CASE 8

MARQUETTE INVESTMENT MANAGEMENT (MARKET ANALYSIS)

GROUP 5
ANGGA PRASETYA (29118161)
BIMLY AKBAR SHAFARA (29118226)
SEGHA RELANGGA K. (29118210)
SEKAR AYU SAVITRI (29118190)

1. Given the current economic environment, discuss some of the difficulties and risk that an
economic forecaster encounters.

1980-1990 Condition

The nation endured a deep recession throughout 1982. Business bankruptcies rose 50 percent
over the previous year. Farmers were especially hard hit, as agricultural exports declined, crop
prices fell and interest rates rose.But the recession, combined with falling oil prices and the
Federal Reserve's tight control of money and credit, helped to curb runaway inflation. By 1983,
the economy had rebounded and the United States entered into one of the longest periods of
sustained economic growth since World War II. The annual inflation rate remained under 5
percent from 1983 through 1987.

Based on the Marquette’s consultant on the case:

 Vickers : Market flat, high prime rate with loss of purchasing power and slow productivity.
goverment bond rate drop to 8.25% to 9%.
 Adams : Sales of automobile drop, truck selling decreased.
  Dalton : Housing project decline, property sales weaken, property more interesting than
stock as long term investment.

Economic forecasting is often described as a flawed science. Many suspected that economists
who work for the White House are forced to toe the line, producing unrealistic scenarios in an
attempt to justify legislation.

The challenges and subjective human behavioral aspects of economic forecasting are not limited
to the government. Private-sector economists, academics, and even the Federal Reserve Board
(FSB) have issued economic forecasts that were wildly off the mark. Ask Alan Greenspan, Ben
Bernanke or a highly compensated Wall Street or ivory tower economist what GDP forecasts they
produced in 2006 for 2007-2009—the period of the Great Recession.

Economic forecasters have a history of neglecting to foresee crises. According to Prakash

Loungani, assistant director and senior personnel and budget manager at the International
Monetary Fund (IMF), economists failed to predict 148 of the past 150 recessions. Based on
Loungani said this inability to spot imminent downturns is reflective of the pressures on
forecasters to play it safe. Many, he added, prefer not to stray away from the consensus, mindful
that bold projections could damage their reputation and potentially lead them to lose their jobs.

At the current global economic condition, there is so much uncertainty in the current
environment. Global economic growth is slowing down with a recession looks increasingly likely.

US: Signs of recession in government bond markets

 Source: Federal Reserve of St. Lous; Federal Statistical Office of Germany; UK Statistics
Authority; Eurostat; National Bureau of Statistics of China.

EU : Europe’s economic engine are slowing

Source: Federal Reserve of St. Lous; Federal Statistical Office of Germany; UK Statistics
Authority; Eurostat; National Bureau of Statistics of China.
 Weakness in China

The China-US trade war and other geopolitical risk are

intensifying.

The trade war has escalated with a fresh round of tariff

hikes by China and the US, and President Trump ordering
US companies out of China.

Tariffs could increase further as US trade law allows

tariffs to go up to 50%. President Trump “regrets not
raising tariffs on China higher”

The trade war is spreading beyond trade - restriction on tech-related investments

(Huawei) could be broadened, and restricions on Chinese access to the US financial
sector are possible.

Trade wars could become currency wars - Yuan Broke sensitive 7/USD1 level.

Flashpoints everywhere

Brexit, 2020 election is US, Japan-Korea trade tensions, Hong Kong protests, Iran
sanction and shadow war with Israel, Argentina debt restructuring, Kashmir crisis.

These current conditions will make it more difficult and create more risk that an
economic forecaster will encounter.

2. How can economic forecasts be used to develop an investment strategy?

Economic forecasting is the process of attempting to predict the future condition of the
economy using a combination of important and widely followed indicators. Economic
forecasting involves the building of statistical models with inputs of several key variables,
or indicators, typically in an attempt to come up with a future gross domestic product
(GDP) growth rate. Primary economic indicators include inflation, interest rates, industrial
 production, consumer confidence, worker productivity, retail sales, and unemployment
rates.

Economic forecasts are geared toward predicting quarterly or annual GDP growth rates,
the top-level macro number upon which many businesses and governments base their
decisions with respect to investments, hiring, spending, and other important policies that
impact aggregate economic activity.

With more data or information, economic forecast may help a company or individual
investor to construct their planning strategy. Regarding analysis what kind of sector, what
kind of condition in the aggregate economic activities will maximize value to their
investment strategy.

3. Based on the economic forecasts presented by the Marquette Investment Management

staff, how would you have assessed the prospects for any five of the following industries
in 1988

A. Hotel and Motel Chains are prospect in the future because property price are
increase because mortages low and that helps investors gain profits from property
investment

B. Integrated Oil Producers are current at stability price because the stock market
crash are no effect on oil price and producers so this is a low risk investment for
the long term

C. Fast Food Restaurants are not currently negative effect because they are operate
chains (franchise) that has zero effect since stock market crash only effects on
household and consumers products, and also domestics producers for raw
materials

D. Home Appliance Manufactures are mostly effect since stock market crash has a
large impacts and negative effect on household industry in USA during the events
 because industrial manufactures did not anticipate the low of consumer spending
during the event.

E. Forest Products and Lumber also has major impacts from stock market crash
because mostly domestic production for raw materials are mostly large negative
effect because consumer spending are low during the time.

4. In retrospect, how well did the Marquette Investment Management staff forecast the
1988 economy?

Staff have explained the main indicators in the forecast for the economy, there are
inflation and GDP. The staff estimates yields on long-term bonds will move up, even
though the prime rate is expected to decline to decline. They also predicted the mortgage
rates will go below 10 percent in 1988. Because the economy will not be moving
significantly upward an could edge into a recession with only minor further sluggishness
in exports or consumer spending, no dramatic gains in stock price are anticipated. The
chance of avoiding recession are two out of three.

In fact, there is early recession 1990s. After the lengthy peacetime expansion of the
1980s, inflation began to increase and the Federal Reserve responded by raising interest
rates from 1986 to 1989. This weakened but did not stop growth, but some combination
of the subsequent 1990 oil price shock, the debt accumulation of the 1980s, and growing
consumer pessimism combined with the weakened economy to produce a brief
recession. So overall it is good enough for Marquette Investment Management staff

5. Do you think that the various regions of the United States are affected differently by
economic factors? Explain
Economic Factors are the factors that affect the economy and includes Tax Rate, Exchange
Rate, Inflation, LaborDemand/ Supply, Wages, Law and policies, Governmental Activity,
and Recession.These factors are not in direct relation with the business but it influences
the investment value in the future.

Yes, the various regions of the united states are affected differently by economic factors.
Because some economic factors such as labor, minimum wage, unemployment rate and
GDP in each states have a different numbers. This isa map of US states by nominal GDP
per capita in United States 2017:

According to the 2017 data, USA's Highest GDP in the capital city, Washington DC