Booms & Busts
Q
What is a reliable indicator a market will bust?
A
The rising costs of borrowing for less worthy borrowers for a particular industry. The indicator for the economy as a whole can be seen from the shape of the yield curve. If shorter maturity interest rates are higher than long maturity interest rates (inversion), it indicates a slowdown. The yield curve inverts because the best borrowers are still able to borrow long term, while less creditworthy borrowers are forced to borrow short term.
Q
How can an investor size up a region with monetary analysis and estimate it's likelihood of growth or contraction?
A
By comparing the relative performance of different regions to the region in question and the level of interest rates. If other regions continue to grow, pulling up interest rates, but a regional index shows declining profitability, it is likely that region is under more stress than the surrounding areas and will do poorly.