I’ve been looking into the Top-Down approach to evaluating securities. One of the first things to analyze is what you think the state of the economy will be in the next few years. But how would one go about starting this analysis? What are some good resources to look up that will help figure out that sort of thing?
It’s hard to know where to begin and what to look out for. So any help would definitely be appreciated.
To anticipate the state of the economy in the near future, I suggest you work out different scenarios based on sound economic theory and then choose the one you judge to be most likely.
The general theoretical principle is that movements toward stronger protection of private property, freedom of trade, free enterprise, sound money, etc. will result in higher and faster rising standard of living and movements away from these elements will lead to lower and slower rising or even falling standards of living.
To assess which direction our economy will be moving in over the next few years, one has to keep up with politics. What will be the impact of Dodd-Frank, Obamacare, and other regulations, what new regulations are pending, what will be the course of monetary policy and the likelihood of monetary reform, what will happen to government budgets (taxing and spending) and debt.
This is a daunting task, so I suggest you rely on the work of sound economists. Keep up with articles on mises.org and other outlets that publish their work. For an example of how this analysis has been done to explain economic history, take a look at Murray Rothbard’s book, America’s Great Depression.