Interest Rate, Inflation & Unemployment
Together, inflation, interest rate and unemployment form the most important indicators of country weakness.
Interest Rates embody forward and historical information on the economy. On one hand it is the result of government intervention to stem rising inflation and can be used as a tool to stimulate economic activity. Yet, interest rates can also indicate forward expectations on future prospects via the yield curve. Houghton Street Partners uses interest rate as part of our integral macroeconomic framework to form directional views on foreign exchange, real economic activity, inflation and credit. Forward-looking rates are also important in pricing leverage and compliment our debt financing capabilities over the investment period.
Houghton Street Partners uses inflation as one of the key inputs in our macroeconomic model as an indication of country weakness. We build on traditional inflation analysis that uses inflation to measure economic cycles as one of the key measures of country weakness. Our view on inflation helps us develop pricing strategies when we invest in businesses to mitigate the risks of sticky prices in times of rising input costs. Inflation forecasts help us to preempt increases in cost and CAPEX requirements pre-investment.
The unemployment rate allows us to identify countries at different points of their economic cycle and whether they are overheating or at the beginning of their recovery phase. The unemployment rate compliments the P.E.M.A. analysis we use to identify valuation cycles in each country.
Correlation, Rating & Strength