The Wall Street Journal. You've seen him on TV, I'm sure. His book that's out is called The Guide to the 50 Economic Indicators That Really Matter. Simon, welcome in. Thanks for having me. Now let's talk about this book. This is a fascinating book. I've spent a lot of time looking through it. There's a lot of great points here. What caused you to write this book and how did you identify the 50 economic indicators that really matter? What caused me to write this is that I actually have a deep love for economics and I remember 00:46 the economics books that I read at college and at high school were kind of mind-numbingly boring and I wanted to present stuff in a way that made a lot of sense to people who hadn't really studied economics and had no interest in it, wanted to make it accessible. We also wanted to have it not be academic, wanted to be practical, sort of help people with their investments, you know, make it useful, something you could dip into, put in the bathroom, pick up for a few minutes and then put down and then go back and read another chapter. And how we got to the 50 that we picked was both me and my co-author Robert Wright, who's a financial historian. We already knew a lot about economic indicators, but we sent the list around to our friends in the business and 01:33 they seemed pretty happy with what we had and they helped tweak it a little bit and we just went from that. Now, have you ever seen the Seinfeld show? Yes, I have seen the Seinfeld show. When you said in the bathroom, I thought about that episode where George tried to take a book into the bathroom at the bookstore in downtown New York. Ah, that one. No, I haven't seen that one, but I can imagine where that goes. Somewhere rather bizarre. They made George buy that book once he took it to the bathroom. It was considered a used book then, but this is a book that would be a great information source for anybody out there. Let's talk about if you could identify maybe five of the top economic indicators that people should be paying attention to. Maybe they're not. Maybe they're not. I mean, that's important. I mean, one of the things we did here was to sort of plump this into various areas in the economy. So, we look at things like consumption. I think 02:19 durable goods orders are a very important one and that's stuff that companies buy like machinery. That's important because companies could stop buying tomorrow and never buy anything again. They don't have to invest. They're not like you and me. We have to buy clothing and food and that means that personal consumption, personal things we spend tends to not go up and down as much as it does with businesses. So, if you keep a close eye on business and what they're spending on their machinery and investment and plant and widget stamping machines, that's very important. I would take a look at that one. It's chapter eight in our book. I'd look at the Texas zombie bank ratio. It tells you if your bank is sort of among the living dead. And once it gets to be among the 03:06 living dead, it's time to bail out of that bank. It also gives you an idea about how bad the financial sector is. So, I think that's an important one too. Other stuff, the Baltic Dry Index, that's a shipping index. It's nothing dry about it because it's ships that go across the ocean, but it's dry in that it's dry freight. So, we're talking about iron ore, coal, and grains like wheat or rice. They're important. And then my favorite, the Vixen, which is the hot waitress syndicator. And that basically says to you that when the waitresses in your local diner are smoking hot, then the economy is in a really bad way. Not to be confused with one of Rudolph's buddies. Nice. Nice. I like that. 03:52 Now, these are all fascinating ones. And I know my dad's a college professor and several years ago in his investment club, they talked about the dry shipping indicator there. And dad started buying a stock. I think the symbol was D-R-Y-S and it was about a shipping company. Dry ships. Yeah. And I said, dad, be careful. And of course, dad's a PhD in physics and dad doesn't listen to his oldest son a lot of times. And he might've bought a little bit too much, a little bit too high. Anytime you find these indicators and you find a stock or two that fits this, you should dollar cost average in or out, shouldn't you? Absolutely. And you should also be very, very careful about learning what works and what doesn't. You should paper trade for at least six months. And that means write down the price at which you would buy. Literally write it down, but absolutely keep honest with yourself and then write down the 04:39 price at which you would sell. You'll find if you do that, you'll have in black and white what you made or would have made and what you would have lost. And that's important because you will make mistakes. Folks, we're talking to Simon Constable. He's author of the new book, Guide to the 50 Economic Indicators That Really Matter. He writes for the Wall Street Journal. You've seen him on TV, I'm sure. Where have you been on TV lately, Simon? Fox News, which is in our building here at News Corp, Midtown Manhattan. Do a bit with the BBC and some stuff with ABC and Nightly Business Report. The average investor, they see this list, 50 economic indicators, and they get intimidated because they don't know where to find some of these. Or maybe they're misled and they deal with somebody who manipulates them using one or two of the indicators and not the total story. 05:25 How can the average investor make sure they get the proper information? Where should they go before they, like you said, paper trading is good, making sure you're not putting your own money at risk. You're just basically playing with monopoly money until you feel confident. But how can someone get that confidence they need besides reading your book, which is a great starting point? We point to the way the data, where the data is, and the way you can find the data in every chapter of the book. And almost all of the chapters, the data that you can find is freely available. This isn't like, you know, most of it isn't subscription-based. So that's one thing to do is look at the places we point to in the book. Briefing.com has a great website on economic data, and they post the data there in an easy-to-understand way. And we have a little plan in the book for how 06:12 you should get to grips with this. And it's a little outline of what you can do and sort of how you get to grips with this, which is basically most of this data comes out first thing in the morning. So we say, read the chapter. When you know what's coming up on the calendar tomorrow morning, read the chapter in the book or the chapters the night before. That won't take you more than, say, 20 minutes total for like multiple chapters. And then maybe read some news reports, then look up the data in the morning the next morning, see how that compares with what you'd expected, and then do that for a few months. We're talking total time commitment, you know, each day of not very much. But it's the coming back to it multiple times again and again and again, you'll begin to see 06:58 things that you wouldn't have noticed before. So it's a matter of little and often. I love the subtitle, too. The subtitle of your book is From Big Macs to Zombie Banks, The Indicator Smart Investors Watch to Beat the Market. Now, I know you mentioned zombie banks a minute ago. For the average investor, what does a zombie bank mean? What does that mean? Is the money safe if you have it on deposit there? Or what should people do to research their own bank? To research your own bank, you can look up the data sources that we have in this book. The government will provide the data on whether your bank is basically going to become insolvent or not. There was a guy called Gerard Cassidy, who worked for a brokerage firm in the 1980s in Texas. And he noticed during basically the debanking failure there, that when the zombie bank ratio 07:48 becomes more than one, that the banks tended to go bust. I talked to him again, and he's still working at the same bank. And he says, you know, you can look this data up at the Federal Deposit Insurance Corporation and work out whether your bank is dead. Now, the good news is, if you have less than $250,000 with a bank, the Federal Deposit Insurance Corporation will cover that money, and you'll get your money back. If you've got more than that, well done. And I salute you, but you might want to be putting your money in multiple places. Your chapter 24 talks about the Beige Book, and that's not to be confused with the little black book that many people carry around phone numbers in, is it? No. The Beige Book is a book of... Most of these indicators are basically a series of numbers 08:34 that you can interpret. The Beige Book is a book of anecdotes from the Federal Reserve, and its business people across the U.S. in the different regions of the Fed. And it basically gives you anecdotes about what's going on in the economy in each of those different regions. So, there's the West, and there's the upper Midwest, and, you know, the East Coast, and the, you know, upper East Coast. And you can look through all of those and really get an idea. So, November 2006, there's a great quote we have in the book here. So, credit quality was high in general with few delinquencies. However, contacts provided scattered reports of delinquencies on loans to home builders. Well, that was just before the credit crisis broke. So, you were already seeing it in the anecdotes that things weren't going so well or starting to deteriorate. So, you can learn a lot just from 09:21 reading those anecdotes. It's a government publication, so it tends to be a bit dry. But if you, you know, if you can wade through it, it might be valuable to you. I look at your book like when you go to the beach and you're wading around. And when I was little, I used to do this all the time as I got older and realized how many things could go wrong when you're in the water. I don't go in the water as much. But you'd look out into the ocean, and you'd see the waves developing. And if you timed it right, you could get on that wave and ride it right into shore. Remember those days? Oh, yes. And that's the idea with this, is that when you've really been studying it, studying something, you begin to be able to anticipate what's going to happen. So, it's pretty clear right now that we are seeing the economy slow down. It looks more than likely, in my view, that we will be going into a recession, whether it's a deep recession or not. It's difficult to tell at this stage, but it clearly 10:11 looks like things are looking rougher than they were even a few months ago here in the U.S., really quite bad in Europe. And they're really cooling off in China. And we're looking at the three massive trading blocs there. The European Union, China, and the U.S. really dominate the global GDP. So, you look at that, we're looking at really harsh times. What I would say to everyone who's got a job is hold on to it for the time being. If you're going to jump to a new position, do so and make sure that the company you're going to is secure. Fascinating. And folks, Simon Costable has joined us from New York City. He's the author of Guide to the 50 Economic Indicators That Really Matter. Simon, look forward to having you on again in the future. My pleasure. I would love that. Thank you very much. Thank you so much for listening to this interview on the Financial Safari. Remember, folks, 10:56 if you have any questions about this interview or your financial situation, you can email the team from the Financial Safari at comments at financialsafari.com. See omnystudio.com/listener for privacy information.